Lenders and servicers of a reverse mortgage loan will need to notify borrowers that they can identify an additional person to receive communications regarding loan defaults, under a law that takes effect Aug. 1, 2021.
If a borrower chooses a third-party designee, a reverse mortgage loan servicer must send copies of unanswered communications regarding delinquencies, defaults, and unfulfilled obligations that may result in foreclosure under the loan agreement to that designee.
A reverse mortgage loan default happens when a homeowner fails to pay property taxes or insurance premiums, or fails to return an annual notice to the lender stating the home is still being occupied by the borrower. It can lead to a foreclosure action.
Many homeowners taking out reverse mortgage loans are older adults who may have memory issues, say law proponents, and having a third-party designee to receive default notices can help prevent foreclosures.
Sponsored by Rep. Carlie Kotyza-Witthuhn (DFL-Eden Prairie) and Sen. Zach Duckworth (R-Lakeville), the new law also requires the loan servicer to send communications to the borrower’s independent loan counseling agency.