What Happens to a Reverse Mortgage When You Die?

A reverse mortgage allows homeowners, typically those aged 62 or older, to convert a portion of their home equity into cash without selling their home or making monthly mortgage payments. This financial tool enables access to funds as a lump sum, a line of credit, or regular payments. The loan balance, which includes accrued interest and mortgage insurance premiums, becomes due and payable when certain events occur. The most common triggering event is the death of the last surviving borrower.

Initial Actions After Death

Upon the death of the last surviving borrower, the reverse mortgage loan becomes due. The estate, heirs, or executor must promptly notify the loan servicer of the borrower’s passing to initiate the resolution process. The servicer requires documentation to confirm death and the legal authority of those managing the estate.

Required documents include a certified copy of the death certificate. Other documentation, such as Letters Testamentary, Letters of Administration, or a trust agreement and appointment of trustee, may be necessary to establish the legal right to make decisions. Until legal authority is verified, the servicer may be limited in what information they can share due to privacy regulations. Prompt submission of these documents is important to avoid delays.

Estate’s Options for Resolution

The estate or heirs have several options to satisfy the loan debt. One option is to repay the outstanding loan balance to retain ownership of the home. The amount due is the lesser of the full loan balance or 95% of the home’s current appraised value. This allows heirs to keep the property, potentially through a new mortgage or other available funds.

Another option is to sell the home to satisfy the reverse mortgage debt. If the home sells for more than the loan balance, any remaining equity after repayment is disbursed to the estate or heirs. Should the sale proceeds be less than the loan balance, the non-recourse feature of the loan, explained in detail in the next section, limits the amount owed. This option allows heirs to liquidate the asset and distribute any residual value.

A third option is a deed in lieu of foreclosure, which conveys ownership of the property directly to the lender. This is a practical choice if the home’s value is less than the loan balance and heirs do not wish to repay the loan or manage a sale. This process allows heirs to avoid the complexities and costs associated with a formal foreclosure proceeding. The lender then takes possession of the property to cover the outstanding debt.

Understanding Non-Recourse Protection

A key protection for borrowers and heirs in a reverse mortgage, particularly for federally insured Home Equity Conversion Mortgages (HECMs), is its non-recourse nature. This means the lender’s recovery is limited solely to the home’s value. Heirs are not personally liable for any loan balance that exceeds the home’s value at the time of sale or payoff. This protection ensures other estate assets or heirs’ personal finances are not at risk if the home’s value declines below the loan amount.

For HECMs, if the loan balance is greater than the home’s appraised value, heirs can choose to pay off the loan at 95% of the current appraised value. Alternatively, they can sell the home for 95% of its appraised value, and the lender will accept the net proceeds as full satisfaction of the loan. The Federal Housing Administration (FHA) mortgage insurance, paid by the borrower during the loan’s life, covers any shortfall between the sale price (or 95% of appraised value) and the full loan balance. This federal insurance provides security, protecting both the lender and the heirs from losses.

Surviving Non-Borrowing Spouses

For HECMs, rules allow an “eligible non-borrowing spouse” to remain in the home and defer the loan’s repayment. These rules apply to loans issued on or after August 4, 2014. To qualify for this deferral, the surviving spouse must meet criteria established by the Department of Housing and Urban Development (HUD).

To qualify, the surviving spouse must:
Have been married to the borrower at loan closing and remained married until the borrower’s death.
Have had their information disclosed to the lender before loan closing.
Have occupied the property as their principal residence at loan origination and continue to do so.

While they can continue to live in the home, they are not eligible to receive further proceeds from the reverse mortgage. The surviving spouse must also continue to meet all other loan obligations, such as paying property taxes, homeowners insurance, and maintaining the home. Failure to meet these ongoing requirements can cause the loan to become due, potentially leading to foreclosure.

Navigating the Resolution Process

Resolving a reverse mortgage after a borrower’s death requires adherence to specific timelines and communication with the loan servicer. The servicer typically sends a “Due and Payable” notice to the estate within 30 days of receiving notification of the borrower’s death. This notice informs the heirs of the outstanding balance and the available options for resolving the debt.

Heirs generally have six to twelve months to decide on a resolution strategy, with potential for extensions. Consistent engagement with the servicer is important to manage timelines and request extensions if needed. To obtain a payoff statement, heirs or their authorized representatives must submit a written request to the servicer, including the FHA case number, property address, borrower’s name, and anticipated payoff date. The servicer will then provide the necessary payoff figures and instructions.

Regardless of the chosen path—repayment, sale, or deed in lieu—the servicer will require documentation to process the transaction. This might include appraisal reports if selling, or particular forms for a deed in lieu. If the estate or heirs fail to take action within the established timelines, the lender may initiate foreclosure proceedings to recover the loan amount.