What Happens to a Reverse Mortgage When the Homeowner Dies?

A reverse mortgage lets an older homeowner borrow against the home's equity without making monthly payments while they live there. The balance grows over time.

I'm Jeanette Nelson, a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas. When a family calls me after a parent passes, a reverse mortgage on the house is one of the things we talk through early, because the timelines start quickly.

HUD explains that a HECM becomes due and payable when the borrower sells the home, no longer lives there as a primary residence, or when the last surviving borrower dies. At that point, no more funds can be paid out from the loan.

HUD's guide for heirs describes these choices:

1. Pay off the loan and keep the home. HUD says the loan balance must be paid in full if you want to keep the home.
2. Sell the home. If the home is worth more than the loan, the CFPB explains that heirs can sell, repay the loan and keep the rest.
3. Sell for at least 95% of appraised value when the loan is larger than the home's value. HUD says the estate or heirs may sell the home for at least 95% of the current appraised value, and the lender will accept the net proceeds as satisfaction of the loan. The CFPB explains that the rest of the loan is covered by the mortgage insurance the borrower paid during the loan.
4. Turn the home over to the lender. HUD describes transferring title through a deed in lieu of foreclosure to avoid foreclosure.

Less than many families expect.

• HUD's guide says the loan must be satisfied within 30 days of the borrower's death, and the lender may approve 90-day extensions with documentation that the estate or heirs are actively trying to sell or repay.
• The CFPB says that once heirs receive a due and payable notice from the lender, they have 30 days to buy, sell or turn the home over, and that it might be possible to extend the timeline up to six months.

Because these timelines are short, call the servicer as soon as you can, ask what documents it needs, and write down every conversation.

HUD's guide says property taxes and insurance remain the responsibility of the borrower's estate until title is transferred. Keep the homeowners policy active and make sure someone receives the tax bills. My article on who pays the bills on a house in probate covers this in more detail.

Special rules may apply. HUD says a non-borrowing spouse of the deceased HECM borrower may be able to postpone repayment and stay in the home during their lifetime, if requirements are met. One requirement is giving the lender a Non-Borrowing Spouse Certification within 30 days of the last surviving borrower's death. A spouse in this situation should contact the servicer right away.

Who has authority to deal with the lender and sell the home depends on how the home was held. If it was in a living trust, the successor trustee usually handles it. If not, the estate may need to go through probate. My articles on inheriting a house with a mortgage and whether you need probate to sell an inherited house explain the paths. Our probate sales page and trust sales page explain how I help families.

If your family is facing a reverse mortgage after a loved one's passing, I'd love to have a private planning conversation with you and your family about the house, the timeline and your choices. Call or text me at 714.366.8575 | DRE: 01397168, or contact me. Jeanette Nelson is a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas.