Inheriting a property is a significant responsibility, especially when it comes with a reverse mortgage attached. If you find yourself as the heir to a borrower who has passed away, you may feel overwhelmed by the financial and legal complexities that follow.

This article will guide you through the steps we recommend following to navigate this situation. Whether you’re considering paying off the loan, selling the property, or taking on other options, our aim is to provide you with a comprehensive understanding of your options and the next steps involved.

6 steps for heirs on how to repay a reverse mortgage after death

Let’s explore how you can effectively handle a reverse mortgage after a borrower’s death:

Step 1: Accessing Your Most Recent Reverse Mortgage Statement

Finding Your Latest Statement — Begin by locating the most recent statement for your reverse mortgage. This document is crucial as it contains essential information about your current mortgage status.

Understanding Your Statement — Once you have your statement, it’s important to comprehend the details it provides. We offer guidance on interpreting the information in your reverse mortgage statement here.

Why It’s Important — A clear understanding of your statement will inform you about your outstanding loan balance, interest rates, and other relevant financial details. This knowledge is vital for making informed decisions about managing or resolving your reverse mortgage.

Step 2: Engage with a Senior Real Estate Specialist

Reaching Out to a Specialist — Connect with a senior real estate specialist in your area. Their expertise in real estate matters related to senior homeowners is invaluable, whether you’re considering selling your home or not.

Assessing Your Home’s Market Value — Even if you’re not planning to sell, it’s beneficial to understand the potential market value of your property. An elder real estate specialist can provide a realistic estimate of what your home could fetch in the current market.

Additional Services and Support — Beyond property valuation, these specialists can offer guidance on various aspects of estate management. This includes assistance with organizing and conducting estate sales, should you require such services.

Why This Step Matters — Gaining insights from a real estate specialist can help you make more informed decisions about your property. Whether for future planning, considering a sale, or understanding your estate’s value, this professional advice is crucial in navigating your estate options effectively.

Step 3: Securing Title

The Importance of Holding Title — Ensure that you have legal title to the property. This step is critical, especially if you’re considering selling the property or transferring its title to someone else, such as a family member or a third party.

Navigating the Probate Process — In many cases, transferring title requires going through the probate process. This is particularly true if the property is part of an estate following the owner’s passing. Probate is the legal procedure of transferring property ownership after death.

Consulting with an Estate Attorney — It’s advisable to seek the services of an estate attorney to guide you through this process. If the original borrower had legal representation, contacting their attorney could be a beneficial starting point, as they might already have relevant background information about the property.

Step 4: Decide If You Wish to Sell the Home or Walk Away

Keeping the Home — If you opt to keep the house, you’ll be required to settle the mortgage balance. However, if the outstanding mortgage amount exceeds the home’s current market value, you are generally only obligated to pay 95% of its market value.

Selling or Transferring the Property — Should you decide to sell the home or transfer it to a family member, involving the elder real estate agent and ensuring the title is in your name are key steps. These actions will streamline the process and set a clear direction forward.

Understanding the Implications of Walking Away — Walking away from the home means allowing the lender to take possession of it. This decision should be made after carefully considering your financial situation and future housing needs.

Step 5: Communicating Your Intentions to the Reverse Mortgage Lender

Initiating the Conversation — It’s important to proactively contact your reverse mortgage lender, especially after deciding on the property. While the lender might already be aware of the borrower’s passing, you must convey your plans regarding the property.

Timing and Preparedness — If you’ve formulated your plan of action — to sell, refinance, or transfer the property — it’s advantageous to inform the lender as soon as possible. This is particularly important if they haven’t contacted you about the due and payable loan.

The Lender’s Role in the Process — Keep in mind that the lender has specific responsibilities to fulfill on their end. These may include property appraisals, communicating with HUD, and other administrative tasks. By informing them of your readiness to proceed, you can help expedite these processes.

Providing a Letter of Intent — A formal letter of intent can be a useful tool in this communication. It clearly states your plans and intentions, offering a tangible reference for you and the lender as you navigate the next steps.

Step 6: Handling Personal Belongings and Estate Sale Preparations

Preparing for Property Transition — If your assessment leads to the conclusion that selling the property isn’t financially viable and you choose not to retain it, it’s time to prepare to vacate the home. Start by removing all personal items and belongings of your loved one that hold sentimental or financial value to you.

Coordinating with Estate Sale Professionals — Once you have taken what you wish to keep, the elder real estate professional you’ve consulted can likely refer you to an estate sales expert. These professionals specialize in managing the sale of remaining personal items within the home.

Conducting an Estate Sale — The estate sales team will organize and execute the sale to liquidate the items you’ve chosen not to retain. Their pricing, marketing, and selling expertise can significantly ease this process for you.

Handling Post-Sale Procedures — After the sale, the estate sales professionals will typically oversee donating any unsold items. This step clears the property, can contribute to final expense payments, and potentially provide tax benefits.

Consulting a Tax Specialist — It’s advisable to consult with a tax professional regarding the estate sale and donations. They can guide you on the necessary receipts and documentation to file final tax returns and maximize applicable tax advantages.

Ensuring a Smooth Transition — This process is essential for a smooth transition away from the property, ensuring that personal belongings are respectfully handled and the property is cleared for its next phase.

Top FAQs

Q.

Do you have to repay a reverse mortgage?

Yes, a reverse mortgage is a loan, just like any other, requiring repayment. No payment is required on a loan for as long as at least one of the original borrowers (or an eligible non-borrowing spouse) on the loan continues to live in the home and pay the taxes, insurance, and other property charges (i.e., HOA dues) on time. The loan becomes due and payable after the last borrower or eligible spouse leaves home, but you can make payments before that time with no prepayment penalty if you desire (but it is not required). The great thing about reverse mortgages is that you can choose when and how you repay the loan.
Q.

Can you pay back a reverse mortgage early?

Yes, you can. You can make full or partial payments if you choose to do so. Reverse mortgage loans do not have any prepayment penalties.
Q.

What happens if you don’t pay back a reverse mortgage?

A reverse mortgage loan is only due and payable when no original borrowers or eligible spouses are living in the home or if you fail to pay your property charges promptly. If the balance is not paid off through a sale, refinance, or other acceptable funds, the loan will go into foreclosure like any other loan. Still, the loan is a non-recourse loan, meaning the only security the lender has is the property.
Q.

Can heirs walk away from a reverse mortgage?

The heir(s) to a home with a reverse mortgage loan can walk away from a property if that is their wish. A reverse mortgage loan is a “non-recourse loan,” which means you can never owe more than the home’s value. Suppose an heir inherits a house where the accrued balance was to be higher than the current home value. In that case, they can sign the property over to the lender servicing the loan without any further obligation to the lender.
Q.

What happens if you inherit a house with a reverse mortgage?

The first step for any heir would be to ensure they have the right to speak with the lender. Most lenders cannot talk with a third party about a loan unless that individual has authorization from their borrower in advance or they are the new title holder. Therefore, if you know in advance that you are to inherit a property with any loan on it, you should speak with the owner and verify that there is a trust naming you as the successor beneficiary and that they add you to the title in advance or that they at least write a letter to their lender authorizing you to speak with them and them to you on all matter relating to the loan. Next, take immediate steps to determine what you wish to do with the property. Remember, you cannot sell or refinance the home until you own it, which may require probate. The reverse mortgage will be due and payable, and the lender will be looking to see that you are taking positive steps toward retiring the loan (paying off the loan with your funds or a new loan in your name or selling the property and paying it off with the sale proceeds). If the loan balance is higher than the current value, you also have the option to pay the loan off at 95% of the current market value or the amount owed, whichever is less. Still, you need to be sure you can obtain a new loan for 95% of the value if you do not have the funds readily available. If you do not wish to keep or sell the home, you may contact the lender and let them take the property and owe the lender nothing. To deed the home to the lender, you must have the title. Otherwise, the lender can begin a foreclosure action (which does not affect you or your credit).
Q.

How do I find the company that services my parents’ reverse mortgage?

Mom should be getting monthly statements from the new servicer. The quickest would be to check her home to see if she has any statements at the house. But if she doesn’t have any, you can go to two other places to get this information. You can try contacting HUD at answers@HUD.gov or 800-CALLFHA if you have the Case Number to ask them who the lender and servicer are for the loan. They will probably ask you for verification that you are the heir, and you have the right to receive the information, but that’s one way. The Case Number can be found on all the loan documents, and if you do not have access to their documents, it will also be printed on the Deed of Trust or Mortgage that is recorded at the county recorder’s office for the property. You can also contact MERS (Mortgage Electronic Registration System) as the loan is in their system, and instead of an assignment being recorded at the county recorder’s office, an electronic assignment is done through MERS. Every loan now has a MIN number (Mortgage Identification Number) also on the Deed of Trust or Mortgage that is used by MERS to track the loan when it is transferred from lender to lender. MERS offers a free service to allow homeowners and heirs to find their servicer by property address, Borrower’s name, and social security number, or by the MIN number. MERS may be the easiest way to find the information you need, but you will also need to verify that you have authorization to receive the information, or they will not assist you. That site is https://www.mersinc.org/homeowners/mers-servicerid. Mom can grant you authorization with a written letter if she is still living. If not, you will need to show them proof that you are her heir (daughter) and that you are the heir who has the authorization to receive the information. Lenders and HUD do not want to get between feuding relatives, and they have no way of knowing who the heir with the authority to speak for the estate if they have not previously received authorization from the borrower unless you send them something signed by the borrower or other recognized documentation.
Q.

How can I prove I am the heir to my mother’s house?

The lender does not determine the heir. Your mom would have done that before she passed, or it would be up to the legal process after she passed. If your mom established a will or a trust, you should take that documentation to an estate attorney. They could help you go through the process required in your area to change the property’s title to your name. It may require court probate to complete. If your mom passed away without a will or trust, then it would most certainly require a court to make that determination (especially if there might be any other possible heirs). Again, you should seek the assistance of a licensed estate attorney to help you with this process.
Q.

Can heirs pay down the loan and make monthly payments on the remaining reverse mortgage?

Unfortunately, that is not possible. However, if you consider paying down the loan, you can use the same funds to refinance the property into a traditional loan. HUD allows heirs to pay off the loan at the current balance or 95% of the current home value, whichever is less. This should make obtaining new financing more accessible.
Q.

Can I keep my mother’s reverse mortgage if I can’t secure financing?

The reverse mortgage is not assumable. It was never intended to be a multi-generational loan. When the last borrower on the original loan vacates the home, the loan becomes due and payable. Heirs should be aware that once the borrowers no longer reside in the house, they will need to either pay off the loan with available funds, refinance the loan with a new one if they wish to keep the house, or sell the home and use the sale proceeds to pay off the loan. You could qualify for your own reverse mortgage if you are of sufficient age. Alternatively, heirs may allow the lender to repossess the property, owing nothing regardless of the loan’s balance. It’s important to act promptly as your time to decide is limited. If selling the home is necessary, bear in mind it may take some time, so it’s advisable not to delay until the last moment.
Q.

How long does a reverse mortgage lender take to accept a Deed in Lieu of Foreclosure?

Before considering a Deed in Lieu of Foreclosure, the lender must complete several preliminary steps. First, you must hold the title to transfer it via a deed to someone else. The lender then needs to ensure that the property is vacant of personal possessions and is “broom clean.” Additionally, there must be no other liens or mortgages against the title. Accepting a Deed with existing liens means the lender would also take on them, unlike in a foreclosure action, where such liens might be cleared unless the creditors choose to settle the reverse mortgage debt to acquire the property themselves, which is rare. These procedures can take months or, in some cases, may never be completed, necessitating a foreclosure. The most effective approach is to keep communication lines open with the lender.
Q.

Is there a penalty for leaving personal belongings in a house that we will let go into foreclosure?

The lender will remove and discard any remaining items in the property without penalty to the estate or heirs. However, our advice is to contact an estate sale company and let them look to see if they think it is worth their time to conduct a sale. We have two different reports from people who did not think it was worth their time or effort with the remaining items, but the estate sale companies in those instances found enough to conduct the sales, and it ended up paying both some additional money (not to mention paying for the estate sale). In addition, the estate sale company donates the remainder of the personal items not purchased at the end of the sale. It obtains receipts for the donated items, which also helps the families with the final tax returns.
Q.

Is adding an alternate contact sufficient to converse with the lender and sell my home?

An alternative contact does not authorize them to talk on behalf of your loan. You can do some things now to ensure your interested party can contact the bank at home when the time comes. Firstly, you can add this person to the title at any time. By adding them to the title now as a joint title holder, they would have the right to sell the home as the lone title holder after you pass. This would not affect your loan as your loan documents specifically state that you may add anyone else to the title as long as you remain on title and live in the home. Secondly, you can send a letter to your lender and authorize them to speak on all matters relating to the loan. This authorization will allow them to discuss all matters related to the mortgage, and there will not be a typical delay. At the same time, they need to verify his authorization to speak with them on your behalf. You may even want to talk to your attorney about setting up a trust with a power of attorney to allow your 3rd party to take any steps necessary should you become incapacitated or he needs to act on your behalf before or after you pass. An estate attorney can explain when a Power of Attorney will and will not remain in effect and when he will be acting as the executor of your estate). Once your forms are completed, you can submit them to the lender for approval.

Need Help Navigating a Reverse Mortgage After a Loved One’s Passing? Get expert guidance from All Reverse Mortgage, Inc. (ARLO™) — America’s #1 Rated Lender with a 4.99/5-star rating! Call (800) 565-1722 or click here for your free consultation — simple, trusted, 100% secure!

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