Being forced to default on your reverse mortgage creates many severe problems. This article aims to educate you on the consequences of defaulting on a reverse mortgage.
Say Goodbye to Funding
The very first thing a borrower would notice after defaulting on a reverse mortgage is that they do not receive any funds from the contract. This can mean a line of credit being closed immediately, if that is where the borrower borrowed. If the borrower was being issued monthly payments from their arrangement, those monthly payments are immediately halted. Doing this allows the lender or bank to be protected from losing money while they wait for legal action.
The next step that will result from defaulting on a reverse mortgage, is that the lender will take legal action against the borrower. If the default is cleared by the court involved in the hearing, the borrower’s home will be sold in order to settle the debt incurred by the reverse mortgage. It is also possible that the borrower will have to cover all legal fees, as well as pay off their balance, depending on local laws. If there is anything left over after all expenses are taken care of, they will usually be paid out to the borrower.
Lower Credit Score
Failure to pay any debt within the time allotted by the lender such as Fairway Mortgage in Denver can result in a loss of credit. Companies that provide reverse mortgages generally report to three major credit institutions. These credit reports can be viewed by anyone that is a possible lender. Because of this, if the reports show an irresponsible history, it will affect the lender’s decision negatively. This can force the borrower to accept a bad interest rate, or even worse, not get the loan. Defaulting on a reverse mortgage will lead to a bad credit score for the rest of the borrower’s life.