Defaulting on a Reverse Mortgage?

OK, this may seem like a strange question, but, the world’s a strange place so here goes…

My grandmother is currently living in a house that cannot be insured due to its proximity to the Gulf of Mexico.

Due to the current situation of the housing market, she is having great difficulty in selling the house and has recently considered a Reverse Mortgage.

I understand that this isn’t really the proper situation for that type of mortgage, but, would it be possible for her to get a lump sum payment, then purchase a new house from a relative with the proceeds of said mortgage?

I understand that this would trigger the immediate repayment of the loan, but how would the government treat the default? Would they foreclose on the old house?

Please let me know how this would work as she’s getting very frustrated with her current situation and as a college student, I really don’t have the funds to help her out!

Thanks!

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