In a Reverse Mortgage, Who Owns the House?

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 where the homeowner makes monthly payments to the lender, with a reverse mortgage, the lender makes payments to the homeowner. This type of loan is secured by the home, and the money can be received as a lump sum, a line of credit, or through regular monthly disbursements. Many people mistakenly believe that taking out a reverse mortgage means giving up ownership of their home, but this is not the case. This article clarifies the true ownership structure of a home with a reverse mortgage.

Understanding Reverse Mortgage Ownership

Homeowners retain ownership and title to their home throughout a reverse mortgage. This financial product is a loan, not a sale, so the homeowner’s name remains on the deed. The home acts as collateral, similar to a traditional mortgage, but the lender does not take ownership. Instead, the lender places a lien on the property, a legal claim against the asset to secure the debt.

As interest accrues and funds are disbursed, the homeowner’s equity decreases. However, this reduction does not transfer ownership. The homeowner maintains all rights and responsibilities associated with property ownership.

Borrower Responsibilities and Maintaining Ownership

Homeowners retain title but have ongoing obligations to maintain ownership. Borrowers must pay property taxes on time, maintain homeowners insurance, and keep the home in good repair. These duties are similar to those with a traditional mortgage. Failure to meet these responsibilities can make the loan due and payable, potentially jeopardizing ownership.

The property must also remain the borrower’s principal residence. This means the homeowner must live in the home for most of the year. If the home ceases to be the primary residence for over 12 consecutive months, the loan may be called due. These conditions ensure the property remains viable collateral.

Loan Maturity and What Happens Next

A reverse mortgage loan does not have a fixed maturity date. Instead, it becomes due and payable upon specific “maturity events.” Triggers include the death of the last surviving borrower, the sale of the home, or the borrower permanently moving out. Failure to comply with loan terms, such as neglecting property taxes, insurance, or home maintenance, can also cause the loan to mature.

When a maturity event occurs, the outstanding loan balance, including principal, accrued interest, and fees, must be repaid. The lender typically sends a “Due and Payable” notice to the borrower’s estate within 30 days of verifying the event. The estate or heirs are generally provided about six months to repay the loan. Extensions, usually in 90-day increments, may be granted, especially if the property is being sold or refinanced.

Heirs’ Options

Once a reverse mortgage loan becomes due, the borrower’s heirs or estate have several options. One choice is to repay the loan balance and retain ownership. For federally insured Home Equity Conversion Mortgages (HECMs), heirs can repay the lesser of the outstanding loan balance or 95% of the home’s appraised value. This allows heirs to keep the property, potentially by obtaining new financing.

Another common option is to sell the home to satisfy the debt. Any remaining equity after repayment belongs to the estate or heirs. If heirs do not wish to keep or sell the home, they can deed the property to the lender, a process known as a deed in lieu of foreclosure. Reverse mortgages are non-recourse, meaning heirs are not personally liable for the debt if the home’s value is less than the loan balance.