How Quickly Must a Reverse Mortgage Be Paid After Death?

A reverse mortgage most commonly becomes due and payable when the last remaining borrowing spouse is deceased.  A fair question for borrowers to ask is: how soon must the loan amount be satisfied after death?  I’ve done a little bit of digging to find the answer, and the results seem to vary.  

According to the Federal Housing Administration (FHA), the balance of a Home Equity Conversion Mortgage (HECM) must be repaid within 30 days of the date of death of the last surviving borrower.  90-day extensions can be granted if the heirs are actively trying to sell the property.  HECMs are the most common type of reverse mortgage, and knowing the “letter of the law” is critical.

Anecdotally, there are stories of reverse mortgages where the property doesn’t enter foreclosure on day 31 if the loan is not paid.  Many times, it could take 6 to 12 months for the loan to be repaid.  It’s important to remember that if the heirs are trying to sell the house, and it simply isn’t selling, there’s no real incentive for the bank to foreclose on the home just so they can list it themselves.  

What is important for borrowers with a reverse mortgage is having a plan for their home upon their death.  When that day comes, the heirs will need to notify the lender.  The lender will discuss the options with the heirs for the home.  They are:

• Sell the home to repay the balance of the reverse mortgage
• Keep the home and use other funds to repay the balance of the reverse mortgage
• Do nothing and let the bank sell the home

If the heirs choose to sell the home, the bank will order an appraisal to learn the current value of the home.  Once the appraisal is completed, the bank will discuss the results with the heirs to determine the amount owed.  This will be either the amount of the loan or 95% of the market value of the home, whichever is less. 

It’s also important to have a plan because interest on the reverse mortgage continues to accrue until the loan is paid off.  So the sooner the house is sold, the better things could be for heirs because if the house sells for more than the loan amount, they would get to keep the balance.

Additionally, there may be a house full of things that may need an estate sale or donation truck to help remove.  This can also take time to complete during what can be a very difficult time.  

This may be a hard thing to think about, but if you are considering a reverse mortgage for you, it’s important to think about what will happen when the loan becomes due and payable.  

If you have any additional questions about a reverse mortgage, please get in touch with the folks at Equity Access Group.  This is a team of people that specialize in reverse mortgages.  They can help you learn about a reverse mortgage for your specific situation.