Every reverse mortgage agreement includes a requirement for the borrower to properly maintain the property. Since the home serves as collateral for the loan, lenders need to ensure it remains in good condition.

If the home falls into serious disrepair, the lender has the right to intervene, and in extreme cases, foreclosure may occur to protect the loan's security. However, lenders typically view foreclosure as a last resort, as they prefer not to manage properties directly.

Reverse Mortgages Are Non-Recourse Loans

A reverse mortgage is a non-recourse loan, meaning:

• The borrower (or their heirs) will never owe more than the home’s market value at the time of settlement.
• The lender cannot collect from other assets of the borrower or their heirs.

Payoff Rules for Heirs vs. Borrowers

If a borrower passes away, heirs can choose to:

• Sell the home and use the proceeds to pay off the loan.
• Keep the home and pay only 95% of its current market value if it is worth less than the outstanding balance.

However, this 95% payoff rule does not apply if the borrower is still alive and chooses to pay off the loan early. In those cases, HUD requires full repayment of the balance.

Financial Considerations When Settling a Reverse Mortgage

• If property values increase over time, the home may appreciate enough to cover the loan balance.
• Leaving the property without repaying the loan could impact eligibility for future HUD or government-insured financing.
• There may be tax implications, especially for heirs, which is why consulting a tax professional is essential.

For more details, see: Reverse Mortgage Property Requirements (Updated 2025)