Missouri Bill Allows 15 Year Repayment Period for Heirs of HECM Borrower

The Missouri legislature introduced House Bill 2313, which would allow for a 15-year repayment period after a reverse mortgage matures. If passed, it would go into effect on August 28, 2010.

The main objective of HB 2313 is to assure that heirs to property that is encumbered by a reverse mortgage will not be overwhelmed with financial burden by being required to pay off the balance due on the reverse mortgage. The bill also requires the mortgage company to disclose in full to the heirs the terms of the note, including the balance due on the reverse mortgage so that the heirs can attempt to satisfy the claim against the real estate by paying off the reverse mortgage either from the heirs cash assets or by borrowing the requisite funds.

Currently, the practice stands to require the entire balance of the reverse mortgage to be immediately paid in full by the heirs upon the death of the descendent. This legislation aims to ban that practice and instead require the balance of a reverse mortgage be payable over a period of 15 years at the interest rate which is prevalent at the time of death of the descendent. The new legislation will also require full disclosure to the heirs about the terms of the mortgage note so that they will be prepared for what they need to address.

Representative Rochelle Walton Gray of District 81 is sponsoring the bill and is “determined to create a state remedy that will allow the heirs to avoid bankruptcy and the effect of such a filing on their credit score, and let them satisfy the debt over a period of 15 years with interest.” In addition to her legislative career, Rep. Gray has worked as a legal administrator for the past 23 years.

“In my employment in a law office, we have had several clients who have found themselves in the position of inheriting real estate that was subject to a reverse mortgage that was payable in full upon the death of the decedent,” said Gray in an interview with RMD. “The clients had insufficient funds, credit, and time to either pay off the mortgage balance or refinance the loan.”

Those backing the legislation hope that it will prevent seniors from signing up for reverse mortgages unaware that they may be putting their heirs in a position to lose their property in foreclosure when they are unable to pay off the balance in full.

“I believe that this bill will eliminate the windfalls currently being enjoyed by the mortgage companies from foreclosing on homes and thus not only recouping the loan proceeds but also gaining the equity that is in the homes,” explains Rep. Gray. “And most importantly, I believe that the heirs will be able to manage to pay the notes due on these homes with reverse mortgages and thus retain the wealth they inherited upon the death of their relative, who had entered into the reverse mortgage agreement.”

Written by Kelly Mellott

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