Top 10 Questions Heirs Ask About a Reverse Mortgage (Answered)

If you’ve recently lost a parent, dealing with a reverse mortgage may feel like one more overwhelming task. Take a breath: the lender does not own your family’s home or its equity. A reverse mortgage is a loan secured by the home, and heirs generally have choices about whether to sell, keep, or transfer the property.

The details and deadlines matter, especially with an FHA-insured Home Equity Conversion Mortgage (HECM), the most common reverse mortgage. Here are answers to ten questions families often ask.

1. Do we now own the mortgage, or does the lender own the house?

The lender does not own the home or its equity. A reverse mortgage is a lien against the property, similar to a traditional mortgage. The home’s title and the estate’s interest in it are handled according to the deed and estate plan, while the loan must be resolved when it becomes due.

If the home sells for more than the loan payoff and other valid costs, the remaining equity goes to the estate or heirs. For more background, see our guide to what happens when the last borrower dies.

2. Can I just take over my parent’s reverse mortgage?

No. Children cannot assume a reverse mortgage and continue it in their own names. If you want to keep the home, you’ll need to pay off the loan using your own funds, obtain financing of your own, or use another permitted way to satisfy the debt.

A HECM may offer heirs who keep the home a special payoff option: when the balance is more than the home’s appraised value, the amount due may generally be limited to 95% of that appraised value. Confirm the applicable rule and required appraisal with the servicer before making plans. You can also read our article on whether a reverse mortgage can be transferred to children.

3. Will the bank take the house?

Not simply because the last borrower has died. The loan generally becomes due when the last borrower dies or permanently moves out of the home. A temporary absence or care situation can involve additional rules, so confirm the facts with the servicer.

Once the loan is due, heirs usually can resolve it by selling the home, paying off the loan, refinancing with their own financing, or, if keeping or selling is not practical, discussing a deed in lieu with the servicer. If the loan remains unresolved, foreclosure may eventually follow. The lender has rights under the lien, but it does not automatically take the home or claim any equity above the debt.

4. What if the house is worth less than the loan balance?

For an FHA-insured HECM, the loan is generally non-recourse. That means the debt is secured by the home, and heirs are not personally responsible for a shortfall just because the loan balance is higher than the property’s value.

If a HECM balance exceeds the home’s appraised value, heirs may generally sell for at least 95% of the appraised value to satisfy the loan, subject to HUD rules and the servicer’s instructions. Mortgage insurance covers the eligible remaining balance. Ask the servicer how to obtain the required appraisal and handle the sale; don’t rely on an informal estimate.

5. How long do we have to decide?

After the heirs receive a due-and-payable notice, they generally have 30 days to indicate how they intend to resolve the loan. A longer period may be available, often up to six months, to sell the home or arrange financing. Extensions are not automatic and are subject to the servicer and applicable rules.

Contact the servicer promptly, ask for the deadline in writing, and request an extension in writing if you need one. Keep records of steps such as listing the property, working with a lender, or waiting for probate authority. The Consumer Financial Protection Bureau’s guide for heirs explains the general HECM timeline.

6. Can we sell the house and keep the money left over?

Yes. You can sell the home, use the proceeds to pay the reverse mortgage and other valid costs, and the remaining equity belongs to the estate or heirs.

For example, if the sale price is $600,000 and the loan payoff is $350,000, the difference is not the final distribution: sale costs, taxes, liens, and estate expenses may also apply. But the lender is entitled to the loan payoff, not the equity that remains after the debt and applicable costs are paid.

7. What if we want to keep the house in the family, or the home needs repairs?

Keeping the home is possible, but you’ll need to satisfy the reverse mortgage with your own financing or another source of funds; you can’t simply take over your parent’s loan. Start early if you’ll need a new mortgage: the lender will evaluate your eligibility, and the servicer’s deadline still matters.

If the property needs work, ask the servicer how its appraisal and payoff process works before spending money on repairs. Get professional advice on whether repairs are likely to improve the sale outcome, or whether an as-is sale is more practical. While the estate is deciding, keep the home secure and ask the executor or attorney who should maintain insurance, utilities, property taxes, HOA dues, and necessary upkeep. Don’t sign a deed or other transfer documents until you understand the effect and have proper authority.

8. What if only one parent was on the loan?

This needs prompt, careful review. If one parent was the borrower and the other was not, the surviving parent may be an eligible non-borrowing spouse with protections that can allow them to remain in the home without immediately repaying the loan, if program requirements are met. Those protections are not automatic for every spouse or situation.

Call the servicer, explain that one borrower has died or permanently left the home, and ask whether the surviving spouse is recognized as an eligible non-borrowing spouse and what documentation is required. Don’t assume the loan is due immediately, or that it can remain outstanding indefinitely, until the servicer confirms the applicable status. A surviving co-borrower generally remains a borrower on the loan.

9. Do we owe taxes on the equity we receive?

Reverse mortgage advances are loan proceeds, not income to the borrower. Receiving inherited home equity does not automatically mean you owe income tax on the amount. If the property is sold, however, tax consequences can depend on its tax basis, sale price, ownership, and circumstances.

Inherited property often receives a tax basis tied to its fair market value at the date of death, but the rules can vary. Keep the estate and valuation records, and ask a tax professional about your family’s situation. The IRS explains inherited-property basis in Publication 551. For more on the loan itself, see our article about the tax implications of a reverse mortgage.

10. Who should we call, and what should we ask?

Start with the loan servicer: the company that sends loan statements. Ask for the current balance and written payoff, the due-and-payable notice and response deadline, required documents, appraisal instructions, available extensions, and sale or refinance procedures. The servicer may request a death certificate, proof that you are authorized to act for the estate, and information about the property and your plans.

The home and loan may also need to be addressed through probate or a trust administration. The executor or personal representative, an estate attorney, a real estate professional, and a HUD-approved housing counselor can help with their respective parts. The title, probate, and loan-servicing processes are related but not identical; ask before signing anything or transferring ownership.

If you need another experienced voice to help you understand the mortgage options, you can call Loangevity Mortgage at 800.662.6784 or visit BetterCallPaul.mortgage.

A steady next step

There isn’t one right choice for every family. Some heirs sell and use the remaining equity for the estate. Some obtain their own financing to keep the house. And sometimes walking away is the most reasonable option, particularly if the debt is greater than the home’s value. In each case, the lender does not own the equity above the debt, and the family can make an informed choice within the applicable timeline.

A reverse mortgage may have helped your parent remain in a home they valued without required monthly mortgage payments while they lived there. That can be a meaningful benefit, even as the family now considers what comes next. As I often say: “A prescription prior to a diagnosis is malpractice. Similarly, choosing a loan program prior to analysis and diagnosis is loan malpractice.”

About the author: Paul Scheper has 44 years of mortgage experience and is a Harvard University graduate with an MBA in Finance from USC. He holds the CRMP (Certified Reverse Mortgage Professional), CSA (Certified Senior Advisor), and SRES (Senior Real Estate Specialist) designations. Paul is the author of The Psychology of Improvement: The ABC’s of Self-Improvement, a dedicated community volunteer, the 2004 Orange County Man of Character award recipient, and has announced Santa Margarita High School football for over 15 years. He is married to his high school sweetheart of 44 years and is the father of two.

“For 44 years, I have listened to what the customer needs. I take great pride in finding the right loan, for the right person, at the right time, and for the right reason.”

Loangevity Mortgage is a Better Business Bureau (BBB) Member in Good Standing with a 4.9+ star reputation. Read reviews at WhyPaulScheper.com, or contact us at 800.662.6784 or BetterCallPaul.mortgage.