Weekly Report periodically publishes the “Servicing Corner” to educate readers on the most commonly asked questions that loan officers ask about HECM servicing guidelines. NRMLA received the following question that we invited Rex Lamb and Gail Balettie at Celink to answer.
Question: Now that FHA allows non-borrowers to stay on the title, how does that affect the non-recourse feature? For example, you have a 90-year-old mother and a 60-year-old daughter. Assume they purchase a home together, finance it with a HECM where the mother is the sole borrower, and the daughter is a non-borrowing co-owner. When the mother passes away, if the loan’s balance exceeds the home’s value, can the daughter keep the home by paying 95 percent of the home’s value rather than the full loan balance?
Answer: There has to be a post-death conveyance of title to qualify for the option to purchase the property at 95 percent of appraised value. In other words, a person already on title pre-death cannot “purchase” the property via a short sale at 95 percent. There is one exception and that is an eligible non-borrowing spouse may purchase the property at 95 percent of appraised value as long as the loan is in a due and payable status or in a Deferral Period.