How Long Do Heirs Have to Pay Off a Reverse Mortgage?

A reverse mortgage allows homeowners, typically those aged 62 and older, to convert a portion of their home equity into cash. Unlike a traditional mortgage, it does not require monthly mortgage payments while the borrower lives in the home. The loan becomes due and payable when the last borrower permanently leaves the home, which often occurs upon their passing. Understanding the timelines and available options for heirs after a reverse mortgage borrower’s death helps navigate this financial situation effectively.

Establishing the Initial Timeline

The loan servicer will typically send a “Due and Payable Notice” to the estate within 30 days of receiving notification of the borrower’s death. This initial notice informs heirs that the loan must be addressed.

Heirs generally have an initial period of six months from the date of the borrower’s death to decide on a course of action. Communication with the loan servicer is important during this period to ensure all parties are aware of the status and intentions.

Extensions to this initial six-month period are often available, typically in two additional three-month increments, potentially extending the total time to 12 months. These extensions are usually granted if heirs demonstrate good faith efforts to resolve the loan, such as actively working to sell the home or secure financing. Providing evidence, like a listing agreement on the Multiple Listing Service (MLS), may be required for these extensions.

Heirs’ Resolution Paths

Heirs are presented with several distinct options to resolve a reverse mortgage after the borrower’s death. One path involves paying off the loan balance to retain ownership of the home. A significant protection for heirs under federally insured Home Equity Conversion Mortgages (HECMs) is the non-recourse feature, meaning heirs are never required to pay more than 95% of the home’s appraised value, even if the loan balance is higher. If the loan balance is less than 95% of the appraised value, heirs must repay the full outstanding loan amount to keep the property.

Another common option is selling the home to satisfy the reverse mortgage debt. If the home’s sale price exceeds the loan balance, heirs can use the proceeds to pay off the mortgage and keep any remaining equity. Should the sale price be less than the loan balance but at least 95% of the appraised value, the heirs can still sell the property, and the lender will accept the 95% amount as full satisfaction of the debt.

For situations where the home’s value is less than the loan balance, and heirs do not wish to sell or keep the property, they can choose to deed the home to the lender. This “Deed in Lieu of Foreclosure” process allows heirs to surrender the property without further obligation or impacting their credit score. If no action is taken within the established timelines, the lender will initiate foreclosure proceedings to recover the loan amount, but heirs are not personally liable for the debt.

Navigating the Resolution Process

The first procedural step for heirs is promptly notifying the loan servicer of the borrower’s death. This notification typically involves providing a certified copy of the death certificate to the servicer. Maintaining open communication with the servicer from the outset helps streamline the entire resolution process.

Heirs must also establish their legal authority to act on behalf of the deceased borrower’s estate or as rightful heirs. This often requires providing specific legal documents, such as Letters Testamentary if there is a will and an executor, or Letters of Administration if there is no will and an administrator is appointed by a court. In some cases, an Affidavit of Heirship may be sufficient to prove legal standing.

If the decision is to sell the home, heirs will work with a real estate agent and the servicer to facilitate the sale, with proceeds directed to pay off the loan at closing. Should heirs decide to pay off the loan and keep the home, they will request a payoff statement from the servicer and arrange for the funds to be remitted.

For heirs opting for a Deed in Lieu of Foreclosure, they will coordinate with the servicer to legally transfer ownership of the property. Throughout any of these processes, it is important to document all communications, agreements, and transactions with the loan servicer.