When you die with a reverse mortgage, the loan becomes due and payable, but your heirs are not personally liable for the debt. They can sell the home, keep it by paying off the loan balance (often at 95% of appraised value), or walk away through a deed-in-lieu of foreclosure. The lender cannot pursue other assets because reverse mortgages are non-recourse loans.
Most reverse mortgages are Home Equity Conversion Mortgages (HECMs) insured by the Federal Housing Administration (FHA). The rules below apply to HECMs unless noted. Proprietary reverse mortgages from private lenders may have different terms, so check the loan agreement.
What Happens Immediately After the Borrower Dies
The loan servicer must be notified of the death. Typically, the servicer sends a due-and-payable notice within 30 days of learning about the death. Heirs then have 30 days to respond with their intended course of action. If they plan to sell the home or pay off the loan, they generally have up to six months to complete the process, with possible extensions of up to two additional three-month periods if they are actively working toward resolution.
During this time, the estate is responsible for maintaining the property, paying property taxes, and keeping homeowners insurance current. Failure to do so could trigger foreclosure.
Options for Heirs
Heirs have three main options:
- Sell the home: If the home's market value exceeds the loan balance, heirs can sell the home, pay off the reverse mortgage, and keep any remaining equity. The sale must be an arm's length transaction, and the proceeds first go to the lender.
- Keep the home: Heirs can keep the home by paying off the loan balance. For HECMs, they may pay the lesser of the loan balance or 95% of the home's appraised value. This often requires refinancing into a traditional mortgage or using other funds.
- Walk away: If the loan balance exceeds the home's value, heirs can sign a deed-in-lieu of foreclosure, transferring ownership to the lender. Because the loan is non-recourse, neither the heirs nor the estate owe the difference. The FHA insurance covers the shortfall.
Heirs should contact the loan servicer promptly to discuss these options and obtain the necessary forms.
Non-Borrowing Spouse Protections
If a spouse was not a co-borrower on the reverse mortgage but still lives in the home, they may be eligible for a deferral period. Under HUD rules, an eligible non-borrowing spouse can remain in the home and defer repayment until they die, sell, or move out permanently. To qualify, the spouse must have been married to the borrower at the time of loan origination, be named in the loan documents, and continue to meet obligations such as paying property taxes and insurance.
This protection applies only to HECMs with case numbers assigned after August 4, 2014. For older loans, the spouse may need to take other actions, so consult the servicer.
Timeline and Deadlines
The process has specific deadlines:
- 30 days: Servicer sends due-and-payable notice after learning of death.
- 30 days: Heirs must respond with their choice.
- 6 months: Standard period to sell or pay off the loan.
- Extensions: Up to two 3-month extensions may be granted if heirs are making progress.
If heirs do nothing, the lender may initiate foreclosure. However, heirs can still act until the foreclosure is complete.
Non-Recourse Protection
Reverse mortgages are non-recourse, meaning the lender can only look to the property for repayment. If the home sells for less than the loan balance, the FHA insurance covers the difference. Heirs are not responsible for the shortfall, and their credit is not affected if they choose a deed-in-lieu.
This protection applies as long as the borrower met all loan obligations, such as paying property taxes and maintaining the home.
How to Prepare as a Borrower
Borrowers can ease the process for heirs by:
- Discussing the reverse mortgage with family members and explaining their options.
- Keeping loan documents organized and accessible.
- Ensuring property taxes and insurance are paid to avoid default.
- Considering a will or trust that addresses the home.
For more details, see the Consumer Financial Protection Bureau's guide and Finance of America's explanation.