Selling a house with a reverse mortgage

How reverse mortgages work, briefly

A reverse mortgage lets older homeowners borrow against the equity in their home without making monthly mortgage payments. Instead of the balance going down over time like a regular mortgage, it usually goes up, because interest and fees are added to the loan. The loan is generally repaid later, when the house is sold or the last borrower no longer lives there.

Most reverse mortgages in the United States are Home Equity Conversion Mortgages, or HECMs, which are insured by the Federal Housing Administration. There are also private or proprietary reverse mortgages with different rules. This page focuses on the most common situations involving HECMs, but always check the specific terms of the loan you're dealing with.

We're not attorneys or financial advisors. The servicer, an attorney, and a HUD-approved housing counselor are the right people for specifics.

When a reverse mortgage comes due

A reverse mortgage generally becomes due and payable when one of these happens:

• The last surviving borrower passes away
• The last borrower permanently moves out, for example into assisted living or a nursing home, often after being away for an extended period
• The house is sold
• The borrower doesn't meet the loan's obligations, such as paying property taxes and homeowner's insurance or keeping the house in reasonable repair

Once the loan is due, the servicer will contact the borrower or the estate and explain the options and the timeline.

Selling while the borrower is still living

A borrower can sell the house at any time, just like with any other mortgage. The reverse mortgage balance is paid off from the sale at closing, and the borrower keeps whatever equity remains. People often sell because they're moving closer to family, into a smaller home, or into a care setting.

If the borrower is moving into long-term care, it's worth acting early. Being away from the home for an extended period can trigger the loan coming due, and it's better to plan the sale on your own timeline than to react to a servicer's notice.

When heirs inherit a house with a reverse mortgage

This is the situation we hear about most. A parent had a reverse mortgage, the parent has passed away, and now the family has received a letter from the servicer saying the loan is due.

Heirs generally have several options:

• Pay off the loan, either with their own funds or by refinancing, and keep the house
• Sell the house and use the proceeds to pay off the loan
• Sign the house over to the lender through a deed in lieu of foreclosure, if they don't want to deal with it
• Do nothing, in which case the lender will eventually foreclose

For most families, selling is the most practical choice, especially if no one wants to live in the house and there's equity left after the loan is paid.

Timelines matter

Servicers set deadlines for heirs to respond and act once the loan becomes due. Extensions may be available in certain circumstances, for example if the heirs are actively trying to sell. But these rules are specific to the loan and the servicer, and they aren't open-ended.

The most important step is to contact the servicer quickly, tell them about the death, and ask in writing exactly how long you have, what documents they need, and what extensions might be possible. Keep records of every conversation.

What if the house is worth less than the loan balance?

This is where HECMs offer an important protection. HECMs are non-recourse loans, which generally means neither the borrower nor the heirs are personally liable for more than the home's value. If the loan balance is higher than the house is worth, FHA insurance generally covers the difference.

HUD rules also provide that heirs who want to keep the home may be able to pay off the loan for less than the full balance, based on a percentage of the home's appraised value, when the balance exceeds the value. Ask the servicer about this if it applies to your family.

Proprietary reverse mortgages may have different terms. Read the loan documents or have an attorney do it.

Probate and reverse mortgages

If the house was in the deceased borrower's name, the estate usually needs to go through probate or administration before the house can be sold. In Suffolk County, that's the Surrogate's Court. Meanwhile, the reverse mortgage servicer's clock may be running. Let the servicer know that probate is underway, and give them updates. Many servicers are used to working with estates, but they need to see progress.

See our probate page for more on how the court process affects a sale.

Property taxes and insurance

Reverse mortgage borrowers are required to keep paying property taxes and homeowner's insurance. If those weren't paid, the servicer may have advanced the money and added it to the loan, or the loan may have been called due for that reason. Heirs should check whether taxes and insurance are current and keep insurance in force on the house while it's being sold.

The condition of the house

Many homes with reverse mortgages haven't had major updates in years. The borrowers were often retirees who stayed in the house a long time, and big repairs like a roof or a heating system may have been put off. That can make listing the house on the open market slow, and a mortgage-financed buyer's lender may require repairs before closing.

We buy these houses as-is. That means the family doesn't have to spend money on repairs before selling, which can be especially important when there's a servicer deadline.

How we help families with reverse mortgage houses

• We can move quickly to meet servicer deadlines
• We buy as-is, with no repairs or cleanout needed
• We work with the estate attorney and executor
• We coordinate with the servicer on payoff figures
• We can close in time to stop interest and fees from growing further

How the sale works

1. Contact us with the address and a brief description of the situation.
2. Share the servicer's letter, if you have one, so we understand the deadline.
3. We walk through the house once.
4. We send a written offer, with an estimate of what's left after the payoff.
5. The estate attorney reviews the contract.
6. We close, the reverse mortgage is paid off, and any remaining equity goes to the estate.

A word on emotions and family

A reverse mortgage letter often arrives at the same time a family is grieving. It's stressful to see a deadline when you're still trying to plan a funeral or sort through a parent's belongings. Take a breath. Call the servicer, call an attorney, and get a clear picture of the timeline. You have options, and selling doesn't have to happen overnight.

Questions to ask the servicer

• What is the current payoff amount, and how fast is it growing?
• What is our deadline to sell or pay off the loan?
• What documentation do you need from the estate?
• Are extensions available if we're actively selling?
• Are property taxes and insurance current?
• If the balance exceeds the value, what options apply?

Questions to ask your attorney

• Does the estate need to go through probate before selling?
• Who has authority to sign?
• Are there other debts or liens against the house?
• How should sale proceeds be handled and distributed?

If you're the borrower and thinking ahead

If you have a reverse mortgage and you're planning for the future, talk to your family now about what will happen to the house. Make sure someone knows who the servicer is, where the loan documents are kept, and what your wishes are. That one conversation can save your heirs a great deal of stress later.

Free help is available

HUD-approved housing counseling agencies can explain reverse mortgage rules at no cost, and they can help families understand their options when a loan comes due. Counseling is required before taking out a HECM, and the same agencies often help heirs and estates afterward. If you feel overwhelmed by the servicer's letters, a counselor is a good first call, and it's free.

What happens to the equity

If the house sells for more than the reverse mortgage balance plus selling costs, the remaining equity goes to the borrower, or to the estate if the borrower has passed away. Many families are surprised to learn there's equity left, especially if the loan was taken out years ago and the house has appreciated. Get a current payoff figure and a realistic estimate of the house's value before assuming there's nothing left.

Avoiding a foreclosure on a reverse mortgage

If heirs don't respond to the servicer or don't take action within the required time, the servicer may begin foreclosure. That can reduce or eliminate any remaining equity and add legal costs. Communicating early and showing that a sale is in progress can help avoid that outcome.

Common situations we see

• A widow or widower who is no longer on the loan and is trying to understand their rights to remain in the home
• Adult children who live out of state and received a due-and-payable letter
• A house that needs significant repairs that the borrower couldn't afford in later years
• An estate where several siblings must agree on selling
• A borrower moving into assisted living who wants to sell before the loan is called due

Each of these has its own rules and timeline. Spouses who aren't borrowers on a HECM may have certain protections depending on when the loan was made and how they were listed. Ask the servicer and an attorney about your specific situation.

Keep the house insured and secure

While the estate works through the sale, keep homeowner's insurance in force, keep the house heated or winterized, and check on it regularly. Damage to an empty house reduces its value and can complicate the payoff process with the servicer.

How the sale works

Questions