Inherited a house with a reverse mortgage?
Here's how heirs sell it in time.

What happens to a reverse mortgage when the owner dies?

The loan becomes due and payable. The servicer sends a notice to the estate or the heirs, who then tell the servicer whether they plan to pay it off, sell the house, or give the house back to the lender with a deed in lieu of foreclosure. If nobody acts, the lender can eventually foreclose.

Most reverse mortgages are FHA-insured Home Equity Conversion Mortgages, or HECMs, and HUD sets the rules for what happens next. If a spouse who was not on the loan still lives in the house, different protections may apply; call the servicer and a housing counselor before anything else.

How long do heirs have to sell?

Heirs should answer the servicer's due-and-payable notice within 30 days. The servicer then has to move toward foreclosure within about six months, but it can grant extensions when the heirs show they are actively selling or arranging financing. Confirm your exact deadlines with the servicer in writing.

The details have changed over the years and vary with the situation, so treat the servicer's letters as the authority for your loan. Keep proof of every step: the listing or contract, the appraisal, emails with the servicer. That evidence is what earns an extension.

A free HUD-approved housing counselor can explain your options: call (800) 569-4287.

What is the 95% rule for heirs?

Under HUD's rules for HECM loans, an heir can satisfy the loan by paying the lesser of the full loan balance or 95% of the home's current appraised value. That means if the loan has grown larger than the house is worth, the heirs can still sell or keep the house without paying the whole balance.

The rule is in HUD's regulations at 24 CFR 206.125. The servicer orders an appraisal to set the figure. If you think the appraisal is wrong, ask how to challenge it before you agree to a price.

What if the loan is more than the house is worth?

HECM loans are non-recourse: the debt is limited to the house. Heirs are not personally responsible for any shortfall, and the FHA insurance covers the difference. If the house will not sell for enough to clear the loan, the heirs can also hand it back with a deed in lieu.

In that case, the question is not how to protect equity, because there may not be any, but how to wrap things up cleanly and quickly. A sale at the right price, approved by the servicer, can do that.

Can I sell the house to Greg to pay off the reverse mortgage?

Yes. I buy the house as it is, the title company gets the payoff from the servicer, and the loan is paid at closing. If the house is worth more than the loan, the estate keeps the difference. If it is worth less, the sale needs to meet the servicer's rules, and I will work through that with you.

Houses with reverse mortgages are often older homes that went years without big updates, because the owner was living on a fixed income. That is exactly the kind of house I buy, belongings and all. See selling an inherited house in Cincinnati for how probate fits around the sale.

What should heirs do first?

Find the servicer's name on the most recent statement, call them to report the death and ask for the payoff and the deadlines in writing, keep the house secured and insured, and talk to the estate's attorney. Then get a price for the house so you know which option makes sense.

• Report the death to the servicer and ask for the payoff and deadlines in writing.
• Secure the house and check the insurance.
• Talk to the probate attorney about who can sign.
• Get a written offer or appraisal so you can compare options.

If you live far away, see selling an inherited house from out of state.