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What is a reverse mortgage occupancy certificate?

What is a reverse mortgage occupancy certificate?

One of the key eligibility requirements of a Home Equity Conversion Mortgage (HECM) is that the borrower(s) lives in the property as their primary residence.

The reason for this requirement is that the lender is not receiving monthly payments, and the property is the only collateral on the reverse mortgage loan. Lenders have to be cautious about lending people money and then having them walk away from the property on which the lien is attached. Vacant and abandoned homes, after all, can fall into disrepair and result in lower property values.

When the property is sold or no longer used as a primary residence, the cash, interest, and other finance charges must be repaid.

When a reverse mortgage application is received, the loan underwriter will verify occupancy by reviewing information and documentation, such as:

  • The time the borrower has lived in the property as the primary residence
  • The borrower’s listed mailing address
  • Phone records
  • Property tax records
  • The address the borrower uses on a driver’s license or other forms of identification
  • Current and former addresses listed on the borrower’s credit report
  • Utility bills
  • Income tax returns

Annual occupancy certificate

Each year, the homeowner will have to sign an occupancy certificate provided by the lender. This is a legal document that certifies that the owner continues to own and reside in the home. The bank will send the document to the homeowner around the anniversary date of the reverse mortgage, and the borrower must return it signed in a timely fashion, typically within 30 days.

Each loan servicer has variations of occupancy certificates, but they will usually require the homeowners to certify that they:

  • Have not sold or conveyed title to the property
  • Were not absent from the property for more than 12 months due to physical or mental illness
  • Notified the loan servicer if they were absent from the home for more than two months for reasons other than illness.

All occupancy certificates will also contain the following HUD-required language:

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.

In addition to the occupancy certificate, lenders and HUD will follow up on returned mail. When a piece of mail addressed to the borrower gets returned by the Post Office to the servicer, the returned mail (typically a monthly statement) serves as a red flag indicator that there may be an occupancy issue with the property.

The residential requirement does not obligate you to live in the home year-round. For example, many seniors who live in northern climates prefer to spend the winter in the south. As long as the house used for the reverse mortgage remains the primary residence, borrowers are allowed to leave for designated periods of time for vacations or even for medical treatment that lasts a few months.

The general rule of thumb used in servicing is that the borrower is allowed to be absent from the property for up to 12 months before the loan is considered to be in default.

If a homeowner wants to vacate the property for 12 months or more, they have to seek approval from the Department of Housing and Urban Development (HUD). In many cases, this request will be denied because of the risk of the property falling into disrepair.

Often, however, HUD will grant the request for special circumstances, such as the homeowners wanting to participate in a long-term mission trip. The key is to seek approval before taking leave. Otherwise, the owner risks defaulting on the loan.