September 5, 2014
A reader got in touch with us recently with a lengthy question about reverse mortgages. We won’t reprint the entire message, but here are the relevant parts:
“The Reverse Mortgage Company….(Lender name deleted) changed to (Lender name deleted) told us in Feb 2014 they would pay our property taxes for 2013 because we were struggling. As of today and 35 calls later they still have not paid them.Today for the first time I heard the words ‘redemption period’ She assured me we would be notified AGAIN as soon as they are paid and we can make arrangements to pay it back.”
“We are close to the end of the year and id not paid by Dec. we are in trouble with our local tax bureau. I don’t understand what is going on. Will (lender name deleted) pay our property taxes or are they lying to us and causing us to lose our home?”
It’s unclear whether the reader is referring to an FHA HECM loan or a non-FHA reverse mortgage loan. We can’t comment on non-FHA loans, but where FHA Home Equity Conversion Mortgages are concerned, one of the requirements a borrower agrees to at loan closing time is that all property taxes and other obligations will be maintained.
In other words, an FHA HECM loan can be declared “due in full” if a borrower fails to pay his or her property taxes. Failure to pay the taxes can result in the borrower being viewed as being in breach of contract, causing the loan to become “due in full” .
Some lenders may or may not require an escrow account to handle property taxes. However, paying the property taxes is ultimately the borrower’s responsibility whatever the arrangement–the loan is in the borrower’s name and it’s up to the borrower to insure the taxes are paid as per the loan agreement.
Federal law does NOT REQUIRE an escrow account for home loans–the lender is free to do so, however.
The problem with answering this reader question is that it’s unclear whether escrow was established for the property taxes in question, or whether property tax monies were collected at a given point by the lender. In any case, the borrower should make arrangements to pay the property tax by the required deadline and consult legal counsel to learn what options might be available or required in order to address the situation discussed above.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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