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April 1, 2021 · Marc Cormier
Inheriting a House with a Reverse Mortgage: What You Need to Know
Inheriting a house is complicated. Inheriting a house with a reverse mortgage adds another layer. The reverse mortgage becomes due when the last surviving borrower dies, and the heirs face a set of deadlines and decisions that require prompt action.
The Timeline
When the lender receives notice of the borrower's death, they send a Due and Payable notice to the estate. The key deadlines include: at 30 days, the lender sends the notice; the estate typically has 30 days to acknowledge receipt; and the heirs generally have up to 12 months to resolve the loan through sale, payoff, or deed-in-lieu of foreclosure. These timelines can vary, and extensions are sometimes available.
Your Options
Heirs who inherit a home with a reverse mortgage have several options: sell the property and use the proceeds to pay off the loan, refinance the property with a new loan and keep it, or turn the property over to the lender through a deed-in-lieu of foreclosure. The best option depends on the property's value, the loan balance, and the heirs' financial situation and wishes.
The Non-Recourse Protection
The most important thing to understand is that a reverse mortgage is a non-recourse loan. This means the borrower and the estate will never owe more than the home's fair market value at the time the loan is repaid. If the loan balance exceeds the property's value, the difference is covered by FHA insurance. The heirs are never personally liable for the shortfall.
Frequently Asked Questions
Can I keep the house? Yes, if you can pay off the reverse mortgage balance through refinancing or other funds.
Do I have to sell immediately? No, but the clock starts when the lender sends the Due and Payable notice. Work with the lender on timelines.
What if the house is worth less than the loan? The non-recourse protection means you are not responsible for the difference. You can sell at market value or turn the property over to the lender.
Can I rent the house? Once the loan is resolved, yes. But during the resolution period, the property's status must be managed carefully.
If you have inherited a home with a reverse mortgage and need guidance on your options, reach out for a consultation. Marc Cormier can help you understand the timeline, the options, and the best path forward.