What Happens With Death Of Reverse Mortgage Borrower?

When the last borrower on a reverse mortgage passes away, the loan comes due and payable to the lender. Heirs can handle reverse mortgage loan repayment in multiple ways, but first, they need to decide what to do with the home. 

There are four options available to heirs dealing with a reverse mortgage. 

• Sell the home. If the heirs want to repay the  loan, they can use the proceeds from the sale of the house and apply  this to the outstanding balance. 
• Keep the home. The heirs can keep the house if they pay the mortgage balance or 95% of the property’s appraised value, whichever is less. 
• Sign over the title and complete a deed in lieu of foreclosure. The heirs can give the property to the lender by signing over the  home’s title to the lender accompanied by a deed in lieu of foreclosure.  By doing so, the debt is satisfied, and it will prevent foreclosure of  the home. 
• Do nothing. If heirs choose to do nothing with the loan, the lender will foreclose on the home.  

Heirs should contact the loan servicer as soon as possible to  determine the outstanding balance on the mortgage. Interest continues to  accrue after the borrower’s passing, so delaying a decision may result  in paying additional funds.  

Upon the death of the last borrower on a reverse mortgage, a lender  will send a due and payable notice to the borrower’s address. Heirs have 30 days from the receipt of this notice to decide how they want to proceed. Typically, lenders will offer six months to complete the transaction.  

It is important for heirs to stay in contact with the lender and act  as quickly as possible. Interest and fees will continue to accumulate  until the loan is paid off. Acting quickly will limit the amount paid.  

If circumstances permit, it is a good idea for reverse mortgage  borrowers to let their heirs know that they have taken a reverse  mortgage. This type of conversation helps ensure heirs understand the  loan terms.  

This will be the first time many heirs have heard of a reverse  mortgage. The borrower may need to explain how this loan differs from a  traditional home loan. This conversation can be an excellent time to  help heirs decide how they will eventually handle the loan so they are  prepared and know what to do when and if the time comes. 

While this type of conversation is advisable, it depends on your  relationship with your heirs and your discretion. In other words, the  decision to take a reverse mortgage is for the borrowers alone. There is  no legal obligation to disclose private financial information to heirs.