Losing a loved one is never easy. Along with the emotional impact often comes a long list of responsibilities, paperwork, and important financial decisions.
If your loved one had a Home Equity Conversion Mortgage (HECM), you may be wondering what happens next.
The good news is that there is a well-established process designed to give families time to understand their options, make informed decisions, and settle the reverse mortgage without unnecessary confusion.
Step 1: Notify the Loan Servicer
One of the first things a family member, executor, or estate representative should do is notify the reverse mortgage loan servicer.
There’s no need to wait until every aspect of the estate has been settled. Making that initial call early allows the servicer to explain the process, answer questions, and begin working with the family.
The servicer will typically request:
A copy of the death certificate
Contact information for the person authorized to act on behalf of the estate
Any available estate documents, such as a will, trust documents, or probate paperwork
If you’re not yet sure who has legal authority to represent the estate, don’t let that prevent you from making the call. Simply notifying the servicer of the borrower’s passing is an important first step.
Step 2: Review the Due and Payable Notice
After being notified of the borrower’s passing, the loan servicer will generally order an independent appraisal of the property.
The estate will also receive a Due and Payable Notice, sometimes called a Demand Letter.
This notice typically includes:
The current reverse mortgage balance
Information about available settlement options
Important deadlines
Instructions for responding
At this stage, you don’t need every detail figured out.
The most important step is responding within the required time frame and maintaining communication with the servicer throughout the process.
Step 3: The Home Is Appraised
An independent licensed appraiser will determine the home’s current market value.
The appraisal helps the estate:
Estimate how much equity may remain
Decide whether selling the home makes financial sense
Determine whether FHA’s 95% payoff option may apply
Because the appraisal is completed by an independent professional, it provides an objective estimate of the property’s current value.
Step 4: Decide How to Resolve the Loan
Once the appraisal has been completed and the estate understands both the home’s value and the reverse mortgage balance, it’s time to determine the best path forward.
Most families choose one of three options.
Option 1: Sell the Home
Selling the home is the most common solution.
The reverse mortgage is paid off from the sale proceeds, same happens if a borrower has conventional mortgage.
After customary selling expenses and repayment of the loan, any remaining equity belongs to the estate or heirs.
The lender does not keep the remaining equity (THIS IS AN OFTEN MISCONCEPTION).
Option 2: Keep the Home
Some heirs prefer to keep the property because of sentimental value or because a family member plans to live there.
In that case, the reverse mortgage simply needs to be repaid.
Repayment may come from:
Cash
Estate assets
A traditional mortgage
Other financing
Once the reverse mortgage has been satisfied, ownership continues just as it would with any other home.
If the Loan Balance Exceeds the Home’s Value
One of the most valuable protections available with an FHA-insured HECM applies when the reverse mortgage balance exceeds the home’s current market value.
Eligible heirs may generally keep the home for 95% of its appraised value, rather than repaying the full reverse mortgage balance.
For example:
Reverse mortgage balance: $525,000
Current appraised value: $450,000
Rather than paying the full balance, eligible heirs could keep the home for 95% of the appraised value, or $427,500.
The FHA mortgage insurance fund covers the remaining difference.
This important protection helps ensure that neither borrowers nor their heirs are personally responsible for paying more than the home’s value to satisfy the reverse mortgage.
Option 3: Complete a Deed in Lieu of Foreclosure
Sometimes selling the home—or keeping it—simply isn’t the best solution.
For example:
The home requires extensive repairs.
The heirs live far away.
No one wishes to keep the property.
In these situations, the estate may be eligible to work with the loan servicer to complete a deed in lieu of foreclosure.
Before this option is available, the home generally must:
Be vacant
Be free of personal belongings
Be left in broom-swept condition
Be free of unresolved junior liens
By voluntarily transferring ownership of the property to satisfy the reverse mortgage, the loan can often be resolved without the family having to market or sell the home themselves.
Your loan servicer can explain whether this option is appropriate for your situation.
How Much Time Do Heirs Have?
One of the biggest misconceptions about reverse mortgages is that families must immediately resolve the loan after a borrower passes away.
Fortunately, that’s rarely the case.
Settling an estate often involves probate, legal paperwork, repairs, financing, and important family discussions.
While the estate should respond to the Due and Payable Notice within the required time frame (typically 30 days; however, in some states it’s 45 days), families often have up to six months to satisfy the reverse mortgage.
If additional time is needed—and the estate is actively working toward resolution, such as listing the home for sale or obtaining financing—HUD may approve up to two additional 90-day extensions, potentially providing as much as 12 months to resolve the loan.
Extensions are not automatic and generally require documentation showing progress, such as:
A current real estate listing
A signed purchase contract
Evidence financing is being pursued
Probate or estate documentation
The best advice is simple:
Stay in regular communication with your loan servicer.
Continue Maintaining the Property
Until the reverse mortgage has been fully resolved, the estate remains responsible for maintaining the property.
This generally includes continuing to pay:
Property taxes
Homeowners insurance
HOA dues or assessments, if applicable
Other required property charges
Keeping these obligations current helps avoid unnecessary complications during the settlement process.
You Don’t Have to Navigate the Process Alone
For many families, this is their first experience dealing with a reverse mortgage.
It’s perfectly normal to have questions.
Your loan servicer can help explain:
Required documentation
Important deadlines
Payoff amounts
Extension requests
Probate coordination
Selling the property
Keeping the home
The deed-in-lieu process
Their role is to help make the settlement process as straightforward as possible during an already difficult time.
Planning Ahead Makes Things Easier
If you’re reading this as a reverse mortgage borrower, one of the greatest gifts you can give your family is preparation.
Take a few minutes to let your loved ones know:
That you have a reverse mortgage
Which company services your loan
The mortgage company and loan officer you used to establish your reverse mortgage
Where your important documents are stored
Who should contact the servicer
Your wishes for the home
These simple conversations can eliminate uncertainty and make an already emotional time a little easier for those you love.
Final Thoughts
Reverse mortgages include important consumer protections for both borrowers and their families.
When the loan eventually becomes due and payable following the last borrower’s passing, there is an established process designed to give heirs time to understand their options, work with the loan servicer, and make informed decisions about the home.
Whether the property is sold, kept within the family, or another option is chosen, understanding the process ahead of time can help reduce stress and provide greater peace of mind during an already challenging time.
About the Author
Vinh Tran is a Reverse Mortgage Specialist at Fairway Home Mortgage. For nearly 2 decades, he has helped countless Missouri families to buy and refinance their homes, serving as an advisor to make smarter financial decisions regarding their home equity. In the last decade, Vinh has focused his practice to help seniors understand and make better use of their lifelong savings that have been historically ignored...home equity. For most seniors, this is their largest savings bucket.
Have questions about how a reverse mortgage can provide the extra "gold" in your Golden Years? Please reach out to schedule a 15 minute call to get answers to your questions. (314) 954-8204 (cell)
Website: www.vinhtran.net
Vinh Tran - Fairway Home Mortgage NMLS#850594. 174 Clarkson Road Ste 135 Ellisville, MO 63011 (314) 954-8204. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency. Reverse mortgage borrowers are required to obtain an eligibility certificate by receiving counseling sessions with a HUD-approved agency. The youngest borrower must be at least 62 years old. Monthly reverse mortgage advances may affect eligibility for some other programs. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Opportunity.
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