Heirs face tight deadlines when reverse mortgage comes due

Key facts

• Reverse mortgage loans become due and payable upon the borrower's death.
• Heirs typically have 30 days to resolve the loan by selling the home, buying it out, or returning it to the lender.
• The deadline can be extended up to six months for heirs to sell the property or secure financing.
• If the home's value exceeds the loan balance, heirs can sell it and keep the profit.
• If the home's value is less than the loan balance, heirs can sell it for at least 95% of its appraised value, with the remaining debt covered by mortgage insurance.
• Heirs who want to keep the home must pay the full loan balance.

When a borrower dies, a reverse mortgage loan, most commonly a federally insured Home Equity Conversion Mortgage (HECM), becomes due and payable. Heirs must then decide whether to sell the home, pay off the loan to keep the property, or turn the home over to the lender to satisfy the debt. The Consumer Financial Protection Bureau (CFPB) states that heirs have an initial 30-day period after a due and payable notice is issued to take action, with potential extensions up to six months to facilitate a sale or financing.

The National Consumer Law Center (NCLC) has emphasized the need for clear and prompt communication from loan servicers to assist heirs in navigating the probate process and property transfer. If heirs choose to sell, they can keep any equity remaining after the loan is repaid. However, if the home's value is less than the loan balance, heirs can satisfy the debt by selling the property for at least 95% of its appraised value, with the remaining shortfall covered by borrower-paid mortgage insurance, a nonrecourse feature that protects heirs from owing more than the home is worth.

Those wishing to retain the home must pay the full loan balance, which often requires securing a traditional mortgage. The NCLC highlights that many borrowers take out HECMs due to financial need, and their heirs may share similar financial vulnerabilities, underscoring the importance of proactive servicing and housing counseling. The NCLC recommends that HUD require servicers to communicate actively with borrowers and refer them to counselors starting at least three years before expected exhaustion of life expectancy set-aside funds. The CFPB advises borrowers to discuss repayment options and create estate plans to prepare their heirs for these decisions, especially as the aging baby boomer population means more families will face this situation.