Reverse mortgages confuse a lot of families, especially when a parent passes away and the servicer’s letters start arriving. Who owes what? Do the kids have to pay the whole balance? How much time is there? The good news is that the most common type, the FHA-insured Home Equity Conversion Mortgage (HECM), has clear federal rules that protect heirs in important ways. For a reverse mortgage payoff in the Hampstead, Manchester or Upperco area, see selling a house in Hampstead.
I’m Evan Weissman. I buy houses across Maryland, including some with reverse mortgages. Here’s how the payoff works for a living owner who wants to sell and for heirs after a death, based on HUD and CFPB guidance. Your loan documents control, so confirm details with your servicer and a HUD-approved counselor.
If you’re the owner and you want to sell
You can sell a house with a reverse mortgage at any time. At settlement, the title company gets a payoff statement from the servicer, and the loan balance (what you’ve received plus accrued interest and fees) is paid from the sale proceeds. Anything left over belongs to you.
Reasons owners sell include moving closer to family, moving into assisted living, or needing a home without stairs. If you’re moving out permanently, talk with your servicer early, because the loan generally becomes due when the home is no longer your principal residence.
When the last borrower dies
According to the CFPB, a HECM becomes due and payable after the death of the last borrower and any eligible non-borrowing spouse (CFPB on heirs and reverse mortgages). Heirs then have choices:
- Keep the house by paying off the loan, often with their own financing. HUD guidance states heirs can satisfy it with the lesser of the loan balance or 95% of the appraised value.
- Sell the house and use the proceeds to pay off the loan.
- Turn the house over to the lender through a deed in lieu of foreclosure.
The 95% rule and why it matters
Reverse mortgage balances grow over time. Sometimes, by the time a borrower dies, the balance is higher than the house is worth. HUD’s guidance for heirs explains that if the loan balance exceeds the home’s value, the estate or heirs may sell the home for at least 95% of the current appraised value, and the lender will accept the net proceeds as satisfaction of the loan (HUD guide to inheriting a HECM home). FHA mortgage insurance covers the rest. For a reverse mortgage payoff in Parkville or Carney, see my Parkville, MD page.
HECMs are non-recourse loans, so heirs generally don’t owe the difference out of their own pockets. That’s an important protection, but it comes with a process: the servicer will order an appraisal, and the sale price needs to meet the 95% threshold.
If the house is worth more than the loan balance, the heirs keep the difference after the loan is paid.
How much time heirs have
The timeline is tighter than many families expect:
- The CFPB says that once heirs receive a due and payable notice, they have 30 days to buy, sell, or turn the home over, though the timeline may be extended up to six months so heirs can sell or get financing.
- HUD’s Mortgagee Letter 2015-10 allows servicers to request up to two 90-day extensions from HUD, when owners show they’re actively marketing the property or trying to satisfy the loan.
In practice, this means heirs should contact the servicer right away, state their intentions in writing, and keep records of every step they take to sell or refinance. A listing agreement, a signed contract, or a lender’s pre-approval letter can all help support an extension request.
Paperwork the estate will need
To sell, someone has to have authority to sign. If the house was in the parent’s name alone, the estate usually needs to be opened and a personal representative appointed. My guide to the Register of Wills for heirs explains the steps. Start this immediately, since estate paperwork takes time and the servicer’s clock is running.
Meanwhile, keep property taxes and insurance paid. HUD’s guidance notes these remain the estate’s responsibility until title transfers.
A non-borrowing spouse
If the surviving spouse wasn’t on the loan, special HUD rules may let them stay in the home, but they generally must meet requirements and provide certification to the servicer within a set time after the borrower’s death. If this applies to your family, contact the servicer and a HUD-approved counselor right away.
Selling quickly to meet the deadline
Because of the timeline, many families look for a sale that can close quickly. Options include:
- Listing with an agent who can move fast, especially if the house is in good shape.
- A cash sale, which can work well when the house needs repairs or still holds belongings, as long as the price meets the 95% requirement if the loan is underwater.
My article on selling before probate closes covers timing, and my inherited house page explains how I work with estates.
Where to get free help
A HUD-approved housing counselor can explain reverse mortgage options at no cost. In Maryland, you can also call Maryland HOPE at 1-877-462-7555. If you’re worried about foreclosure, talk with an attorney as well.
Do heirs have to pay off a reverse mortgage out of pocket?
No. HECMs are non-recourse. Heirs can sell the house to pay off the loan, and if the balance exceeds the value, a sale for at least 95% of the appraised value satisfies the loan.
How long do heirs have to sell a house with a reverse mortgage?
The CFPB says heirs have 30 days after a due and payable notice, possibly extended up to six months. HUD allows servicers to request up to two 90-day extensions when heirs are actively selling or refinancing.
Can I sell my house while I still have a reverse mortgage?
Yes. The loan is paid off from the sale proceeds at settlement, and you keep any remaining equity.
What if the reverse mortgage balance is more than the house is worth?
Heirs can sell for at least 95% of the appraised value, and the lender accepts the net proceeds as full satisfaction. FHA insurance covers the shortfall.
Talk through your situation
If your family is facing a reverse mortgage deadline, call or text me at (410) 498-7473. I can explain how a quick sale would work with the servicer’s requirements.