Helping Your Clients Understand Property Repair Requirements

When a reverse mortgage borrower contacts the company servicing their loan, most often it’s because they have a question or concern about completing property repairs. That’s why NRMLA invited Leslie Flynne of Reverse Mortgage Solutions and Ryan LaRose of Celink to close out the 2018 Eastern Regional meeting with a discussion of the topic.

Speaking for Celink, LaRose said about 15 percent of all new loans require mandatory repairs that range from a few hundred dollars to fix peeling paint, to upwards of $75,000 to replace a roof and deck.

While borrowers have up to one year from the closing date to complete the repairs, servicers encourage borrowers to finish the work as soon as possible. Flynne said it’s acceptable for the borrower, or a family member or friend, to complete the work, but an FHA-approved inspector must certify that the work has been completed and the property meets FHA standards.

“If the borrower doesn’t complete the repairs on time, we have to freeze all disbursements from their loan until the work is completed,” said LaRose. “The exception to that is if they have a full-funded LESA, we can still make tax and insurance payments.”

Borrowers are responsible for ensuring that the work gets completed, but the servicer can provide a list of local resources if the homeowner needs assistance. Borrowers are also encouraged to contact their servicer when repairs are completed, when they have questions or if they need to share progress updates regarding issues or delays.

When a property suffers an insured loss subsequent to the closing of the reverse mortgage, the borrower must report any damage/losses immediately to the insurance company and the servicer. The servicer also needs a copy of the insurance adjuster’s report, name and contact information for the contractor, and whether a temporary move out is required.

“Oftentimes, we don’t hear about property damage until the homeowner calls us after they tried to cash the insurance proceeds check,” said Flynne. There is no deadline for completing the repairs, added Flynne, but the repairs must be completed. “They are not in default because they have had a loss, but they may be in default if they don’t repair that loss.”

The insurance claim check is made out to both the homeowner and the servicer. The homeowner must mail the check to the servicer and the servicer will be responsible for disbursing funds to the contractor in stages (generally in thirds) after there is sufficient proof that the work is being completed.

Flynne also pointed out that if the property is completely destroyed, the borrower has the option not to rebuild the property. The insurance proceeds must be used to pay down the loan balance and the borrower can sell the property for the lesser of the loan balance or the current “as is” appraised value.  Or insurance proceeds can be used to pay the loan in full (if the insurance proceeds are more than the outstanding balance on the loan).  In the case of a payoff, the additional leftover proceeds after the loan has been paid in full would be passed along to the borrower.

More information regarding property repairs and insurance claims is available in NRMLA’s free consumer guide, What You Need to Know About Your HECM After Closing.