On a Reverse Mortgage, Who Owns the House?

A reverse mortgage allows homeowners, typically those aged 62 or older, to convert a portion of their home equity into cash. This loan is secured by the home’s value and provides funds without requiring monthly mortgage payments. Homeowners often wonder if they retain ownership. With a reverse mortgage, the homeowner keeps the title and remains the legal owner of the home.

Borrower Retains Title

When a homeowner obtains a reverse mortgage, they maintain full title and ownership of their property. The borrower’s name remains on the property’s deed throughout the life of the loan. This means the reverse mortgage is a loan secured by the home’s equity, not a sale of the home to the lender. The homeowner continues to hold all rights associated with property ownership, including the ability to sell the home at any time.

Homeowners can live in the home for as long as they wish. The funds received from a reverse mortgage are typically tax-free and do not affect Social Security or Medicare benefits. This financial structure provides a way for eligible individuals to access their home’s value while retaining their primary residence.

Lender’s Security Interest

While the homeowner retains ownership, the lender secures its interest through a lien. A lien is a legal claim against the property, serving as collateral for the loan. It provides the lender a right to the home if loan terms are not met, but it does not transfer ownership. The lien ensures the loan will be repaid from the home’s value when the loan becomes due.

The property cannot be sold or transferred without the reverse mortgage being satisfied. The loan balance increases over time as interest accrues and funds are advanced to the borrower. However, the non-recourse feature, typical of federally insured Home Equity Conversion Mortgages (HECMs), ensures that the borrower or their estate will never owe more than the home’s value when the loan is repaid.

Ongoing Homeowner Responsibilities

Despite not making monthly mortgage payments, homeowners with a reverse mortgage have specific ongoing responsibilities. A primary requirement is to keep the home as the principal residence, meaning the borrower must live in the property for the majority of the year. If the home ceases to be the primary residence for more than 12 consecutive months, the loan may become due and payable.

Homeowners are also responsible for paying property taxes and maintaining homeowner’s insurance on time. Failure to meet these financial commitments can lead to the loan becoming due and potentially result in foreclosure. The property must be kept in good repair, adhering to maintenance standards set by the Federal Housing Administration (FHA) for HECM loans. Neglecting property upkeep can also trigger a loan default, making the loan immediately due.

What Happens at Loan Maturity

A reverse mortgage loan becomes due upon specific “maturity events.” These include the death of the last surviving borrower, the sale of the home, or the borrower permanently moving out. The loan also matures if the homeowner fails to meet ongoing responsibilities, such as paying property taxes or maintaining the home. Once a maturity event occurs, the loan servicer will typically notify the borrower’s estate that the loan must be repaid.

Upon loan maturity, the homeowner or their estate has options to satisfy the debt, with the most common approach being to sell the property and use the proceeds to repay the loan balance. Any remaining equity after the loan is paid off belongs to the borrower or their heirs. If heirs wish to keep the home, they can repay the loan balance. Under the HECM program’s non-recourse feature, heirs are never personally liable for the debt and can choose to repay the loan at the lesser of the outstanding balance or 95% of the home’s appraised value. If heirs choose not to keep the home or cannot repay the loan, they can transfer the deed to the lender, avoiding foreclosure proceedings.