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How does a mortgage work when you pass away?
By Robert G. on 02.21.2024When a reverse mortgage holder passes away, ownership of the home remains in the homeowner’s name. Upon their death, the heirs must decide whether to keep or sell the property. If they choose to retain it, they must pay off the existing mortgage. Alternatively, if they decide to sell, the mortgage is settled using the sale proceeds.
If the heirs opt to keep the home, they can pay off the mortgage by either covering the amount owed or paying 95% of the home's current market value—whichever is less. If they choose to sell, they should notify the lender of their intent. The lender will then guide them through the necessary steps to settle the mortgage. It’s important to note that the home does not automatically transfer to the lender upon the homeowner’s death.
The lender can only acquire ownership of the property through a deed transfer from the heirs or by foreclosing on the loan, similar to a traditional mortgage. In cases where the property's value has declined and there is no remaining equity, some families may choose to allow the lender to take possession—especially if they live far from the property or if its value has significantly decreased.
Having a clear plan and understanding their rights can help heirs make informed decisions and take timely action that aligns with their best interests.
Also See: Reverse Mortgage After Death: What Heirs & Family Must Know
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