A reverse mortgage comes due when the last borrower dies or moves out, and the people left holding the house usually learn the rules from the lender's letter. The rules are better than the letter sounds. For an FHA-insured Home Equity Conversion Mortgage, the HECM, heirs in Riverside, Orange, or San Diego County have three choices, a price cap, and a clock. The table is the whole of it.
| Choice | What it costs | Where it is written |
|---|---|---|
| Keep the house | The loan balance, or 95 percent of the current appraised value, whichever is less | 24 CFR 206.125; CFPB |
| Sell the house | Pay the loan from the proceeds and keep any equity above it; if the house is worth less than the loan, a sale at 95 percent of appraised value satisfies the debt | 24 CFR 206.125; CFPB |
| Give it to the lender | A deed in lieu of foreclosure satisfies the debt in full | CFPB |
| Do nothing | The lender must begin foreclosure within six months of the loan becoming due and payable | 24 CFR 206.125(d)(1) |
The rule that changes the conversation is the last column of the first row. A HECM is non-recourse. If the balance has grown past what the house is worth, the heirs never owe the difference; the mortgage insurance the borrower paid throughout the loan covers it. That is what the 95 percent figure protects, and it applies whether the family keeps the house or sells it.
The rule that hurries the conversation is the clock. The CFPB's guidance says heirs have 30 days after the lender's notice to say which option they are choosing, and that the time to complete a sale or purchase may be extended up to six months.
The clock, and how to stop it running out
The loan becomes due and payable when the last borrower dies, sells, or stops living in the house as a principal residence. The lender sends a notice. From there, federal rules give the estate a window to act and give the lender an obligation to move if the estate does not: under 24 CFR 206.125(d)(1) the lender must commence foreclosure within six months of the due and payable date, subject to extensions HUD approves. A family that has told the lender it is selling, and can show a listing or a contract, is the family that gets those extensions.
"If your heirs want to keep your home after you and your Eligible Non-Borrowing Spouse die, your heirs will have to repay either the full loan balance or 95 percent of the home's appraised value, whichever is less."
Consumer Financial Protection Bureau, in What happens to my reverse mortgage when I die
The first sixty days, step by step
| Step | What to do | Why |
|---|---|---|
| Notify the servicer of the death | Send the death certificate and a contact person for the estate | The due and payable notice and every later deadline run to whoever the servicer has on file |
| Answer the notice within 30 days | State in writing whether the estate will keep, sell, or convey the house | The CFPB's guidance ties the extensions to a stated plan |
| Order the appraisal question | Ask the servicer for the current appraised value it is using | The 95 percent payoff and the sale floor are both set from it |
| Confirm who can sign | A trust, a probate case, or a small estate affidavit decides who may sell or deed the property | A sale cannot close without an authorized seller |
| Get a payoff statement | The balance, interest, and insurance premiums to date | Compared against 95 percent of the appraisal, it tells you which number the family actually owes |
Keep, sell, or hand it back: the three outcomes side by side
| Outcome | The heirs pay | The heirs keep |
|---|---|---|
| Keep, house worth more than the loan | The full balance | The house, and the equity above the loan |
| Keep, house worth less than the loan | 95 percent of the appraised value | The house; the shortfall is covered by mortgage insurance |
| Sell, house worth more than the loan | The balance, from escrow | The proceeds above the payoff |
| Sell, house worth less than the loan | Nothing beyond 95 percent of the appraised value | Nothing, and owe nothing |
| Deed in lieu | Nothing | Nothing, and owe nothing |
Non-borrowing spouses, and the loans made before August 4, 2014
| Situation | What the CFPB says |
|---|---|
| A surviving spouse who was a co-borrower | The loan is not due; the spouse continues under the same terms |
| An eligible non-borrowing spouse on a loan made on or after August 4, 2014 | May be able to stay in the home under HUD's deferral rules if the eligibility conditions are met |
| A non-borrowing spouse on a loan made before August 4, 2014 | If the lender chooses to foreclose rather than allow the spouse to stay, it must begin foreclosure proceedings within six months of the borrower's death, and the spouse may request an extension of up to 180 days |
These are the cases where a HUD-approved counselor earns the call before anything is signed.
Selling an inherited house with a reverse mortgage
Most families in this position sell, because the balance has been growing for years and the house needs work nobody planned to do. A sale through escrow pays the servicer's demand and returns whatever is above it. When the house is worth less than the loan, a sale at 95 percent of the appraised value ends the debt, and a cash buyer who closes inside the servicer's window is how that gets done before the six month foreclosure clock matters. We buy houses as-is for cash across Southern California, from the Temecula Valley and Riverside County to Orange County and North County San Diego, including houses in probate or a trust. Get a no-obligation cash offer and see what the family keeps.
Frequently Asked Questions
Who has the authority to sell an inherited house in Riverside, Orange, or San Diego County?
Whoever holds title after the death. A successor trustee can sell a house held in a trust without a court case. A house held in the deceased owner's name alone goes through probate in the superior court of the county where the person lived, so a Temecula estate opens in Riverside County Superior Court, an Oceanside estate in San Diego County, and an Irvine estate in Orange County, and the court's authority is what lets the executor or administrator sign the deed. Until that authority exists, the reverse mortgage clock still runs, which is why the servicer should be told early who is handling the estate.
Do heirs owe more than the house is worth?
No. A HECM is non-recourse. The CFPB's guidance is that heirs who keep the house pay the full loan balance or 95 percent of the appraised value, whichever is less, and that when the house is worth less than the loan the mortgage insurance covers the difference. Selling for at least 95 percent of the appraised value satisfies the debt.
How long do heirs have?
The CFPB says heirs have 30 days after the lender's notice to say whether they will buy, sell, or turn the house over, and that the time to complete a sale or purchase may be extended up to six months. Under 24 CFR 206.125(d)(1) the lender must commence foreclosure within six months of the loan becoming due and payable, subject to HUD-approved extensions, so a stated plan with a listing or a contract behind it is what keeps the file in the estate's hands.
Can the family just walk away?
Yes. A deed in lieu of foreclosure conveys the house to the lender and satisfies the debt, and because the loan is non-recourse there is nothing further owed. Before choosing it, compare the payoff with the appraised value: if the house is worth more than the loan, walking away hands the lender equity that a sale would have returned to the family.
About Reverse Mortgages and Heirs in California
- CFPB, can my heirs keep or sell my home after I die
- CFPB, what happens to my reverse mortgage when I die
- 24 CFR 206.125, acquisition and sale of the property
- HUD, free housing counseling
Sources: CFPB, heirs keeping or selling the home, CFPB, what happens when I die, 24 CFR 206.125, HUD