Reverse Mortgage: The Clock Is Already Running

If the person who died had a reverse mortgage, read this today. Not next week.

 

This is the one situation in an estate where waiting costs you the house. Everything else on this site can move at a normal pace. This can’t.

 

What a reverse mortgage is, briefly

A reverse mortgage lets a homeowner age 62 or older borrow against the equity in their house without making monthly payments. Most are a federally insured type called a HECM — Home Equity Conversion Mortgage.

 

The catch is what happens at the end. When the last borrower dies, the whole loan becomes due and payable.

 

Not “gets refinanced.” Not “passes to the kids.” Due. In full.

 

The timeline

Here’s roughly how it goes. Exact steps vary by servicer, so confirm yours.

 

The borrower dies. The loan becomes due and payable.

 

The servicer notifies HUD and gets approval to declare the loan due and payable. It then notifies the estate and heirs, generally within 30 days of that approval.

 

You get a “due and payable” letter. Under CFPB guidance, once heirs receive that notice, they have 30 days to buy the home, sell it, or turn it over to the lender.

 

The servicer orders an appraisal — generally within 30 days of learning of the death.

 

Roughly six months. HUD rules push the servicer toward starting foreclosure within six months.

 

Possible extensions. If you can show you are actively working to sell the house or get financing, up to two three-month extensions may be granted — potentially stretching the window to about a year.

 

Extensions are not automatic. You have to ask and show your work. A signed listing agreement and an active MLS listing are the kind of proof servicers look for.

 

Where this collides with probate

Here’s the problem, and it’s a real one.

 

To sell the house, you need legal authority to sell. That usually means opening the estate and being appointed as personal representative — and possibly obtaining a court order if the will doesn’t grant a power of sale.

 

The reverse mortgage clock does not wait for any of that. It started the day the borrower died.

 

So you can end up with a six-month deadline and a probate process that still hasn’t produced authority to sell.

 

What this means practically:

 

• Open the estate immediately. This is the one situation where “let’s take a few weeks to grieve” costs money.
• Tell your probate attorney about the reverse mortgage in the first conversation.
• Talk to the servicer early and keep in touch with them. Document everything.
• Get the house ready to list while the paperwork moves — cleanout, photos, pricing — so you can list the day the authority lands.

 

More on authority to sell →

 

Your four options

1. Sell the house

The most common answer is usually the right one if there’s equity.

 

List it, sell it, pay off the loan at closing. Anything left over belongs to the estate and goes to the heirs.

 

That last part surprises people. A reverse mortgage does not mean the bank takes the house and the family gets nothing. If the house is worth more than the loan balance, the difference is yours.

 

The six-month clock keeps running while you market it, so price it to actually sell.

2. Pay off the loan and keep the house

If someone in the family wants the house, they can pay off the balance — usually by getting their own mortgage.

 

Get a realistic answer on financing fast. A buyout plan that falls apart in month five leaves you with no time to sell.

3. Use the 95% rule

This is the protection most families don’t know about.

 

HECM loans are non-recourse. That means nobody in the family is personally on the hook for more than the house is worth. The FHA insurance the borrower paid for covers the rest.

 

So if the loan balance is more than the house is worth, an heir can satisfy the whole debt by paying 95% of the current appraised value.

 

An example. The loan balance is $310,000. The appraisal comes back at $250,000. An heir can pay about $237,500 — 95% of $250,000 — and own the house free and clear. The remaining $72,500 is covered by the insurance.

 

Nobody chases the family for the difference. That is the entire point of the non-recourse rule.

 

Note: This applies to HECM loans, which are federally insured. Some private or “proprietary” reverse mortgages work differently. Find out which kind you have.

4. Deed in lieu of foreclosure

Sign the house over to the lender and walk away.

 

You get nothing from the house. You also owe nothing, and your own credit and assets aren’t touched.

 

This makes sense when the loan balance exceeds the value, and no one wants to keep the property. Ask the servicer whether any cash incentive is available for completing a deed in lieu or a short sale rather than going to foreclosure — programs like that have existed, and it’s worth asking directly.

 

What to do this week

1. Find the loan papers. Look for the lender or servicer name, a recent statement, and the loan number.
2. Call the servicer. Report the death. Give them your contact information. Ask them to confirm in writing the balance and the deadline.
3. Ask for the appraisal when it’s done. You need that number to know which option makes sense.
4. Open the estate. Today, not next month.
5. Tell your attorney about the reverse mortgage immediately.
6. Keep the insurance and property taxes current. Falling behind on either can be its own default under the loan.
7. Talk to a HUD-approved housing counselor. They’re free. Find one at hud.gov.
8. Write everything down. Every call, every date, every name.

 

Mistakes that cost families the house

Waiting. The single biggest one. Two months of understandable grief is a third of your window.

 

Assuming there’s no equity. Plenty of families walk away from real money because they assumed the loan had eaten the house. Get the appraisal. Do the math.

 

Not asking for extensions. They aren’t automatic. Ask, in writing, with evidence that you’re actively selling.

 

Overpricing the listing. With a hard deadline, a house that sits for four months at the wrong price can force a bad outcome. Price it to sell.

 

Not opening probate. You cannot sell without authority. This is the bottleneck.

 

Ignoring the letters. They contain your deadlines. Open them.

 

A word of reassurance

This page is intentionally urgent because the timing genuinely matters. But most of these situations end fine.

 

If the house is worth more than the loan, you sell it, and the family keeps the difference. If it’s worth less, the non-recourse rule means nobody owes anything. Either way, no one in the family is personally on the hook.

 

The bad outcomes come from waiting, not from the loan.

 

Dealing with a reverse mortgage on a Berkeley or Dorchester County property? Call or text Jim Mills, CRS, SRES, ABR, GRI, at 843-830-3800. These need to move fast, and Jim can quickly tell you whether there’s equity worth selling.

 

← Back to Selling a House After Someone Dies — the full guide.

 

Jim Mills is a licensed South Carolina real estate agent (License #98112) with The Mills Team, NextHome The Agency Group. He is not an attorney, a lender, or a HUD housing counselor, and this page is general information, not legal or financial advice. Reverse mortgage deadlines and servicer procedures vary, and HUD rules change. Confirm every date directly with your servicer and get an attorney involved right away.

 

Sources: HUD HECM program regulations (24 CFR Part 206); Consumer Financial Protection Bureau guidance on heirs and reverse mortgages; Congressional Research Service report on HUD’s HECM program. Links: Resources