There’s a lot to think about following the death of a loved one. Is there a will in place that legally states who in the family receives certain belongings? Does it mention how to go about dividing the profits from a future real estate transaction?
One thing that can really complicate this process is if your loved one had a reverse mortgage on their house. While they hopefully enjoyed years of mortgage-free living thanks to a significant amount of equity in their home, it’s now up to you to determine the next steps. Yet many heirs in this situation have no idea how to handle a reverse mortgage, let alone the possible implications if they fail to act swiftly.
Let’s take a closer look at what heirs can expect when it comes to this type of loan.
Reverse mortgage problems for heirs
As we’ll discuss in greater detail in the next section, the beneficiary must decide how to proceed with the loan balance. Is there a plan for someone else in the family to live in the house? If that’s the case, you’ll have to talk to the lender about paying off the mortgage.
The main issue is that few beneficiaries have the necessary funds to proceed with such a large financial transaction. Alternatively, you could choose to put the home on the market. It’s probably considered the safest option, even though you might regret no longer having the house in the family.
Foreclosure is obviously the worst-case scenario. Some beneficiaries see this as the quickest, most painless route if they don’t have the funds to pay back the loan nor the time to sell the house. Just be mindful that your loved one’s estate could be held liable for a portion of the loan repayment depending on how things play out at auction.
Related: Can someone take over my mortgage payments?
Responsibility of heirs
According to Forbes, “The best initial step is for heirs to take the most recent reverse mortgage statement the borrower received from the lender and review the outstanding balance on the statement.” Doing so helps you to know exactly how much equity is left in the property. If you find that there is equity remaining, then you should narrow your options to either keeping or selling the property.
An heir may sign a deed-in-lieu of foreclosure in the event that the balance exceeds the loan’s value or they have no interest in keeping the home. This approach essentially gives the house back to the lender.
Whatever your decision, be sure to remain in communication with the lender. The last thing you want is to deal with more heartache during an already difficult time.
Reverse mortgage foreclosure timeline
Once a reverse mortgage homeowner dies, the lender sends a letter to the heirs explaining that the loan is due. Beneficiaries then have 30 days to figure out how they want to proceed. That’s why lenders suggest finalizing a strategy in advance.
Lenders typically give heirs six months to complete the transaction. It’s important to stay on track, whether you end up selling the residence or keeping it. Again, reach out to your lender with updates, and don’t hesitate to ask for help along the way.
Selling a house with a reverse mortgage
Many beneficiaries dread the idea of selling their loved one’s home. They might assume there are a number of additional steps in the process and would rather pursue other options. The good news is that selling a house with a reverse mortgage isn’t much different than selling any other home.
AAG recommends first confirming the amount owed on the loan and obtaining a payoff quote. Next, find a real estate agent who will list, market, and sell the property. The proceeds from the sale should go directly toward your reverse mortgage loan balance. Any surplus funds are yours to keep.
Making sense of this loan program
Reverse mortgages allow borrowers to enjoy their golden years without having to worry about their home loan. If you’re at least 62 years old, own your home, and live in that home as your primary residence, you may be eligible for this loan. You’ll just continue to be responsible for property taxes, homeowners insurance, and general upkeep.
Interested in learning more about reverse mortgages? American Financing has you covered with various resources dedicated to this loan program. Check out why you should use a reverse mortgage, the benefits of a reverse mortgage, and whether this loan retires with you.
You can also call one of our mortgage consultants at (800) 910-4055.
FAQs
A reverse mortgage loan becomes due and payable after your death and after the death of any coborrowers or of an eligible nonborrowing spouse. Once your heirs receive a due and payable notice from the lender, they have 30 days to buy, sell, or turn the home over to the lender to satisfy the debt.
What happens with a reverse mortgage when the owner dies? ›
Usually, the borrower's heirs pay off the loan by selling the house securing the reverse mortgage. The proceeds from the sale are used to pay off the mortgage. If there's any money remaining after the loan is paid off, the heirs get to keep it.
Are heirs responsible for reverse mortgage debt? ›
Heirs or family members are not inherently responsible for the reverse mortgage debt. They are only responsible for the outstanding debt if they decide they want to keep the property or handle the sale of the property.
Who is responsible for a reverse mortgage? ›
The homeowner continues to bear all the responsibilities of a homeowner, including making repairs and paying taxes and insurance. In a reverse mortgage, there is no regulatory requirement for an escrow account for payment of taxes and insurance.
What letter do you get after death for reverse mortgage? ›
Your Rights When Inheriting a Reverse Mortgage
Typically, when a homeowner passes away, the lender will send a letter to the homeowner's heirs notifying them that the loan is due. Under the law, heirs have 30 days from receiving the due notice to decide what they want to do to satisfy the debt.
Can someone sell their house with a reverse mortgage? ›
When you sell your home your reverse mortgage loan will need to be paid back. If you decide to sell your home while you have a reverse mortgage loan, you will have to pay back the money you borrowed plus interest and fees.
Can you lose your house with a reverse mortgage? ›
The problem, say advocates, is that many senior homeowners don't understand the fine print in a reverse mortgage. Some wrongly assume the lender will pay the taxes and insurance. But fall behind on those payments or fail to maintain the home, and the lender can foreclose.
Are children responsible for parents reverse mortgage? ›
An adult child who inherits a home that has a reverse mortgage would need to pay off the balance to keep the home, though they're not legally obligated to do so. If your parents have a reverse mortgage, it's important to be prepared for any financial obligations that they may leave behind once they pass away.
What is the downside to a reverse mortgage? ›
But the risks can be serious — reverse mortgages come with high upfront costs and can make you ineligible for some government benefits. Plus, since the loan has to be repaid upon your death (which often means selling the house), you may not have an inheritance to leave for your heirs.
Does the bank own your house at the end of a reverse mortgage? ›
+ With a reverse mortgage, will the lender eventually own my home? No. The borrower(s) retains title to the property. The reverse mortgage lender is merely extending a loan to the borrower.
According to this rule, the initial amount that a homeowner can borrow through a reverse mortgage is limited to 60% of the home's appraised value or the maximum claim amount, whichever is less.
Can a family member take over a reverse mortgage? ›
Yes, inheriting a house with a reverse mortgage is possible. If a loved one decides to take out a reverse mortgage on the home, and then chooses you as the heir to that home, then you would inherit the home with the reverse mortgage on it.
How long can a mortgage stay in a deceased person's name? ›
No, a mortgage can't remain under a deceased person's name. When the borrower passes away, the loan won't disappear. Instead, it needs to be paid. After the borrower passes, the responsibility for the mortgage payments immediately falls on the borrower's estate or heirs.
What happens when someone with a reverse mortgage dies? ›
A reverse mortgage loan becomes due and payable after your death and after the death of any coborrowers or of an eligible nonborrowing spouse. Once your heirs receive a due and payable notice from the lender, they have 30 days to buy, sell, or turn the home over to the lender to satisfy the debt.
What heirs need to know about reverse mortgages? ›
As an heir, you will have the option to decide whether you want to repay the loan balance and keep the home, sell the home, or walk away and let the lender dispose of the property. If you choose to keep the home, you can either pay off the entire loan balance or 95% of the home's appraised value—whichever is less.
What happens if you live too long on a reverse mortgage? ›
If the end of your term is up before you pass away, then you have outlived your reverse mortgage proceeds. With a term payment plan, you reach your loan's principal limit—the maximum that you can borrow—at the end of the term. After that, you won't be able to receive additional proceeds from your reverse mortgage.
Can a family member take over a mortgage after death? ›
The right to potentially assume (take over) the mortgage.
All successors in California have a right to apply for an assumption of the loan, as long as the loan is assumable. The servicer may evaluate your creditworthiness, including your credit scores, when considering you for an assumption.
Does the bank own your house after a reverse mortgage? ›
No. When you take out a reverse mortgage loan, the title to your home remains with you. This webpage has information about HECMs, which are the most common type of reverse mortgage. Most reverse mortgages are Home Equity Conversion Mortgages (HECMs).
