Now What?

When the loan is due and payable, it’s typically satisfied via the sale of the home on the open market. The borrower or the heirs can pocket any profit if the sale price exceeds the HECM loan balance.

All reverse mortgages are non-recourse loans—there is no recourse for the mortgage balance in excess of the home value. With the HECM loan, the FHA guarantees that neither the borrower nor the heirs will ever owe more than the home is worth when sold.*

A maturity event triggers the loan balance to become due and payable. Some common maturity events include:

• The death of the last surviving borrower (if a nonborrowing spouse is still occupying the home, they may have additional rights to remain in the home and defer repayment of the loan)

The sale of the property

• Permanently moving out of the home

• Failure to pay the property-related taxes, insurance or HOA dues

• Allowing the home to fall into significant disrepair

Any heirs need to be aware of the reverse mortgage. When the last surviving borrower dies, the heirs should contact the loan servicer as soon as possible. The heirs will have a few options based on what they want to do with the house and if the house has any remaining equity.

If the heirs DON’T want to keep the home, they can do one of the following:

Sell the home and keep any profit from the sale

If there is still equity in the home—meaning the price the home would sell for on the open market is greater than the reverse mortgage loan balance—selling it can be a good route for the heirs to consider. If the heirs decide that they want to sell the home, they should notify the servicer of that decision right away. The heirs will then have up to six months to sell the home (in some cases, the U.S. Department of Housing and Urban Development [HUD] may grant additional time to the heirs to find a buyer).

*There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance and maintaining the home. Credit subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.

Sign a deed-in-lieu of foreclosure

If the reverse mortgage balance exceeds the home’s value, the heirs would have no economic benefit from selling the home on the open market. Instead, the heirs can sign a deed-in-lieu of foreclosure, allowing them to turn the home over to the lender and walk away from it. As a reverse mortgage is a non-recourse loan—the home stands for the debt, not the borrower—the heirs will not be required to pay the difference between what’s owed on the reverse mortgage loan balance and the value of the home because the FHA insurance will cover any remaining loan balance. If the heirs choose this option, it will not affect their credit.

If the heirs DO want to keep the home, they also have options.

They can pay the lesser of the loan balance or 95% of the property’s appraised value

In situations where the reverse mortgage loan balance exceeds the home’s value, the heirs can keep the home by making a short payoff of 95% of the appraised value. This would typically involve the heirs taking out a new traditional forward mortgage on the home.

In situations where the reverse mortgage loan is less than the home’s value, the heirs can pay off or refinance the loan balance to keep the home.

The Rights of Non-Borrowing Spouses

If a non-borrowing spouse (i.e., a spouse not named as a borrower in the original loan application) still occupies the home after the death of the last surviving borrower, they may have additional rights. Per new rules issued in August 2014 by the HUD, after the last remaining borrower dies, an eligible non-borrowing spouse may be able to stay in the home and defer repayment of the reverse mortgage until they die or permanently move out. This is known as the deferral period, during which no further HECM payments will be made from the loan. The eligible non-borrowing spouse must still keep up with the obligations of the HECM, such as paying property taxes and insurance.