Written by Ryan LaRose, as originally published in The Reverse Review.

Older Americans no longer think of themselves as older, and “Baby, [they] were born to run!” A demographer once quipped, “Boomers are going to be 18 til they die!” Reverse mortgages provide many borrowers with the autonomy they seek under one simple condition: the home must remain their primary residence.

Servicers use two primary methods to monitor occupancy status: annual Occupancy Certificates and Return Mail. HUD requires accurate tracking and follow-up without exception, and the task of monitoring occupancy requirements is a key component of the servicing function. It can be time-consuming and may require extensive and sensitive follow-up with borrowers.

ANNUAL OCCUPANCY CERTIFICATES Around the anniversary of loan closing, servicers must mail an annual Occupancy Certificate asking borrowers to sign and attest to the fact that the home remains their principal residence. Borrowers are required to return this signed certificate to their servicer promptly (typically within 30 days). Every servicer has their own variation of an Annual Occupancy Certificate, but HUD requires one piece of standard language be present on all:

“Warning: Section 1001 of Title 18 of the United States Code makes it a criminal offense to make a willfully false statement or misrepresentation to any department or agency of the United States government as to any matter within its jurisdiction.”

This required HUD language is strong, and vitally important. Servicers rely solely on the borrower to be completely truthful about their occupancy status when signing and returning this document. When a borrower is absent from the primary residence for longer than 12 months, or indicates that they have permanently moved from their primary residence, the servicer must seek HUD’s approval to call the loan due and payable. Once HUD approval is received, the servicer mails a demand letter to the borrowers requiring them to either repay the loan in whole or cure the default by reoccupying the home as their principal residence.

RETURN MAIL For various reasons, borrowers may move in and out of their homes at different times throughout the year. When a piece of mail (typically a monthly statement) is returned by the post office to the servicer, the returned mail serves as a red-flag indicator that there may be an occupancy issue with the property. Certainly not all cases of returned mail result in an occupancy default. Borrowers may be traveling, or may have forgotten to inform their servicer to forward their statements to their winter home, or to the son or daughter who is handling their affairs. Whatever the reason for returned mail, servicers use the occasion to reach out to borrowers to validate whether there is a valid occupancy default.

Consider for a moment how sensitive a servicing agent must be when fielding calls from very irate borrowers wanting to know why the follow-up to a simple piece of returned mail could result in their loan being called due and payable. What appears to be routine and standard follow-up must be handled with finesse and professionalism by the servicer.

The occupancy requirements and annual certification process provide a valuable service to the investor, insurer and borrower. Lenders can assist in this process, and ultimately create a better experience for their borrowers, by firmly setting expectations on the front end. Loan origination is an opportune time to educate new borrowers on the occupancy verification processes that are in place to protect them – and the viability of the reverse mortgage program.