My parents, now deceased, had a reverse mortgage on their Florida home. The total paid out exceeds the current value by at least $40,000. What are my brothers' and my financial obligations regarding the house? We do not want it and are in the process of allowing the bank to take it through foreclosure. — William M.
The bank's claim against your parents' estate is limited to the house, because reverse mortgages are considered non-recourse loans, says Keith Amburgey of Rutherford Asset Planning in Tampa, Fla. The bank should have no claim against you or your brothers unless you were originally part-owners of the home or co-signers on the loan. If not, you can allow the bank to foreclose upon the house.
"However, if you are part-owner of the home or the loan, be proactive in contacting the lender," says Connie Brezik, a financial adviser with Asset Strategies in Scottsdale, Ariz. Banks are inundated with foreclosed homes in the aftermath of the housing crisis, and they are unlikely to want to take on another property. You may be able to work out a deal where you end up paying little or nothing on the remainder of the mortgage, says Brezik. In the end, you may find that holding on to the home is an unexpectedly good investment.
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