What Happens to a Reverse Mortgage When the Borrower Dies?

How a Reverse Mortgage Works Before the Borrower Dies

To understand what comes due, it helps to see what the loan was. A reverse mortgage is a loan against the home's equity. Equity is the part of the home's value that is not owed to anyone. With this loan, the borrower makes no monthly mortgage payment. Instead, the lender may pay money out under the loan's terms.

The most common type is the HECM, short for Home Equity Conversion Mortgage. It is the only reverse mortgage insured by the federal government, according to HUD's HECM program page. Federal law allows HECMs only for a homeowner who is, or whose spouse is, at least 62 (12 U.S.C. § 1715z-20(b)(1)).

A reverse mortgage is a loan, not free money, income or a government benefit. The CFPB explains that interest and fees are added to the balance each month. So the amount owed grows over time, and equity shrinks. The borrower must also live in the home as a principal residence, pay property taxes and homeowners insurance, and keep the house in good condition. If those duties are not met, the loan can come due early, and the home can be lost.

In general, the loan comes due when the last borrower dies, sells the home, or moves out. More detail on how a reverse mortgage works can help families who are new to it.

A Death Has Occurred: What Happens in the Weeks After

A family's first question is usually: what happens this week? The company that manages the loan is called the servicer. Someone has to tell the servicer about the death. That is often the executor, an heir, or another person handling the estate.

The federal rules spell out what makes the loan come due. Under 24 C.F.R. § 206.27(c)(1), the mortgage must state that the balance "will be due and payable in full if a borrower dies and the property is not the principal residence of at least one surviving borrower," unless a deferral for an eligible spouse applies.

After a death, the servicer must notify HUD within 60 days. Then, within 30 days of that notice, or of HUD's approval where needed, it must notify the borrower's estate, heirs, or eligible spouse that the loan is due (24 C.F.R. § 206.125(a)).

From the date of that notice, heirs have 30 days to act. The CFPB says that heirs have 30 days to buy, sell, or turn the home over to the lender. It also says the timeline might be extended up to six months so heirs can sell the home or get their own loan to buy it.

Federal law limits what the borrower's side owes. That point is explained below. If no one acts within the allowed time, the servicer can start foreclosure. Foreclosure is the legal process a lender uses to take and sell a home to repay a loan. Staying in touch with the servicer keeps the other choices open.

Staying in contact with the servicer is what keeps every other choice on the table.

Your Choices as an Heir: How to Repay or Resolve the Loan

Heirs often ask whether they will lose the house or be stuck with a bill. Federal rules give them a short list of paths (24 C.F.R. § 206.125(a)(2)).

Selling the home. Heirs can sell the house and use the money to repay the loan. The CFPB explains that if the home is worth more than the balance, heirs can repay the loan and keep the difference.

Paying off the balance and keeping the home. Heirs who want to keep the house can pay the loan off. They can use their own money or a new loan of their own.

The 95 percent option. This option helps when the home is worth less than the balance owed. The appraised value is a licensed appraiser's estimate of what the home is worth today. On a HECM, heirs can sell the home for at least 95 percent of that value, and that pays off the loan. In plain terms, they pay about 95 cents on the dollar of what the home is worth today, not the full balance. The CFPB says the same limit applies to heirs who keep the home: they repay the full balance or 95 percent of the appraised value, whichever is less. The mortgage insurance on the loan covers the rest.

A deed in lieu of foreclosure. This means signing the home over to the lender instead of going through foreclosure. It is listed in 24 C.F.R. § 206.125(a)(2)(iii).

Letting foreclosure proceed. Heirs who want nothing to do with the house can let the lender take it. That ends the family's ownership of the home.

Behind every option is one protection. A HECM is a non-recourse loan. That means the lender can recover only what the home is worth when it is sold. It cannot go after other money or property. Federal law says the homeowner is not liable for any gap between the debt and what the lender recovers from the sale or from the insurance (12 U.S.C. § 1715z-20(d)(7)). The FTC says this means you or your estate can't owe more than the home's value when the loan comes due and the home is sold. The home itself, though, can still be lost.

Surviving Spouses Who Are Not on the Loan

A widow or widower who never signed the loan is in a different place from other heirs. Sometimes only one spouse is listed as a borrower. The other spouse may be younger, or may have been left off the loan for another reason. When the borrower dies, that spouse often worries about having to leave right away.

Federal rules now provide a protection called the Deferral Period. Under 24 C.F.R. § 206.27(c)(3), the loan documents must delay the due date for an Eligible Non-Borrowing Spouse. The delay lasts until that spouse dies, or until the conditions stop being met and are not fixed. The HUD lender guide notes that a non-borrowing spouse must be 18 or older.

For HECMs with FHA case numbers assigned on or after August 4, 2014, the CFPB lists conditions including these:

• Named in the loan papers. The spouse must have been identified in the loan documents as a non-borrowing spouse.
• Living there. The spouse must have lived in the home at closing. They must also keep living there as their principal residence after the borrower dies.
• Meeting the loan's duties. The spouse must keep meeting the loan's requirements, such as taxes, insurance and upkeep. The loan must not come due for any other reason.

Two points matter here. First, an eligible spouse does not get any more money from the loan, the CFPB notes. Second, this is a delay, not a cancellation. The debt stays and keeps growing. It comes due when that spouse dies, sells, or moves out. The CFPB also notes that qualifying "may be difficult." It points spouses to an attorney or a HUD-approved housing counseling agency. Families weighing broader home equity options for a surviving spouse face related questions.

Probate, the Estate, and the Reverse Mortgage

Settling an estate already feels like a lot, and the house is often the biggest piece. The reverse mortgage is a lien on the home. A lien is a legal claim against the property that secures the debt. It has to be resolved as part of settling the estate.

The executor or administrator usually handles contact with the servicer. If the home must go through probate, the court process for settling an estate, it can take time. That timing can affect how quickly the loan gets resolved. Each state sets its own probate timelines. The federal HECM rules described here apply nationwide. Telling the servicer early that probate is under way, and asking about an extension, keeps both sides informed.

Some families pass a home through a trust or joint ownership and skip probate. The loan still comes due when the last borrower dies. How the house passes changes who acts on the estate's behalf. It does not change the debt. An estate attorney in the home's state can explain how probate works there and who has authority to sell or sign.

Letting the servicer know early that probate is under way is one of the most practical things an executor can do.

What to Do Right Away If You Are an Heir or Surviving Spouse

The first weeks after a death are hard, and paperwork can wait a day. When the family is ready, these steps tend to come first.

1. Tell the servicer. Its contact details are on the loan papers or recent statements. An early call starts the clock in a known way.
2. Gather the documents. These include the loan agreement, the latest statement, and any letters from the servicer.
3. Ask for a payoff statement. This shows the current balance, with interest and fees.
4. Learn what the home is worth. An appraisal helps show whether the home is worth more or less than the balance. That tells the family whether the 95 percent option matters.
5. Talk with a counselor or an attorney. The HUD page lists the HECM Counselor Roster and a counselor phone line, (800) 569-4287. An estate attorney handles questions about probate and authority to sell.
6. Keep taxes and insurance current. Unpaid property charges can add problems while the loan is being resolved.
7. Put things in writing. Letters and emails to the servicer, with copies kept, create a clear record.

None of these steps commits the family to any one path. They simply keep the choices described above open.

Taking these steps when the family is ready simply means the choices described on this page stay available.