We are often contacted by family members of people who have passed away wondering what to do with a reverse mortgage. The main conditions of a Reverse Mortgage, also called a Home Equity Conversion Mortgage, are that the person(s) must live on the property, they must pay the property taxes and insurance, they must pay any HOA/COA fees, and the property must be maintained. Since the person has died, it breaches one of the conditions since they no longer live on the property. Before getting into the Surplus Funds from the sale of a Reverse Mortgage property, I should mention what options a family member has with the property.
When someone dies owning property, it goes to the heir(s), either by involuntary transfer, by will, or by probate. This gives the heirs ownership rights in the property by way of a deed. But this is still subject to the mortgage that is on the property. Typically, when a family member dies and has a Reverse Mortgage there are a few things that the heir(s) can do with regards to the property. First, they can pay off the reverse mortgage or refinance the mortgage into their own name. Next, they can sell the property to pay off the mortgage and keep any equity left from the sale. Lastly, they can let the property go into foreclosure. If the property goes to a foreclosure sale and sells for less than what is owed, the heir is not liable for any shortfall because Reverse Mortgages are generally backed by the FHA and any shortfall will be paid by them. However, if the property sells for more than what is owed, the heirs will receive that remaining surplus.
What I want to focus on now is the potential Florida foreclosure surplus funds from the foreclosure sale. If you are an heir and don’t do anything at all, you may be entitled to some or all of the surplus (if any) from the foreclosure sale. A foreclosure sale from a reverse mortgage works very much the same way that any other foreclosure sale works. The regular foreclosure process happens through the courts and the property will be set for sale at the soonest it can be arranged. Once the property has been sold, the court will direct the lender to be paid off. If the property sells for less than what is owed, because this is a “non-recourse” loan, any shortfall will be paid by FHA and not by the heirs. The heirs can just walk away, and the lender gets paid. If the property sells for more than what is owed on the mortgage, then there will be a surplus. The Clerk of court will file a Certificate of Disbursements noting if there is a Surplus.
Once it has been determined that there is a surplus, then any heirs who have a claim can file for disbursement of those surplus funds. Florida Statute 45.033(2)(b) states in part, “An involuntary transfer or assignment may be as a result of inheritance.” This means that as an heir you can receive the surplus funds without filing a probate to determine that you are an heir. Although sometimes it may be necessary to file a probate if there is some contention among the heirs. Additionally, this is also subject to any subordinate lienholders that may have to paid before you can receive the surplus funds. According to Florida Statute 45.033(1), subordinate lienholders, just like in any other foreclosure case, must have timely filed their claim to the surplus funds or they are barred from making a claim.
If you had a relative that has passed away and had a reverse mortgage foreclosed on, you might have some surplus funds available to you. It is important to make sure you hire a qualified Florida Foreclosure Surplus Funds attorney who knows how every aspect of the system works, including with Surplus Funds from Reverse Mortgage Foreclosure Sales. Please give me a call for a free consultation. I handle Foreclosure Surplus Funds cases in every County the State of Florida, and I don’t get paid unless you do.