What Happens at the End of a Reverse Mortgage: Heirs’ Options

At the end of a reverse mortgage, the loan becomes due and payable, and the heirs or estate have to settle it — typically within six months of the borrower’s death, though extensions of up to a year are possible. Heirs can pay off the balance, sell the home, refinance into a traditional mortgage, or hand the property back to the lender through a deed in lieu of foreclosure. A federal rule caps what heirs owe at 95% of the home’s appraised value, and no one in the family is personally liable for any shortfall beyond that.

What Triggers the End of the Loan

A Home Equity Conversion Mortgage stays in place as long as at least one borrower lives in the home and keeps up with the loan’s requirements. It becomes due and payable when any of these happen:

The last surviving borrower dies and no other borrower lives in the home.
The borrower permanently moves out, so the home is no longer their primary residence.
The borrower lives in a hospital, nursing home, or other healthcare facility for more than 12 consecutive months, and no other borrower occupies the property.
The borrower sells the home or transfers the title.
The borrower falls behind on property taxes, homeowners insurance, flood insurance, or HOA fees.
The borrower fails to maintain the property in reasonable condition.

Death, a permanent move, and an extended healthcare stay make the loan due automatically. The other triggers require HUD approval before the lender can call the loan due.¹ A borrower who stays in a healthcare facility for fewer than 12 consecutive months is still considered to be living at home, and returning home briefly before the 12-month mark resets the clock.²

The Timeline After a Trigger

Once the loan comes due, several deadlines start running at once.

The lender must send a formal Due and Payable notice to the borrower’s estate, heirs, and any non-borrowing spouse. That notice states the amount owed and explains the available options.³ Heirs then have 30 days to tell the lender what they intend to do: pay off the loan, sell, offer a deed in lieu of foreclosure, or (for non-death triggers) correct the underlying default.⁴

The lender must begin foreclosure within six months of the borrower’s death (or six months from the Due and Payable notice for non-death triggers). In practical terms, that six-month window is the time heirs have to complete a sale, refinance, or other resolution before formal foreclosure proceedings start.³

Extensions are available. If heirs can show they are actively marketing the home or working to pay off the loan, the lender can request up to two 90-day extensions from HUD before starting foreclosure. Heirs need to provide evidence of their efforts, such as a listing agreement, offers received, or documentation of delays.³ With both extensions approved, heirs could have roughly 12 months from the borrower’s death before foreclosure begins. Neither extension is automatic; HUD must approve each one, and heirs who are not making visible progress won’t get them.

The lender also has to order an FHA-approved appraisal within 30 days of the Due and Payable notice to establish the home’s current value. That appraisal drives every settlement option that follows.³

How Heirs Can Settle the Debt

The right choice usually depends on two things: whether the home is worth more or less than the loan balance, and whether anyone in the family wants to keep it.

Pay Off the Full Balance

If the loan balance is lower than the home’s value, heirs can pay it off in full — principal, accrued interest, mortgage insurance premiums, and any servicer advances. They keep the home and any remaining equity. This works for heirs who have cash on hand or can qualify for a traditional mortgage.

Sell the Home

Selling is the most common outcome. When the home is worth more than the loan balance, heirs sell, pay off the reverse mortgage from the proceeds, and keep the difference. When the balance exceeds the home’s value, heirs can still sell for at least 95% of the appraised value, and the lender must accept the net proceeds as full satisfaction of the debt. Closing costs on that kind of sale cannot exceed the greater of 11% of the sales price or a fixed amount set by HUD.⁴

Refinance Into a Traditional Mortgage

Heirs who want to keep the home can take out a conventional mortgage and use the proceeds to pay off the reverse mortgage. The heir has to qualify for the new loan on their own credit, income, and debt.

Deed in Lieu of Foreclosure

If no one wants to keep or sell the home, heirs can sign a deed in lieu of foreclosure, transferring ownership directly to the lender. This avoids the time and cost of a formal foreclosure. The property generally needs to be vacant and in reasonable condition.⁴

The 95% Rule and Why Heirs Aren’t on the Hook

The single most important protection built into a reverse mortgage is the 95% rule. When the loan balance has grown beyond the home’s current market value, heirs can satisfy the loan by selling or purchasing the property for at least the lesser of the outstanding balance or 95% of the appraised value.³

Two examples show how it works. If a home appraises at $200,000 but the loan balance has reached $280,000, an heir can buy the home for $190,000 (95% of $200,000), saving $90,000 against the full balance. If the loan balance is $170,000 and the home appraises at $200,000, heirs owe the $170,000 balance, not 95% of the appraised value.

FHA mortgage insurance, which every HECM borrower pays into through upfront and annual premiums, covers the shortfall between the sale price and the loan balance. The lender files a claim with HUD, and neither the estate nor the heirs owe the difference. This non-recourse protection means heirs can walk away from an underwater property without personal liability.⁵

If a Surviving Spouse Wasn’t on the Loan

A surviving spouse who was not listed as a borrower may still be able to stay in the home after the borrower dies. HUD calls this a Deferral Period: the loan does not become due while the eligible non-borrowing spouse continues to qualify.⁶

To qualify, the spouse must have been married to the borrower when the loan closed and remained married until the borrower’s death, must have been disclosed to the lender and named as an eligible non-borrowing spouse in the loan documents, must have lived in the home as their primary residence at the time of death and continue to do so, and within 90 days of the borrower’s death must establish a legal ownership interest or a legal right to remain in the property for life.

During the deferral, the spouse has to keep paying property taxes, homeowners insurance, and other property charges, and keep the home as their primary residence. If they move out, enter a healthcare facility for more than 12 consecutive months, or fall behind on property charges, the deferral ends and the loan becomes due immediately.⁶ No additional loan funds are available during the deferral, though the balance continues to grow from accruing interest and insurance premiums. A spouse who was not disclosed when the loan was originated cannot later qualify, even if they otherwise meet the criteria.

What Happens If Heirs Do Nothing

If heirs don’t respond to the Due and Payable notice or make no effort to resolve the debt, the lender is required to begin foreclosure within six months of the triggering event. There is no indefinite grace period. HUD holds lenders to this deadline, and a servicer that delays risks losing its ability to file an insurance claim.⁴

Interest and fees keep accruing during foreclosure. Heirs aren’t personally liable beyond the home’s value, but a foreclosure eliminates any chance to capture remaining equity. If the home is worth more than the loan balance, doing nothing means the estate loses that money. Contact the servicer as early as possible, even before the formal notice arrives.

Probate, Title, and Ongoing Costs

Before heirs can sell or refinance, they usually need legal authority to act on behalf of the estate, which typically means going through probate or using a previously established trust to transfer or confirm title. Without clear title, a buyer’s title company won’t close and a new lender won’t approve a refinance.

Property taxes and insurance remain the estate’s responsibility until title transfers or the loan is settled.⁷ Falling behind on taxes or letting insurance lapse can create liens or complicate the settlement. HOA fees, utilities, and basic maintenance also fall to the estate during this period.⁸

Probate timelines vary by state and by the complexity of the estate. Straightforward cases may take a few months; contested or complicated ones can run past a year, potentially longer than the lender’s six-month foreclosure deadline. Heirs working through probate should tell the servicer, request extensions, and provide court filings as evidence of progress.

One tax point worth knowing: when heirs inherit a home, the cost basis resets to fair market value on the date of death, known as a stepped-up basis.⁹ Selling shortly after death, at or near that value, typically produces little or no capital gains tax.¹⁰ And because HECMs are non-recourse, any shortfall between the sale price and the loan balance generally isn’t treated as taxable cancellation-of-debt income; the IRS treats the debt as part of the sale price when calculating gain or loss.¹¹

1
eCFR. 24 CFR 206.27 – Mortgage Provisions
2
eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance
3
HUD.gov. Mortgagee Letter 2015-10 – HECM Due and Payable Policies
4
eCFR. 24 CFR 206.125 – Acquisition and Sale of the Property
5
Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die?
6
eCFR. 24 CFR 206.55 – Deferral of Due and Payable Status for Eligible Non-Borrowing Spouses
7
U.S. Department of Housing and Urban Development. Inheriting a Home Secured by an FHA-Insured Home Equity Conversion Mortgage
8
Consumer Financial Protection Bureau. You Have a Reverse Mortgage – Know Your Rights and Responsibilities
9
Internal Revenue Service. Publication 551 – Basis of Assets
10
Internal Revenue Service. Gifts and Inheritances
11
Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments