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A realtor called me the other day. I was marketing the new reverse mortgage purchase money available after the first of the year.

She was sincerely interested in the program, but first decided to vent with an amazing story of pain, agony and just downright horror relating to the reverse mortgage.

Now, in an effort to put the kibosh on the horrible results of a reverse mortgage going viral and thus wrecking my business, I need you to keep reading past the next few paragraphs. You might stop reading and tell your friends about this horror. And they might believe you.

The real estate agent had a friend, who had a friend, who had a father (Strange how rumours get started) who obtained a reverse mortgage on his home. The father passed away and the house willed to the FOAFOAR (which is much easier than saying Friend Of A Friend Of A Real estate agent)

As it turned out the home had negative equity. The loan balance exceeded the value of the home. It's a rare thing, but can happen in reverse mortgage world. At death the mortgage company required repayment of the entire loan.

The property eventually sold to repay a portion of the money owed the lender. The lender forced the FOAFOAR to pay the remaining balance of forty-thousand-dollars.

Now, I have doubts about the validity of this story. I have doubts about any story told through a chain of three people, but look.... HUD prohibits mortgage companies from doing what the FOAROAR said it did. The term is "non-recourse". It means a mortgage company cannot come after the borrower or heirs for a deficiency.

In the circumstance of a deficiency or negative equity the borrower or estate conduct the sale of the property as follows....

The home will be sold at a fair market value. The lender knows this because it requires the borrower or family to hire a licensed realtor to list and sell the home. When the house finally transfers to the new owner, the lender is repaid the price minus closing costs to sell the home.

This net figure is the maximum amount the bank has a right to extract, and can't come back after the borrower or borrower's heirs for the remaining balance of the loan. The bank eats the difference, and is reimbursed by FHA mortgage insurance.

This is one of several myths flying about regarding the reverse mortgage. The reverse mortgage may be a strong tool for you to utilize, or a poor choice given your circumstance. But don't assume you know until you really know. Call a professional or two first.