How Long Do You Have to Sell a House With a Reverse Mortgage?

A reverse mortgage, specifically a Home Equity Conversion Mortgage (HECM), allows homeowners aged 62 and older to convert a portion of their home equity into cash without having to make monthly mortgage payments. Unlike a traditional mortgage where you make regular payments to reduce the loan balance, with a reverse mortgage, the loan balance grows over time as interest and fees are added. The loan typically becomes due and payable when certain conditions are met, rather than on a fixed repayment schedule. This article will explain the timelines and processes involved when a reverse mortgage becomes due, particularly concerning the sale of the home.

Events Triggering Repayment

A reverse mortgage loan becomes due and payable upon the occurrence of specific events, which initiate the repayment process. One common triggering event is the death of the last surviving borrower. If there is an eligible non-borrowing spouse, the loan may not become due until that spouse also dies or permanently moves out, provided certain criteria are met.

The loan also becomes due if the home is no longer the primary residence of the borrower for a specified period. This includes situations where the last surviving borrower moves out permanently, such as selling the home or relocating to a nursing home or other long-term care facility. If a borrower is absent from the home for more than 12 consecutive months due to physical or mental illness, or more than six months for non-medical reasons, the loan can be called due.

Additionally, failure to meet the ongoing obligations of the loan can trigger repayment. These obligations include paying property taxes, maintaining homeowner’s insurance, and keeping the property in good repair. If these requirements are not fulfilled, the lender may declare the loan due and payable, potentially leading to foreclosure.

Standard Repayment Period

Once a triggering event occurs, the lender will notify the borrower or their estate and heirs that the reverse mortgage loan is due. This notification, a “Due and Payable” letter, is sent within 30 days of the lender being informed of the event. This letter outlines the outstanding loan balance, the available repayment options, and the timeframe for responding.

Heirs or the estate have an initial 30-day period to contact the lender and indicate their intent to either repay the loan or sell the property. Following this initial contact, a standard repayment period of six months is granted. This six-month window is the timeframe for heirs to either pay off the loan balance or sell the home to satisfy the debt.

During this period, interest and other applicable fees, such as mortgage insurance premiums, continue to accrue on the loan balance. Active communication with the loan servicer is important to understand requirements and avoid complications.

Repayment Options

When a reverse mortgage becomes due, several options are available to satisfy the loan, with selling the home being a common choice. If the home is sold, the proceeds are used to repay the reverse mortgage balance, including accrued interest and fees. Any remaining equity after the loan is paid off belongs to the borrower or their heirs.

A key protection for borrowers and their heirs is the “non-recourse” feature of most reverse mortgages. This means that the amount owed can never exceed the home’s value at the time the loan becomes due and the home is sold. If the sale proceeds are less than the outstanding loan balance, the mortgage insurance covers the shortfall, and the heirs are not personally liable for the difference. In such cases, heirs can sell the home for at least 95% of its appraised value to satisfy the debt.

Heirs also have the option to keep the home by paying off the reverse mortgage. This can be done by using other assets, or by obtaining a new traditional mortgage to refinance the reverse mortgage balance. If heirs choose to keep the home, they pay the lesser of the loan balance or 95% of the appraised value. Another option is a “Deed in Lieu of Foreclosure,” where heirs transfer the property’s title to the lender to avoid a foreclosure. This can be a practical solution if the heirs do not wish to keep or sell the home.

Requesting Extensions

The standard six-month repayment period can be extended, providing more time to manage the sale or repayment of the home. Borrowers or their heirs can request two additional three-month extensions, potentially allowing for a total repayment period of up to 12 months. These extensions are subject to approval by the Department of Housing and Urban Development (HUD) for HECM loans.

Timely communication with the loan servicer is important. Heirs must demonstrate active efforts to sell the property, such as listing it with a real estate agent. Maintaining the property and ensuring that property taxes and homeowner’s insurance remain current during the extension period are also requirements.

The lender’s approval of extensions is based on HUD guidelines, emphasizing continued progress toward resolving the loan. This structured extension process allows for flexibility, acknowledging that selling a home or arranging financing can take time. Documentation of ongoing efforts to sell or repay the loan is advisable to support extension requests.