I recently had a short sale client with an FHA Reverse Mortgage. I view Reverse Mortgages as planned foreclosures. In a Reverse Mortgage the homeowner receives money from the lender for a certain period of time, depending upon how much equity they have in the property. This works well for some folks because they enjoy a positive cash flow for a period of time and they don’t have to make a mortgage payment for as long as they stay in the home as their primary residence, even after the cash flow stops. They do, however, have to pay the yearly taxes and insurance. The event that terminates the reverse mortgage agreement is either the death of the homeowner or when the homeowner no longer lives in the property for a period of time, usually for 6 months.
My short sale reverse mortgage client is usually the estate of a deceased homeowner where the heirs want to do a short sale in order to avoid a foreclosure. The heirs often are unaware of the reverse mortgage and upon the death of the homeowner are a bit shocked to find out that in order to keep the family home they have to pay the lender more than the property is worth.
Well the reason that I am writing about this particular file is that FHA/HUD quickly and quietly foreclosed on this property without going through the normal NC Statutes that we are all used to. They filed foreclosure with an out-of-state law firm using an obscure Federal Act, the Single Family Mortgage Foreclosure Act of 1994, 12 U.S.C. 3751. Just a Notice of Default and Foreclosure sent to the homeowner, filed with the Clerk of Court and Register of Deeds, posted in a local paper and a foreclosure sale held a month later. No Special Proceeding file or Foreclosure Hearing in front of the Clerk of Court, just send out a notice and see you on the courthouse steps. So quick it would make your head spin. I had never heard of it, the Clerk of Court had never heard of it, yet there it was.
This Act is obviously meant to allow HUD to subvert the State’s foreclosure laws. I can understand the desire to do this in some states because the foreclosure process can be very long and sometimes has redemption periods of several years. However, in NC non-judicial foreclosure is fairly quick with a clear path and proper notice to the homeowner required.
I should point out here that this Act is not specific to FHA Reverse Mortgages. It appears that HUD can invoke this Act on any of its FHA loans. So if you have a client that has an FHA loan and is in default please encourage them to open the mail and ask for help.