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What Happens With a Reverse Mortgage After Death?

Michael A. Siefert, P.A. Dec. 6, 2023

Reverse Mortgage Inscribed on Wooden Blocks with Model HouseAs an estate planning attorney based in Ocala, Florida, I'm often asked about reverse mortgages and the challenges heirs may face. Many of my clients throughout Marion County have found themselves grappling with these issues after the death of a loved one.

Reverse mortgages can be overwhelming, particularly for heirs who may not be familiar with the process. So, my goal with this article is to shed some light on the basics of reverse mortgages, how they affect heirs, and the options available for repaying the mortgage. 

What Is a Reverse Mortgage?

First things first: What even is a reverse mortgage? A reverse mortgage is a type of loan specifically designed for homeowners ages 62 or older.  

Unlike a traditional mortgage where you make monthly payments to the lender, a reverse mortgage provides you with funds that don't need to be repaid until certain conditions are met or you pass away.  

This type of mortgage enables homeowners to access the equity in their homes without having to sell the property. Instead, a lender gives you funds that can be received as a lump sum, a line of credit, or regular monthly payments. 

There are various types of reverse mortgages available, but the most popular one is the FHA-insured Home Equity Conversion Mortgage (HECM). This type of reverse mortgage is insured by the Federal Housing Administration (FHA), providing certain protections for both borrowers and lenders. 

How Does a Reverse Mortgage Affect Heirs?

When a homeowner with a reverse mortgage passes away, their heirs inherit the home subject to the reverse mortgage lien. This means that the heirs don't receive the property free and clear, but rather with the outstanding reverse mortgage debt, including any fees and interest that have accrued. 

Heirs who wish to keep the home often face challenges and delays when dealing with the loan servicer. Shoddy loan servicing practices can complicate routine paperwork, debt calculations, and communication with borrowers or heirs. It's essential for heirs to be aware of their options and understand the potential obstacles they may encounter. 

Under the guidelines set by the U.S. Department of Housing and Urban Development (HUD), heirs generally have six months to satisfy the reverse mortgage debt. They can request a 90-day extension if the property is still on the market after six months or if they're actively seeking financing, subject to HUD's approval. Another 90-day extension can be requested, but the servicer may initiate foreclosure proceedings during this time. 

Options for Your Heirs for Repaying a Reverse Mortgage

Heirs have four options for repaying a reverse mortgage and resolving the outstanding debt: 

  1. Pay back the loan: Heirs can choose to pay off the reverse mortgage by repaying the lesser of the mortgage balance or 95% of the current appraised value of the home. The remaining loan balance will be covered by FHA insurance. 

  1. Sell the home: Heirs can sell the property and use the proceeds to repay the reverse mortgage. They can sell the home for the full amount of the debt owed on the loan or at least 95% of the current appraised value of the property. 

  1. Deed the home to the lender: In this option, the heirs sign the property's title over to the lender, and the lender becomes the new owner of the home. 

  1. Let the lender foreclose: If the heirs choose not to take any action, the lender will initiate foreclosure proceedings and sell the property to repay the debt. 

It's important for heirs to carefully consider each option and consult with professionals, such as attorneys or financial planners, to make informed decisions that align with their specific circumstances and future goals. 

Common Reverse Mortgage Problems for Heirs

When a homeowner with a reverse mortgage passes away, the loan becomes due, and the heirs are responsible for repaying the debt. This can lead to several problems, including dealing with loan servicers, keeping up with the home's maintenance, and even facing foreclosure. 

  • Dealing with loan servicers - It's not uncommon for heirs to encounter delays, red tape, and frustration during this process. Routine paperwork, debt calculations, and communication can be hindered by shoddy loan servicing practices. In many cases, servicers won't negotiate or communicate during the workout process, leading to unnecessary stress and potential foreclosures. 

  • Home maintenance and upkeep - While heirs are trying to work out their options for repaying the reverse mortgage, they're also responsible for the home's upkeep, taxes, and insurance. This can become a significant burden, especially if the heirs live out of state or have limited resources. 

  • Risk of foreclosure - If the heirs cannot repay the loan, sell the house, or deed the home back to the lender, the lender has the right to foreclose on the property. The U.S. Department of Housing and Urban Development (HUD) guidelines state that servicers should resolve the loan within six months of a death, but extensions can be requested. However, the servicer can still pursue foreclosure during this time. 

When faced with any of these challenges, I recommend communicating with other heirs about the loan and repayment alternatives. If an inherited home subject to a reverse mortgage is facing foreclosure, consulting with a foreclosure lawyer can be extremely beneficial to understand your rights and options. 

Prepare for the Road Ahead

Remember, you're not alone in this. As your attorney, I'm here to provide clear explanations and responsive communication to guide you through these complexities. Together, we can address your reverse mortgage questions and prepare you for any future probate-related procedures. Contact me at Michael A. Siefert, P.A. to schedule a time to talk about your situation. From my Ocala estate planning firm, I'm proud to work with clients across Marion County.