Probate and Reverse Mortgage?

Question

My mother's property was in her name only when she took out a reverse mortgage on her house. Now, she was advised to add her adult children's names on the deed, to avoid probate costs when she passes away.

How will she do this? Can this be done after she has reversed the mortgage? Please help.

Answer 1

No, the bank will not agree to this, they want their house and they want the title as agreed when they wrote the contract with her.    She already agreed to give the house to them.

Answer 2

A reverse mortgage is essentially a sale. When mom dies the house goes to the mortgage company.

Answer 3

The children may avoid probate costs but there are tax drawbacks to adding the children to the deed.  - I believe that the children would lose any "step up in basis" to which they might be entitled on the property if they become owners.  Please don't take my word for this, tho.  I am not a tax professional - the parties involved would certainly want to consider the tax implications of such a move.

Answer 4

No she can't do this without creating the problems. It would violate the terms of the reverse mortgage and depending on her situation it may have adverse tax consequences.  

But I want to add that the bank doesn't automatically get the house upon her death. A reverse mortgage is loan not a sale. The house is subject to a trust deed and the payment on the trust deed becomes due when she dies. So the loan must be paid when she dies. But the house may be sold or refinanced by the heirs if there is enough equity to pay off the debt accumulated under the reverse mortgage. Any money left over can go to her heirs.

So for example if she takes out a reverse mortgage and dies a few months later, the house can be sold and the debt can be paid off easily.

See the AARP and HUD web sites below.