Does a Reverse Mortgage Go Through Probate?

A reverse mortgage allows homeowners, typically aged 62 or older, to convert a portion of their home equity into cash. Unlike a traditional mortgage where homeowners make monthly payments, with a reverse mortgage, the lender makes payments to the homeowner. This financial product enables individuals to access funds through a lump sum, regular monthly disbursements, or a line of credit. The loan generally becomes due and payable when specific events occur, raising questions about its implications for the borrower’s estate and heirs.

When a Reverse Mortgage Becomes Due

A reverse mortgage loan becomes “due and payable” upon certain events. The primary event that triggers repayment is the death of the last surviving borrower or eligible non-borrowing spouse. This means the loan balance, including accrued interest and fees, becomes fully owed to the lender.

Other circumstances can also cause the loan to mature. These include the home no longer being the borrower’s primary residence, such as if they permanently move to a long-term care facility for over 12 consecutive months. Failure to maintain the property, pay property taxes, or keep homeowners insurance current can also trigger the loan to become due. Lenders will send a notice to the estate within 30 days of a triggering event, outlining the loan balance and repayment options.

How Reverse Mortgages Interact with Probate

A common misconception is that a reverse mortgage automatically goes through probate upon the borrower’s death. However, the loan repayment itself does not directly pass through probate as a general estate debt. Because a reverse mortgage is a non-recourse loan, the lender’s claim is specifically against the home’s value, not against the borrower’s other assets.

The home serves as collateral for the reverse mortgage. Upon the borrower’s death, the lender looks to the property to satisfy the loan balance. While loan repayment may not necessitate probate, probate might still be required for the transfer of the property’s title to heirs. This distinction is important, as transferring ownership to heirs, either through a will or intestacy laws, often requires court oversight to ensure clear title before the property can be sold to repay the loan. If the home is subject to probate, the reverse mortgage repayment process may be delayed until probate concludes, impacting the estate settlement timeline.

Choices for Heirs and Estate

When a reverse mortgage becomes due upon the borrower’s death, heirs or the estate face several choices regarding the property. The lender provides options to settle the debt, often within 30 days, with potential extensions up to a year. Heirs are not personally responsible for the reverse mortgage debt; their liability is limited to the home’s value.

One common option is for heirs to repay the loan balance and keep the home. This can involve paying the full loan amount or 95% of the home’s appraised value, whichever is less. Heirs might secure a new loan or use other funds to finance this repayment. Alternatively, heirs can choose to sell the home to satisfy the reverse mortgage. Any proceeds from the sale exceeding the loan balance belong to the heirs.

If heirs choose not to repay the loan or sell the home, they can allow the lender to foreclose on the property. Heirs are not personally liable for any shortfall if sale proceeds are insufficient to cover the loan balance. In some cases, heirs may opt for a deed in lieu of foreclosure, transferring the property’s deed directly to the lender to avoid foreclosure.

Special Provisions for Surviving Spouses

Federal protections exist for non-borrowing surviving spouses, allowing them to remain in the home after the borrowing spouse’s death without immediate repayment. For Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgage, specific criteria must be met for a non-borrowing spouse to qualify for this deferral.

To qualify, the non-borrowing spouse must have been married to the borrower when the loan originated and remain married until the borrower’s death. They must also have occupied the home as their primary residence when the loan was taken out and continue to do so. The non-borrowing spouse is responsible for continuing to meet the loan’s obligations, such as paying property taxes, homeowners insurance, and maintaining the property. If these conditions are met, the loan’s due and payable status can be deferred, allowing the surviving spouse to reside in the home indefinitely, though they cannot access any remaining loan funds.