Occupancy, Taxes and Insurance
How Does a LESA Work After Closing?
A Life Expectancy Set-Aside (LESA) is money set aside from the proceeds of a HECM reverse mortgage to help pay certain property charges, primarily property taxes and homeowners insurance, during the borrower's calculated life expectancy.
If your HECM includes a LESA, the way it is administered after closing depends on whether it is fully funded or partially funded.
Fully Funded LESA
With a fully funded LESA, the loan servicer generally uses funds from the set-aside to pay the required property charges covered by the LESA, such as property taxes and homeowners insurance, as they become due.
The homeowner should still review tax and insurance notices and monitor servicing statements to make sure the charges are being handled properly. A LESA does not eliminate the homeowner's responsibility to maintain the property or comply with the other requirements of the reverse mortgage.
The amount set aside is calculated at the beginning of the loan using HUD requirements and is not the same as a traditional mortgage escrow account.
Partially Funded LESA
A partially funded LESA works differently. Instead of the servicer simply paying all of the covered property charges directly from the set-aside, the borrower generally receives semiannual payments from the LESA to help pay those property charges.
The borrower remains responsible for paying the property taxes and insurance when they are due. This makes it especially important to budget for those expenses, keep the bills and proof of payment, and respond promptly to requests from the loan servicer.
Because the LESA provides only partial assistance with these expenses, the borrower may need to use additional personal funds to pay the full amount due.
Important: A LESA does not necessarily cover every expense associated with the property. For example, HOA or condominium association fees are generally the homeowner's responsibility and should be budgeted for separately.
Annual Occupancy Certification — Don't Ignore It
Each year, your reverse mortgage servicer will ask you to confirm that the home is still your principal residence. This is called an Annual Occupancy Certification. It must be completed and returned to the Servicer within 30 days of the date of the letter. If the second Occupancy Certification is not received another one is sent out. After that it's likely the Servicer will order an occupancy inspection.
The certification may be sent to you by mail, and HUD rules also permit servicers to obtain the certification electronically or verbally. The purpose is simply to verify that you continue to occupy the property as your principal residence. HUD
When you receive the occupancy certification, respond promptly. Don't assume it is junk mail or just another routine notice from the mortgage company.
If you have an Eligible Non-Borrowing Spouse, the annual certification may also require confirmation regarding the spouse and continued occupancy of the home. Consumer Financial Protection Bureau
What if I forget to return it?
Failing to complete the annual occupancy certification can cause the servicer to question whether the property is still your principal residence and can ultimately result in the loan being treated as due and payable. If you missed or didn't receive the certification, contact your servicer promptly and ask how to verify your occupancy. Consumer Financial Protection Bureau
What if I'm temporarily away from my home?
A temporary absence does not automatically mean the home is no longer your principal residence. However, HUD requires borrowers to notify the mortgagee of absences exceeding two months to help avoid an incorrect determination that the borrower's principal residence has changed. HUD
Tip: When you receive your annual occupancy certification, complete it promptly and keep a copy with your reverse mortgage records. If you're going to be away from your home for an extended period—particularly for medical or rehabilitation care—contact your servicer rather than simply waiting for the next annual certification.
Remember: Your reverse mortgage doesn't become due just because you get older or because your loan balance grows. Continuing to occupy the property as your principal residence is one of the important requirements for keeping a HECM in good standing.
What If the Servicer Needs to Verify My Occupancy?
Sometimes a reverse mortgage servicer may need additional verification that you are still living in the home as your principal residence. This can happen if the servicer does not receive your annual occupancy certification, cannot reach you, receives returned mail, or has other information that raises a question about whether you still occupy the property.
The servicer may attempt to contact you and ask you to confirm that you are still living in the home. Depending on the circumstances and servicing requirements, additional steps may be taken to verify the property's occupancy.
This does not necessarily mean your reverse mortgage is in foreclosure or that you have done something wrong. It means the servicer needs to establish that the home continues to meet the principal-residence requirement of your reverse mortgage.
If you receive a letter, telephone call or notice concerning occupancy, respond promptly. If you still live in the home, contact the servicer and provide whatever occupancy certification or documentation they request.
If you have been temporarily away from the property—for example, because of hospitalization, rehabilitation or an extended stay with family—tell the servicer about your circumstances rather than ignoring the request.
HUD now permits servicers to contact borrowers by telephone as part of the required annual HECM occupancy-certification process. HUD
One point is especially worth emphasizing: HUD guidance says failure to timely complete the required annual occupancy certification can lead the servicer to submit a due-and-payable request to HUD. HUD
Important: Never ignore an occupancy request from your reverse mortgage servicer. Even if you are still living in the home, failing to respond can create a serious servicing issue that may eventually cause the loan to be called due and payable.
What Happens if Property Taxes or Insurance Are Not Paid?
Even though a HECM reverse mortgage generally does not require monthly principal and interest mortgage payments, the homeowner is still responsible for keeping required property charges current. These include property taxes and homeowners insurance and, when applicable, flood insurance and certain other property-related charges. Consumer Financial Protection Bureau
If a required property tax or insurance payment is missed, don't ignore notices from the taxing authority, insurance company or reverse mortgage servicer. Failure to keep these charges current can place the reverse mortgage in default and, if the problem is not resolved, may ultimately result in the loan becoming due and payable and potentially foreclosure. Consumer Financial Protection Bureau
What Does the Servicer Do?
If the servicer learns that a required property charge has not been paid, it will generally notify the borrower of the delinquency. Depending on the circumstances and funds available under the reverse mortgage, the servicer may be able to use available loan proceeds to pay the charge. If sufficient funds are not available, the servicer may have to advance its own funds to protect the property and the FHA-insured mortgage. Consumer Financial Protection Bureau
An advance by the servicer does not mean the tax or insurance bill has simply gone away. The amount advanced creates an obligation that must be addressed. Depending on the circumstances, the borrower may be eligible for a repayment plan or other loss-mitigation option. Consumer Financial Protection Bureau
If you have a fully funded LESA, the servicer generally pays the covered property taxes and insurance from the set-aside while sufficient funds remain. With a partially funded LESA, funds are generally provided to the borrower to assist with the property charges, but the borrower remains responsible for making the required payments. If the set-aside is no longer sufficient, the servicer will notify the borrower, and the borrower remains responsible for the charges. Consumer Financial Protection Bureau
Act Quickly if You Receive a Default Notice
A property-charge delinquency does not necessarily mean immediate foreclosure. There may be an opportunity to cure the delinquency, establish an eligible repayment plan, or explore other assistance. The important thing is to contact the servicer immediately rather than ignoring the notice. Consumer Financial Protection Bureau
Important: Paying property taxes and maintaining required insurance are continuing obligations of a reverse mortgage. Even if you never have to make a monthly principal and interest mortgage payment, failure to keep these property charges current can put your home at risk.
