Who pays the property taxes on a reverse mortgage

Who pays the property taxes on a reverse mortgage? This is a question that often pops up when folks are exploring the ins and outs of these unique home financing options. It’s not as straightforward as a traditional mortgage, and understanding this responsibility is key to a smooth experience. We’re going to dive deep into this, demystifying the process and clearing up any confusion.

Essentially, a reverse mortgage allows homeowners, typically 62 and older, to convert a portion of their home equity into cash. While this sounds fantastic, it’s crucial to remember that you’re still the homeowner and, with that comes certain ongoing obligations. Property taxes are a big one, and failing to keep up can have serious repercussions, even with the reverse mortgage in place.

Understanding Reverse Mortgage Basics and Property Tax Obligations

A reverse mortgage is a unique financial product designed for homeowners aged 62 and older, allowing them to convert a portion of their home equity into tax-free cash. Unlike a traditional mortgage where borrowers make monthly payments to the lender, a reverse mortgage allows the lender to make payments to the borrower. This financial arrangement can provide a valuable source of income or funds for various needs, such as supplementing retirement income, covering healthcare expenses, or making home improvements.

Understanding the nuances of such a loan, particularly regarding ongoing financial responsibilities like property taxes, is crucial for borrowers to maintain their homeownership and avoid potential pitfalls.The fundamental concept of a reverse mortgage is that it’s a loan against the equity in your home, which you do not have to repay until you permanently move out, sell the home, or pass away.

The loan balance grows over time as interest accrues and can also increase with any additional funds drawn. This means the amount owed will be more than the initial principal borrowed. The funds received can be disbursed in various ways, including a lump sum, regular monthly payments, a line of credit, or a combination of these options.

Reverse Mortgage Fundamentals

A reverse mortgage allows senior homeowners to access the equity built up in their homes without having to sell their property or take on new monthly debt payments. The loan is secured by the home, and the borrower retains ownership. The lender disburses funds to the borrower, and the loan becomes due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home.

This allows seniors to remain in their homes while accessing their home’s value.

Property Tax Handling in Reverse Mortgages

Property taxes are a critical ongoing obligation for any homeowner, and this remains true with a reverse mortgage. While the lender does not directly collect and pay your property taxes from the loan proceeds in most standard reverse mortgage agreements, borrowers are contractually obligated to keep these payments current. Failure to do so can lead to a default on the loan, potentially jeopardizing homeownership.

Many lenders offer programs or services to assist borrowers in managing these payments to ensure compliance.

Common Misconceptions Regarding Property Tax Responsibility

A prevalent misconception is that because a reverse mortgage is a loan where the lender pays the borrower, the lender also assumes responsibility for all ongoing homeownership costs, including property taxes and homeowners insurance. This is not the case. The borrower remains the homeowner and is solely responsible for these expenses. Another common misunderstanding is that the loan funds can be used to pay property taxes indefinitely without consequence.

While some initial funds may be used, consistent payment from other sources is required.

Parties Involved in Reverse Mortgage Financial Responsibilities

In a reverse mortgage agreement, several parties have distinct financial responsibilities. The primary parties are the borrower(s) and the lender.Here are the key parties and their roles concerning financial obligations:

• Borrower(s): The homeowner(s) aged 62 or older who owns the home and takes out the reverse mortgage. They are responsible for all ongoing costs of homeownership, including property taxes, homeowners insurance, and maintaining the property in good condition.
• Lender: The financial institution that provides the reverse mortgage loan. The lender disburses funds to the borrower and is repaid when the loan becomes due. The lender’s primary financial responsibility is to provide the agreed-upon loan funds.
• Servicer: Often the lender or a third-party company, the servicer manages the loan on behalf of the lender. This includes disbursing loan funds, collecting any required payments (though typically not property taxes directly), and communicating with the borrower.
• FHA (Federal Housing Administration) or Insurer: For FHA-insured reverse mortgages (Home Equity Conversion Mortgages or HECMs), the FHA insures the loan. While not directly involved in daily payments, the FHA plays a role in setting program rules and ensuring borrower protection, indirectly impacting the financial structure.

It is essential for borrowers to understand that while the reverse mortgage provides access to equity, it does not absolve them of the fundamental duties of homeownership. Proactive management of property taxes and insurance is paramount to a successful reverse mortgage experience.

The Borrower’s Role in Property Tax Payments

While a reverse mortgage allows homeowners to access their home equity, it’s crucial to understand that certain homeowner responsibilities continue, and property tax payments are a prime example. These obligations are fundamental to maintaining ownership and preventing adverse actions related to the property.The borrower remains responsible for property taxes because the reverse mortgage is a loan secured by the home, not a transfer of ownership.

The property continues to be the borrower’s asset, and as such, all associated costs of ownership, including property taxes, remain their purview. These taxes are levied by local governments to fund public services and are independent of the mortgage agreement itself. Failing to meet these obligations can have significant repercussions, even with a reverse mortgage in place.

Reasons for Continued Borrower Responsibility for Property Taxes

The underlying principle is that the borrower retains legal title to the home and is therefore liable for all costs associated with its upkeep and local governmental levies. The reverse mortgage lender does not assume ownership or the obligation to pay these taxes.

Implications of Failing to Pay Property Taxes on a Reverse Mortgage

The consequences of neglecting property tax payments on a reverse mortgage can be severe. Local tax authorities have the power to place a lien on the property for unpaid taxes, which can take precedence over the reverse mortgage. This can ultimately lead to a tax foreclosure sale, where the home is sold to satisfy the tax debt, potentially wiping out the borrower’s equity and the lender’s security interest.

Management of Property Tax Payments by Borrowers

Borrowers typically manage property tax payments in several ways, ensuring these obligations are met to avoid delinquency.

• Direct Payment: Many borrowers choose to pay their property taxes directly to the local taxing authority on a quarterly or annual basis, as per their jurisdiction’s requirements. This often involves receiving a tax bill and making the payment from their own funds or from the proceeds of the reverse mortgage if they have opted for a lump sum or regular monthly payments.

• Escrow Account (Optional): While not always standard with reverse mortgages, some lenders may offer an escrow option. In this arrangement, a portion of the borrower’s monthly reverse mortgage proceeds is set aside to cover property taxes and homeowners insurance. The lender then makes these payments on behalf of the borrower. This can be particularly beneficial for borrowers who may struggle with budgeting or remembering payment due dates.

• Using Reverse Mortgage Funds: Borrowers can utilize the funds received from their reverse mortgage to cover property tax payments. This is a key advantage, as it allows them to use their home equity to manage ongoing living expenses, including taxes, without needing to sell their home.

Potential Consequences for Non-Payment

The failure to pay property taxes can trigger a cascade of negative events, jeopardizing the borrower’s home and financial stability.

Consequence	Description
Tax Lien Placement	Local tax authorities will typically place a lien on the property, indicating that taxes are owed. This lien accrues interest and penalties.
Tax Foreclosure Proceedings	If the tax lien remains unpaid for a specified period, the taxing authority can initiate foreclosure proceedings. This means the property can be sold at a public auction to satisfy the outstanding tax debt.
Loss of Home and Equity	In a tax foreclosure sale, the property is sold, and the proceeds are used to pay off the tax debt. Any remaining funds after satisfying the tax debt and sale costs would typically go to the mortgage lender, and potentially the borrower if any equity remains. However, often the sale price is insufficient to cover all debts, leading to the borrower losing their home and any remaining equity.
Default on Reverse Mortgage	While the primary cause of foreclosure in this scenario is the tax debt, failing to pay property taxes can also be considered a default under the terms of the reverse mortgage agreement. Many reverse mortgage loan documents stipulate that borrowers must maintain the property and pay all taxes and insurance.
Acceleration of Loan	A default, including one triggered by unpaid property taxes, can lead to the lender accelerating the loan. This means the entire outstanding loan balance, including accrued interest and fees, becomes due and payable immediately. If the borrower cannot pay, the lender can initiate foreclosure proceedings to recover their funds.

“Maintaining current property tax payments is a non-negotiable responsibility for all homeowners, including those with a reverse mortgage, to safeguard their home and financial well-being.”

Lender’s Role and Safeguards for Property Taxes

While the borrower is primarily responsible for paying property taxes on a reverse mortgage, the lender has a vested interest in ensuring these payments are made consistently. This is because property taxes are a lien on the property, and failure to pay them can lead to tax foreclosure, which could ultimately jeopardize the lender’s security interest in the home. Therefore, lenders implement several safeguards to monitor and address potential delinquencies.The lender’s involvement in property tax payments is designed to protect both the borrower and the lender.

For the borrower, it helps prevent the devastating consequences of tax foreclosure, such as losing their home. For the lender, it ensures the property’s title remains clear and that their loan is secured by a property that is not subject to outstanding tax obligations.

Lender’s Interest in Property Tax Payment

Lenders are motivated to ensure property taxes are paid because these taxes represent a paramount lien on the property. If property taxes go unpaid, the local government can initiate foreclosure proceedings. This means the property could be sold to satisfy the tax debt, potentially wiping out the lender’s security interest in the reverse mortgage. Therefore, maintaining the property’s tax status as current is crucial for the lender’s financial protection.

Mechanisms for Monitoring Property Tax Compliance

Lenders employ various methods to keep track of property tax payments made by reverse mortgage borrowers. These mechanisms are designed to provide early detection of any issues.A common practice involves requiring borrowers to provide proof of property tax payments, such as copies of tax bills and receipts, on a regular basis. Additionally, many lenders subscribe to tax monitoring services that automatically track property tax payments with local tax authorities.

These services alert the lender if a payment is missed or if taxes become delinquent.

Reserve Accounts for Property Taxes

To further safeguard against non-payment, many reverse mortgage loan agreements include a provision for a reserve account, often referred to as a tax set-aside. This reserve account is funded by a portion of the loan proceeds at closing or through scheduled contributions.The purpose of this reserve account is to hold funds specifically designated for future property tax payments. The lender manages this account and will disburse funds to pay property taxes when they become due, ensuring that these obligations are met even if the borrower experiences temporary financial difficulties.

The amount set aside is typically calculated based on the estimated annual property tax bill and the expected duration of the loan.

Lender Intervention for Delinquent Taxes

If property taxes become delinquent, the lender will typically follow a structured procedure to address the situation and protect their investment. This process usually begins with communication and escalates if the issue is not resolved.The step-by-step procedure generally involves:

1. Notification to Borrower: The lender will first notify the borrower that their property taxes are delinquent, providing details of the amount owed and the deadline for payment. This initial communication serves as a reminder and an opportunity for the borrower to rectify the situation.
2. Review of Reserve Account: If a reserve account is in place, the lender will assess if there are sufficient funds available to cover the delinquent taxes. If funds exist, the lender may disburse them to pay the outstanding taxes.
3. Demand for Payment: If the reserve account is insufficient or non-existent, the lender will issue a formal demand letter to the borrower, requiring them to pay the delinquent taxes within a specified timeframe. This letter will also Artikel the potential consequences of continued non-payment.
4. Advancing Funds (if applicable): In some cases, the loan agreement may permit the lender to advance funds from the borrower’s available loan proceeds to pay the delinquent taxes. This would reduce the amount of equity available to the borrower.
5. Loan Default and Foreclosure: If the borrower fails to pay the delinquent taxes after receiving the demand letter and exhausting other options, the loan may be considered in default. The lender then has the right to pursue foreclosure proceedings to recover their investment, which could lead to the loss of the home for the borrower.

Impact of Property Tax Changes on Reverse Mortgages

Understanding how property taxes can fluctuate is crucial for any homeowner, and this is particularly true for those utilizing a reverse mortgage. While the reverse mortgage itself doesn’t directly involve monthly principal and interest payments, the ongoing responsibility for property taxes remains with the borrower. Changes in these tax obligations can significantly influence a borrower’s overall financial well-being and their ability to maintain their home.Property taxes are typically assessed by local government entities and can be adjusted periodically based on property values, local budgets, and voter-approved levies.

For reverse mortgage borrowers, who often rely on their home equity for income or to cover living expenses, unexpected increases in property taxes can strain their financial resources. It is essential for borrowers to be aware of these potential changes and to budget accordingly.

Financial Implications of Increased Property Tax Rates

A rise in property tax rates directly increases the amount of money a borrower must allocate towards their homeownership obligations. This can reduce the disposable income available for other essential expenses, such as healthcare, utilities, or daily living costs. For individuals whose reverse mortgage payments are intended to supplement their income, a substantial property tax increase could necessitate drawing down their loan principal faster than anticipated, potentially depleting their available funds sooner.

Scenarios of Property Tax Hikes Becoming Problematic

Significant property tax hikes can become problematic for reverse mortgage borrowers in several ways. For instance, a sudden reassessment of property values due to neighborhood development or inflation could lead to a substantial jump in annual taxes. If a borrower’s income is fixed or has not kept pace with inflation, this added expense could become unmanageable. Another scenario involves local governments approving new levies for schools or infrastructure, which are then passed on to property owners.

These unforeseen increases can create a financial burden that may be difficult to absorb.

Long-Term Financial Implications of Rising Property Taxes vs. Fixed Payments

The long-term financial implications of rising property taxes for a reverse mortgage borrower differ significantly from scenarios with fixed property tax payments. With rising taxes, the cost of homeownership escalates over time, potentially diminishing the long-term benefit of the reverse mortgage as more of the equity is effectively being used to cover taxes and insurance. In contrast, if property taxes were fixed or increased at a predictable, modest rate, the borrower’s financial planning would be more stable, and the reverse mortgage funds could be utilized more predictably for their intended purposes.

This predictability is a key advantage of fixed costs in financial planning.

Illustrative Scenario: Navigating an Unexpected Property Tax Surge

Consider Mrs. Eleanor Vance, an 80-year-old widow living in a suburban home she has owned for over 40 years. She has a reverse mortgage that provides her with a monthly income stream, supplemented by her Social Security benefits. For years, her property taxes remained relatively stable, allowing her to comfortably manage her expenses. However, a recent county-wide property reassessment, driven by rising real estate values and a voter-approved bond for new school construction, resulted in a 30% increase in her annual property tax bill.Initially, Mrs.

Vance was shocked by the higher amount. Her monthly budget, which had been adequate, now felt strained. She had to re-evaluate her spending habits, cutting back on discretionary purchases and finding ways to reduce utility costs. To cover the increased tax burden, she considered drawing down a larger portion of her reverse mortgage principal, but this would mean her funds would last for a shorter period.

After consulting with her reverse mortgage servicer and a financial advisor, she learned about the option of establishing an escrow account for property taxes and insurance, which would spread the increased annual cost over 12 months. While this eased the immediate monthly shock, it meant a larger portion of her reverse mortgage funds were now earmarked for taxes, impacting her long-term financial security.

This experience underscored the importance of anticipating potential property tax increases and having a flexible financial plan in place.

When it comes to reverse mortgages, the homeowner remains responsible for property taxes. Understanding your financial standing is key, and if you’re wondering how to get approved for a higher mortgage, exploring options like those discussed at how to get approved for a higher mortgage could be beneficial. Ultimately, though, those property taxes on a reverse mortgage are on your shoulders.

Strategies for Managing Property Tax Payments with a Reverse Mortgage

Navigating property tax obligations while having a reverse mortgage requires a proactive approach. While the reverse mortgage itself doesn’t directly pay your property taxes, understanding your responsibilities and available strategies is crucial for maintaining your home and avoiding potential issues. This section Artikels practical steps and resources to help you manage these ongoing costs effectively.

Ensuring timely property tax payments is paramount to maintaining clear title to your home and avoiding potential tax liens or foreclosure. Even with the financial flexibility a reverse mortgage can offer, these essential payments remain the borrower’s responsibility. Fortunately, several proactive measures and resources can significantly ease this burden.

Proactive Steps for Ensuring Timely Property Tax Payments, Who pays the property taxes on a reverse mortgage

To ensure your property tax payments are consistently made on time, consider implementing the following proactive steps:

• Establish a Dedicated Property Tax Fund: Set aside a specific amount of money each month or quarter into a separate savings account solely for property taxes. This creates a buffer and prevents unexpected bills from causing financial strain.
• Automate Payments: If your local tax authority offers an automatic payment plan, enroll in it. This ensures payments are made on schedule without you having to remember each due date.
• Review Tax Bills Promptly: Upon receiving your property tax bill, review it immediately for accuracy. If you notice any discrepancies or unexpected increases, contact your local tax assessor’s office promptly to clarify.
• Understand Assessment Cycles: Familiarize yourself with your property’s assessment cycle and when tax rates are typically reviewed or adjusted. This knowledge can help you anticipate potential changes in your tax liability.
• Maintain Open Communication with Your Lender: If you foresee any difficulty in making a property tax payment, inform your reverse mortgage lender as soon as possible. They can guide you on available options and safeguards.

Resources Available to Assist Borrowers with Property Tax Obligations

Numerous resources are available to support reverse mortgage borrowers in managing their property tax obligations. Leveraging these resources can provide valuable assistance and peace of mind:

• Local Tax Assessor’s Office: This is your primary point of contact for understanding your property tax bill, assessment values, and payment options. They can also inform you about any available exemptions or deferral programs.
• Reverse Mortgage Servicer: Your loan servicer can provide guidance on how to manage your account and may offer information on programs designed to assist with property taxes, especially if an escrow account is managed by them.
• Area Agency on Aging (AAA): AAAs often provide information and referrals to local services, including those that can help seniors with financial management and property tax assistance programs.
• Non-profit Housing Counseling Agencies: HUD-approved housing counselors can offer impartial advice on managing finances, including understanding reverse mortgage obligations and finding potential assistance for property taxes.
• State and Local Property Tax Relief Programs: Many states and local municipalities offer property tax relief programs for seniors or low-income homeowners. Researching these programs can lead to significant savings.

Methods for Budgeting and Setting Aside Funds for Property Taxes

Effective budgeting is key to consistently meeting property tax obligations. Here are some methods to consider:

• Calculate Annual Tax Amount: Divide your total annual property tax bill by 12 to determine a monthly savings goal.
• Create a Separate Savings Account: As mentioned earlier, a dedicated savings account ensures these funds are not inadvertently spent on other expenses.
• Adjust Monthly Expenses: Review your current monthly budget and identify areas where you can trim expenses to allocate more towards your property tax savings goal.
• Utilize Reverse Mortgage Payouts Strategically: If you receive regular monthly payments from your reverse mortgage, factor your property tax savings into your overall monthly budget.
• Consider a Lump Sum for Initial Setup: If you have immediate property tax needs and a lump sum disbursement option is available and appropriate for your situation, you might use a portion to establish a robust property tax fund.

Utilizing Reverse Mortgage Proceeds to Cover Property Taxes

In situations where immediate funds are needed for property taxes, reverse mortgage proceeds can be a viable option, provided it aligns with your financial plan and the terms of your loan. It is essential to understand the implications of drawing additional funds.

Borrowers can often elect to receive reverse mortgage proceeds in various ways, including a lump sum, monthly payments, or a line of credit. If your property taxes are due and you do not have sufficient funds readily available, you might consider:

• Drawing from a Line of Credit: If you have a reverse mortgage with a line of credit feature, you can draw the necessary amount to cover your property tax bill. This is often a flexible option as you only draw what you need, when you need it.
• Adjusting Monthly Payouts: If you receive regular monthly payments, you may be able to adjust the amount of your monthly draw to include an additional sum for property taxes, effectively building a reserve.
• Taking a Lump Sum Disbursement: In some cases, a lump sum disbursement may be an option. A portion of this lump sum could be used to cover immediate property tax needs, with the remainder available for other purposes or to be held in reserve.

It is crucial to remember that any funds drawn from your reverse mortgage reduce the available equity in your home and will accrue interest. Therefore, using reverse mortgage proceeds for property taxes should be a well-considered decision, ideally discussed with your loan servicer or a trusted financial advisor to ensure it aligns with your long-term financial goals.

Legal and Regulatory Framework for Reverse Mortgages and Taxes

Understanding the legal and regulatory landscape surrounding reverse mortgages is crucial for borrowers to navigate their property tax obligations effectively. Federal and state laws provide a framework that governs these loans, aiming to protect borrowers while ensuring the financial integrity of the mortgage. This framework dictates how property taxes are handled and what information borrowers must receive.The laws and regulations governing reverse mortgages and property tax payments are designed to provide clarity and security for all parties involved.

These rules ensure that borrowers are fully informed about their responsibilities and that lenders have mechanisms in place to safeguard the loan’s collateral.

Governing Laws and Regulations

The primary federal law governing reverse mortgages, particularly the Home Equity Conversion Mortgage (HECM) program, is the National Housing Act. This act, administered by the U.S. Department of Housing and Urban Development (HUD), sets forth detailed requirements for HECM loans, including those related to property tax payments. State laws may also impose additional requirements or provide supplementary protections for borrowers.

These regulations aim to ensure fair lending practices and the financial stability of borrowers.

Borrower Disclosures on Tax Responsibilities

Borrowers are provided with extensive disclosures throughout the reverse mortgage process to ensure they understand their ongoing obligations, including property taxes. These disclosures are mandated by federal regulations and are designed to be clear and comprehensive.The following are key disclosures borrowers receive regarding their tax responsibilities:

• Loan Agreement and Security Instrument: These legal documents explicitly Artikel the borrower’s responsibility to pay property taxes, homeowners insurance, and, if applicable, homeowners association fees.
• Loan Terms Disclosure: This document details the various aspects of the loan, including the borrower’s continuing obligations.
• Servicing Agreement: This Artikels how the loan will be managed and serviced, including provisions for managing tax and insurance payments.
• Counseling Materials: HECM borrowers are required to receive counseling from an independent, HUD-approved agency. This counseling session provides an opportunity to discuss all loan obligations, including property taxes, in detail.

Borrower Protections for Property Tax Obligations

Several protections are in place to safeguard borrowers concerning their property tax obligations. These protections are integrated into the regulatory framework and the loan servicing process.Protections for borrowers include:

• Mandatory Counseling: As mentioned, HECM counseling ensures borrowers understand their responsibilities, including the financial implications of property taxes.
• Escrow Accounts: For HECM loans where taxes and insurance are not paid directly by the borrower, lenders are required to set up and manage an escrow account. This account is funded by the borrower, often through a portion of the reverse mortgage proceeds or their own funds, to ensure timely tax payments.
• Notification of Delinquency: Lenders are typically required to notify borrowers if their property taxes become delinquent before taking any adverse action.
• Non-Recourse Feature: While not directly related to tax payment, the non-recourse feature of HECM loans means that borrowers or their heirs will never owe more than the value of the home at the time of sale, even if the loan balance exceeds the home’s value. This provides a level of financial security.

HUD Guidelines for HECM Property Tax Payments

HUD provides specific guidelines for HECM loans to ensure property taxes are managed appropriately. These guidelines are integral to the HECM program’s operation and borrower protection.Key HUD guidelines pertaining to property tax payments for HECM loans include:

• Borrower Responsibility: HUD clearly states that the borrower is responsible for paying property taxes and homeowners insurance.
• Escrow Requirements: For HECM loans where the borrower does not demonstrate a history of timely payment or if the loan terms require it, HUD mandates the establishment of an escrow account managed by the loan servicer. This account is used to collect funds for property taxes and insurance premiums.
• Servicer Obligations: Loan servicers have a fiduciary duty to manage the escrow account responsibly, ensuring that property tax bills are paid on time from the collected funds.
• Default and Foreclosure: HUD Artikels the conditions under which a HECM loan can go into default, including the failure to pay property taxes. It also specifies the procedures lenders must follow before foreclosing on a property due to tax delinquency, often requiring significant efforts to resolve the issue with the borrower.

Closing Notes

So, to wrap things up, the primary responsibility for property taxes on a reverse mortgage almost always falls on the borrower. Lenders have mechanisms to ensure these payments are made, often through reserve accounts, and they will step in if necessary. Staying informed, budgeting wisely, and understanding your options are your best bets for managing these payments successfully and enjoying the benefits of your reverse mortgage without unexpected headaches.

FAQ Section: Who Pays The Property Taxes On A Reverse Mortgage

Can a reverse mortgage loan be used to pay property taxes?

Yes, in many cases, you can use the proceeds from your reverse mortgage to cover property tax payments. This is often facilitated through a reserve account set up by the lender, or you can take a lump sum or monthly payments and use those funds for taxes.

What happens if I miss a property tax payment on a reverse mortgage?

Missing property tax payments is a serious issue. It can lead to late fees, penalties, and ultimately, a default on your reverse mortgage, which could result in foreclosure. The lender will typically issue a notice of default and give you a chance to rectify the situation.

Does the lender pay my property taxes directly from the reverse mortgage?

Not always directly, but they often manage it. Many reverse mortgages, especially HECM loans, include a reserve account, sometimes called a “tax set-aside,” where funds are held specifically for property taxes and homeowner’s insurance. The lender disburses these funds as payments become due.

Are there any situations where the lender pays property taxes on my behalf without a reserve account?

While less common, if a borrower fails to pay taxes and there isn’t a reserve account, the lender may pay them to protect their interest in the property. They would then add this cost to the loan balance, increasing the amount owed.

What are HUD guidelines regarding property taxes for HECM loans?

HUD requires that borrowers on HECM loans continue to pay property taxes and homeowner’s insurance. They mandate that lenders ensure these obligations are met, often through the establishment of a mandatory reserve account for these expenses.