Reverse Mortgage After the Owner Dies: What Heirs Need to Know

When the last borrower on a reverse mortgage dies, the loan becomes due, and the heirs or the estate generally have three choices: pay it off, sell the house, or give the house to the lender. If the home is worth less than the loan, the federal rules for the most common kind of reverse mortgage let the estate sell for at least 95 percent of the appraised value and walk away from the rest.

I'm Dennis Mark Interdonato with The Dennis Mark Group at Keller Williams Realty Ocean Living. I sell estate homes across Monmouth and Ocean County, and a reverse mortgage changes one thing above everything else: the clock. Here's how it works, and where the house fits in.

What happens to a reverse mortgage when the borrower dies?

Most reverse mortgages are Home Equity Conversion Mortgages, or HECMs, insured by the Federal Housing Administration. According to the Consumer Financial Protection Bureau, the loan becomes due and payable after the borrower dies, and after any coborrower or eligible nonborrowing spouse has died too.

HUD's rules then require the loan servicer to send the estate or heirs a Due and Payable Notice within 30 days after the servicer reports the death to HUD. Under HUD Mortgagee Letter 2022-15, that notice must say the estate or heirs may do one of three things:

1. Satisfy the loan, which means paying it off.
2. Sell the property for at least 95 percent of the appraised value.
3. Give the lender a deed in lieu of foreclosure, which hands the house back.

If you're the person sorting through the mail at the house, watch for that notice. It starts the timeline.

How long do heirs have to deal with a reverse mortgage?

Not long, which is why I tell families to start the moment they know there's a reverse mortgage. The CFPB says that once heirs receive the due and payable notice, they have 30 days to buy, sell, or turn the home over to the lender, and that it might be possible to extend the timeline up to six months so the heirs can sell or get their own loan.

HUD's own brochure for heirs, Inheriting a Home Secured by an FHA-insured HECM, says the lender may approve 90-day extensions when the estate or heirs show, with documentation, that they're actively trying to sell the property or repay the loan. The same brochure says the property taxes and insurance remain the estate's responsibility until title is transferred.

That word "documentation" is where I come in. A signed listing agreement, a marketing schedule, showing activity and offers in writing are the kind of paper trail that shows a house is actively for sale.

What if the house is worth less than the reverse mortgage balance?

This is the rule families are most relieved to hear. The CFPB explains that if the home is worth less than what's owed, the heirs can pay off the loan by selling the home for at least 95 percent of its appraised value, and the rest of the loan is covered by the mortgage insurance the borrower paid over the life of the loan. HUD's brochure adds that the lender accepts the net proceeds as satisfaction of the loan.

In plain terms: the estate isn't asked to bring money to the closing table to cover the gap, as long as the sale meets the 95 percent rule. That makes the appraised value a floor for pricing, so the listing price and the offers we accept have to respect it.

What if the house is worth more than the balance?

Then it's a regular sale with a loan to pay off at closing. The CFPB says that when the home is worth more than the reverse mortgage balance, the heirs can sell, use the money to repay the loan, and keep the difference.

Here, the goal is the same as any sale: the most money for the estate. Price it right from day one, because the first two weeks on the market set the price. And the taxes and insurance stay the estate's bill until title transfers, so every extra month on the market costs the heirs money.

Can the family keep the house?

Yes, but someone has to pay off the loan, often with a new mortgage of their own. The official sources word the payoff differently. HUD's heirs brochure says that if you prefer to keep the home, the HECM balance must be paid off in full. The CFPB's page written for borrowers says heirs who want to keep the home repay the full balance or 95 percent of the appraised value, whichever is less.

Because those two descriptions don't match, ask the servicer in writing which payoff figure applies to this loan, and have the estate's attorney or a HUD-approved housing counseling agency confirm it. The CFPB points heirs to both.

What about a spouse who wasn't on the loan?

Different rules can apply. HUD's brochure says special provisions may let a nonborrowing spouse of the deceased borrower stay in the home for life, and that the spouse must give the lender a Non-Borrowing Spouse Certification within 30 days of the last surviving borrower's death, among other requirements. If that's your situation, talk to the servicer and the attorney before anyone talks about selling.

How do you sell a house with a reverse mortgage in Monmouth or Ocean County?

1. Find out who can sign. A power of attorney ends at death, according to the Ocean County Surrogate's probate guide. Authority comes from the Surrogate. In Ocean County, certificates are issued on the 11th day after death when there's a will and the 6th day when there isn't (Ocean County Surrogate). The estate's attorney confirms who holds it.
2. Call the servicer. Tell them about the death, ask for the payoff and the timeline in writing, and ask what they need to grant an extension.
3. Get a real number. Start with my home value tool, then let me walk the house. With a 95 percent floor in play, the price has to be backed by data, not hope.
4. Get the house ready fast. I spent years building and remodeling New Jersey homes, so I'll tell you which repairs pay and which ones a buyer won't pay for. On a reverse mortgage timeline, there's no room for projects that don't pay.
5. Keep the paper trail. Everyone involved gets the same written update at every milestone, which also gives the estate the documentation an extension request needs.

For the full sequence from first call to closing, read my Estate & Probate Guide or see how I handle estate home sales.

Frequently Asked Questions

Do heirs have to pay a reverse mortgage out of their own pocket?

Not when the house sells for at least 95 percent of its appraised value. The CFPB says the mortgage insurance the borrower paid covers the rest of the loan in that case.

How long do heirs have after the due and payable notice?

The CFPB says 30 days to buy, sell or turn the home over, possibly extended up to six months. HUD's heirs brochure says lenders may approve 90-day extensions with documentation that the house is being sold or the loan repaid.

Who pays the property taxes and insurance until the house sells?

HUD's brochure says they stay the estate's responsibility until title is transferred. Ask the estate's attorney how to handle the payments.

Do these rules apply to every reverse mortgage?

They're the rules for HECMs, the FHA-insured kind, which the CFPB calls the most common type. If the loan is a different kind, its own documents control, so ask the servicer.

This is general information, not legal, tax or lending advice. Talk with the estate's attorney, the loan servicer or a HUD-approved housing counselor about your situation.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• What happens to a regular mortgage when you inherit a house in New Jersey
• How long probate takes in New Jersey
• How to protect a vacant inherited house while it's for sale
• The Estate & Probate Guide
• Have a question this didn't answer? Send it to Dennis Mark.