UPDATE:

The devastating fires in Los Angeles County prompted the Federal Housing Administration to publish FHA Info #2025-07 as a reminder to lenders about its guidance for servicing and originating FHA-insured mortgages in Presidentially Declared Major Disaster Areas (PDMDA).

  • FHA provides HECM lenders an automatic 90-day extension from the date of the PDMDA foreclosure moratorium expiration date to commence or recommence a foreclosure action.
  • HECMs that become due and payable for reasons other than the death of the last surviving borrower and eligible non-borrowing spouse are subject to a 90-day extension of HECM foreclosure timelines.
  • All properties with pending mortgages or endorsements must have a damage inspection report that identifies and quantifies any dwelling damage.
  • The damage inspection report must be completed by an FHA Roster Appraiser even if the inspection shows no damage to the property, and the report must be dated after the Incident Period (as defined by the Federal Emergency Management Association) or 14 days from the incident period start date, whichever is earlier.
  • If the effective date of the appraisal is on or after the date required above for an inspection, a separate damage inspection report is not necessary.
  • All damages, regardless of amount, must be repaired by licensed contractors or per local jurisdictional requirements, and the property must be restored to pre-loss condition with appropriate and applicable documentation.

Go deeper: lenders are encouraged to review the servicing guidance outlined in Handbook 4000.1, Section III.B.3.a, relating to HECMs in PDMDAs. This section begins on page 1,556.

I live in California, have a reverse mortgage, and would like to know what would happen if my home were to burn down in a fire?  Do my monthly payments or line of credit continue if I must rebuild?  Does the loan become due if my insurance does not cover my loss?

ARLO explains fire damage

Insurance coverage works the same on a reverse mortgage as on a forward loan.  All hazard claims are paid jointly by the owner and anyone listed as “additional insured” (the lender) until the repairs are completed.  After completing inspections, the lender will sign off on the checks to ensure the home has been rebuilt.

In the case of properties that are so severely damaged that they need to be replaced in multiple draws, the lender will work with a draw schedule with the company doing the repairs so that money is released on a draw schedule as needed.

In this manner, if the contractor or the borrower does not complete the repairs, the lender can use the insurance proceeds to rebuild/repair the structure by the terms of the Deed of Trust.

The loan call provisions are defined in the docs.  The borrower must reasonably maintain the home, which means that if the improvements are destroyed and not rebuilt, the borrower has not met the loan requirements.

In that case, the lender would keep the insurance proceeds and be forced to accelerate the loan (call it due and payable) if the proceeds were insufficient to repay the loan and the borrower was fully unwilling/unable to rebuild.  They obviously could not keep the loan outstanding on a piece of land where a house once burned to the ground.

Interruption of HECM Proceeds

I think the decision to interrupt monthly payments would depend on the degree of damage.  The borrowers must live in the home to continue receiving the payments.  The payments would continue if there was repairable damage and they still occupied a habitable home.

If the home was destroyed and the borrowers were forced to vacate the property, the lender would not continue to forward funds on a non-existent or inhabitable home.

I have never asked servicers this question about a home destroyed by fire.  Still, I did have occasion to ask CELINK about a home affected by a sinkhole in Florida several years back, and this was the answer I received because those borrowers were also concerned about whether or not they would ever be able to rebuild based on the sink hole and the instability of the soil.

If you are concerned that you might not have adequate insurance, it would be wise to look into guaranteed replacement coverage so you are covered no matter what the cost to rebuild comes to.  That would certainly be up to you and your insurance agent.

ARLO recommends these helpful resources: