Real estate Q&A: Does my reverse mortgage have a non-recourse clause?

Q: We took out a reverse mortgage in 2011 and thought I understood how it worked. However, having reviewed the documents, I cannot find where it discusses the non-recourse clause I heard about. As I get on in years, I want to be sure I can safely leave my other assets to my daughter. Am I missing something? — Pat

A: Older people, 62 years or older, may be eligible for a type of loan known as a reverse mortgage. Reverse mortgages function differently than a traditional mortgage, where the repayment is amortized over a period of time, typically 15 or 30 years, allowing the borrowed funds to be repaid in consistent monthly payments. Instead, the reverse mortgage converts some of your home equity into cash.

Some people use the proceeds to pay off their existing mortgage and not have to make monthly payments, and others use it for other things like home improvements or medical expenses.

The government backs most reverse mortgages, which are relatively simple to qualify for. The amount that can be borrowed depends on the borrower’s age, the home’s value, and the current interest rate. Borrowers can receive the money as a lump sum, a line of credit, a monthly payment, or a combination of these options.

Despite not having to repay the loan or interest each month, the borrower must still pay their property taxes and hazard insurance and maintain the property.

The borrowed funds need not be repaid until you pass away, move out, or default on the other loan obligations. If this happens, the lender will foreclose and sell the home to recover the loan balance, interest, and fees.

If the sale proceeds are insufficient to cover the loan, the lender can only recover the property’s value and not look to the borrower’s other assets for the difference. This type of loan is called “non-recourse.”

To find this language in your loan documents, you will need to read it in context. “Non-recourse” is more of a description of how a loan works than a direct term that you find in the paperwork. While I occasionally see the actual words “non-recourse,” I more commonly see phrases like, “Lender may enforce its rights under this Note only through sale of the Property” or similar.

If you are still unsure how your loan works, you can enlist the aid of an experienced attorney to review your documents and walk you through it.