When you take a reverse mortgage, or any mortgage, the loan is secured by the home. The lender will put a lien on your title for the amount of the loan. However, you retain ownership of your home and your name stays on title. Here’s some more information about how title and reverse mortgages work.
What Is a Title?
In short, a title is a legal document used to prove ownership of a property or asset. In the case of real estate, like a home, the title indicates who has a legal interest in the property. The title can be held in various ways, like sole ownership, joint tenancy with the right of survivorship, tenancy in common, tenancy in entirety, or trust. The way the title is held impacts what happens to the property in the case of a divorce, death, or sale of the home.
Sometimes a title will note a lien on the property. A lien is a legal claim or right to the home that allows the holder to access the property if a debt is not paid. For example, the government could place a lien on the property for unpaid taxes, or a contractor could do the same for an outstanding debt on a remodeling project on the home. Any mortgage, including a reverse mortgage, will impose a title lien. Liens on the property can only be released if the homeowner pays the debt. In those cases, the holder will provide a release of lien which indicates a clear title.
Title and Reverse Mortgages
Title and reverse mortgages work similarly to any other mortgage. To qualify for a reverse mortgage, the borrower must have at least 50% equity in the home. As part of the reverse mortgage application process, the lender will likely conduct a title search on the house to determine if there are any existing federal liens on the property that might make the borrower ineligible. If this is the case, the borrowers would have to pay off those liens to take a reverse mortgage. Often, but not always, existing liens can be paid off with reverse mortgage proceeds.
What Happens to a Title in a Reverse Mortgage?
When a borrower qualifies for a reverse mortgage, the title and property remain in the borrower’s name. The mortgaged home belongs to the borrower, and the title remains in their name. The title will change only if the lender forecloses on the home or the borrower decides to sell the home, divorces, or dies. At this point, a new title will be issued with the new owner’s name.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.