By Chuck Roulet, Attorney · Licensed in Florida and Minnesota
Short answer: The house still passes to the people named on the deed, but the reverse mortgage comes with it. The lender gets paid first. With most reverse mortgages, if the loan is more than the house is worth, the family won't owe the difference.
A Viewer's Question
One viewer told me her mother is 90, has a reverse mortgage, and owes more than the house is worth. She has a Lady Bird deed. What happens when Mom passes?
The Deed Doesn't Erase the Loan
A Lady Bird deed moves the house to your children when you pass away. It doesn't wipe out any loan against the house. When the owner dies, the reverse mortgage usually becomes due, and the lender gets paid before anyone else.
What the Family Can Do
With most reverse mortgages, the family has three basic choices:
- Sell the house and use the money to pay off the loan. Anything left over goes to the family.
- Hand the house back to the lender. If the loan is bigger than the house is worth, the family usually doesn't owe the difference.
- Keep the house by paying the lower of the loan balance or 95 percent of the home's appraised value.
Those rules apply to most reverse mortgages, which are federally insured "HECM" loans. A small number of reverse mortgages are private loans with their own terms. Check the loan papers or ask the lender which kind you have.
Call the Lender Early
After the owner passes, the lender will send notices with deadlines. Missing them can limit the family's options. My advice: call the lender early, before deadlines start running, and keep a written record of every call.
Watch the Video
I answer this question in my video "I Already Signed a Lady Bird Deed — Now What?" above.
Read the full article: I Already Signed a Lady Bird Deed — Now What?
If your parent has a reverse mortgage and a Lady Bird deed and you want to know where your family stands, schedule a consultation with our Venice, Florida office at 941-909-4644 or you can fill out the contact form on this page and a member of our team will reach out to you.
About the Author
Chuck Roulet is the founding attorney of Roulet Law Firm, P.A., with offices in Minnetonka, Minnesota and Venice, Florida. He has practiced estate planning and elder law for nearly 30 years and is one of very few attorneys licensed in both Minnesota and Florida. Chuck has trained more than 35,000 attorneys and financial professionals as a continuing education speaker and is the author of three books, including The Florida Snowbird Guide. Florida: 941-909-4644 · Minnesota: 763-420-5087 · rouletlaw.com
This page is general information, not legal advice. Reading it does not create an attorney-client relationship.
