By Adam A. Diaz, Esq.

Diaz │ Anselmo*

USFN Member (FL, IL, IN, KY, OH, WI)

As part of its ongoing Briefing Series, USFN hosted an informative virtual session on May 13, 2025, spotlighting the complexities of HECM (Home Equity Conversion Mortgage) loans—commonly known as reverse mortgages. The session, titled "Enforcement, Foreclosure, and Key Differences from Conventional Loans," provided a comprehensive overview of the unique characteristics of HECM loans and the legal challenges servicers and practitioners encounter when managing these products.

The panel featured seasoned professionals including Caren Castle (The Mortgage Law Firm), Eric Rudolphy (Celink), Adam Gross (Gross Polowy, LLC), and Eileen Papariella (Single Source Property Solutions). Each brought a wealth of experience and insight to the session, contributing to a robust discussion on the nuances of reverse mortgage enforcement and asset management.

The panel began by revisiting the fundamentals. A HECM is a federally insured reverse mortgage product available to homeowners aged 62 or older. It allows borrowers to access the equity in their homes without the burden of monthly mortgage payments. As the panel highlighted, this structure creates a unique servicing and enforcement environment due to the fact there are no installment payments. Key loan features include borrower age, repayment triggers (typically upon death or move-out), and restrictions surrounding occupancy and property condition.

One of the most nuanced areas covered was enforcement. Unlike traditional mortgages, HECMs are generally non-recourse and become due and payable upon specific "triggering events," such as the borrower’s death, the home no longer being the principal residence, or failure to pay taxes and insurance.  These trigger events are unique to HECM loans, and based on the loan documents, a notice of default is potentially not needed to begin the foreclosure process.

Since the majority of defaults should result from the death of the borrower, it is important to determine whether a probate is necessary to foreclose a HECM loan.  The answer, as explained, depends on the state. In some jurisdictions, like Wisconsin, a probate is required in order to obtain a party to serve.  However, in other states, such as Florida, a probate should never be filed in order to commence foreclosure.  This lack of uniformity underscores the importance of understanding state-specific probate rights and dower laws when enforcing these loans.  It is also important not to ignore a probate when it is filed.  For example, in Ohio, there are land sales through probate may be required, while others do not mandate probate proceedings.

The panel explored how HECM foreclosures diverge from traditional foreclosure processes. For instance, a demand letter may not be necessary in every HECM foreclosure, particularly when the loan has automatically matured. However, property status—whether vacant or occupied—affects how and when foreclosure proceedings can commence.

Also discussed were standing challenges, which are treated differently for HECMs compared to conventional loans. In many states, such as Florida and New York, HECM loans potentially are non-negotiable, this means the Courts may not be able to rely on the endorsement to prove standing.

Another legal wrinkle is the statute of limitations. The panel explained that HECMs often follow a distinct limitations timeline, particularly when successive foreclosure actions or res judicata come into play. Practitioners are advised to tread carefully, ensuring accurate date tracking and analysis of prior enforcement efforts, and to look at the facts for each case.  There is potential case law stemming from 28 U.S.C. § 2415(c), that may allow the enforcement of a loan that is passed the statute of limitations.

Rounding out the discussion, the panel turned its focus to REO asset management—a critical, often overlooked component of post-foreclosure HECM handling.

Several best practices emerged:

• Partner with vendors who understand HECM timelines and regulatory pitfalls.
• Obtain the most accurate initial valuation to reduce the risk of appraisal-based claims (commonly referred to as ABCs).
• Use appraisers trained specifically on reverse mortgage products.
• Ensure quality control reviewers are highly experienced and trained in HUD protocol.

Choosing REO agents and vendors who are well-versed in HECM-specific compliance and financial analysis is important, particularly when weighing Asset-Based Claims (ABC) versus Servicer-Based Claims (SBC). The goal: maximize investor recovery while adhering to HUD’s stringent guidelines.

This USFN Briefing reinforced that HECM loans are not simply conventional loans in reverse—they come with their own ecosystem of legal, financial, and servicing requirements. From probate complexities to appraisal practices, the stakes are high for servicers and legal professionals navigating these waters.

USFN continues to provide vital educational resources to help the industry meet these challenges. For more on upcoming briefings, compliance events, and digital tools—including the new USFN Source platform—visit usfnevents.org or explore the member directory to connect with experts in this niche space.

Copyright © USFN 2025

USFNews_July 23

*Denotes firm is a 2024 USFN Award of Excellence recipient.