With a Reverse Mortgage, What Happens When You Die?

A reverse mortgage allows homeowners, typically aged 62 and older, to convert a portion of their home equity into cash. Unlike a traditional mortgage, it does not require monthly payments. The loan balance grows over time as interest and fees accrue, and repayment is deferred until a specific event occurs. Understanding what happens to the reverse mortgage and the property after the borrower’s passing is a common and important concern.

What Triggers Repayment

A reverse mortgage loan becomes due and payable upon the death of the last surviving borrower. The full loan balance, which includes the principal advanced, accrued interest, and any associated fees, must be repaid to the lender. The home serves as the asset to satisfy this debt. Heirs do not automatically gain the right to continue living in the home under the terms of the reverse mortgage once the last borrower has passed away.

Repayment Options for Heirs

When a reverse mortgage becomes due and payable, the property passes to the borrower’s estate and then to the heirs. Heirs inherit the home, not the reverse mortgage debt. They are presented with several options to resolve the outstanding loan, ensuring they do not become personally liable for the debt.

Heirs can pay off the loan balance. They may repay the full amount owed or 95% of the home’s current appraised value, whichever is less. This repayment can be financed through personal funds, by obtaining a new traditional mortgage, or through other financial arrangements. If heirs wish to keep the property, they must make this repayment.

Alternatively, heirs can sell the property to satisfy the reverse mortgage. The home is listed for sale, and proceeds from the sale are used to pay off the reverse mortgage. Any remaining equity, after the loan and selling costs are covered, goes to the estate or the heirs.

A third option is surrendering the property to the lender through a “deed in lieu of foreclosure.” This allows heirs to voluntarily transfer the property’s title to the lender, avoiding formal foreclosure.

If heirs take no action to repay the loan or sell the property within the specified timeframe, the lender will initiate foreclosure proceedings. Heirs are not personally liable for the debt in this scenario; the property secures the loan, and its sale through foreclosure settles the obligation.

Selling the Property

If heirs sell the property to repay the reverse mortgage, they must notify the lender of their intent. Lenders typically provide about six months for heirs to complete the sale. Extensions may be available in three-month increments if heirs demonstrate active efforts to sell. During this period, an appraisal of the home is usually required to determine its current market value.

Heirs work with a real estate agent to list and market the home. Once a buyer is found, the reverse mortgage is paid off directly from the sale proceeds at closing. Any funds remaining after the reverse mortgage and all closing costs are satisfied are then distributed to the estate or the heirs.

What if the Loan Exceeds Home Value

Many reverse mortgages, especially federally insured Home Equity Conversion Mortgages (HECMs), are non-recourse loans. This means if the outstanding loan balance exceeds the home’s appraised value when due, heirs are not personally responsible for the difference. The lender cannot pursue other assets from the estate or heirs to cover any shortfall.

In such cases, the property is surrendered to the lender, and the debt is considered fully satisfied. The Federal Housing Administration (FHA) insurance, which borrowers typically pay for throughout the life of the loan, covers the difference between the loan balance and the home’s value for HECMs. This protection ensures that heirs will never owe more than the home is worth, or 95% of its appraised value, whichever is less, when settling the loan.

Timeline and Process

Upon the death of the last surviving borrower, heirs should notify the reverse mortgage servicer, typically within 30 days. A death certificate is required. This initial contact triggers the formal process for resolving the reverse mortgage.

Within about 30 days of receiving notice, the lender sends a “Due and Payable Notice” to the estate. Heirs typically have about 30 days from receiving this notice to inform the lender of their chosen action: repaying the loan, selling the home, or surrendering the property.

Heirs are generally granted about six months to finalize repayment or sale. If more time is needed, heirs can request extensions, potentially extending the total timeframe up to 12 months. These extensions usually require demonstrating ongoing efforts to resolve the debt, such as listing the home for sale. If deadlines are not met, the lender may initiate foreclosure proceedings, but the non-recourse nature of the loan protects heirs from personal liability.