What Happens When Someone Dies With an Active Reverse Mortgage?

by Brent Wilk

When a loved one passes away, there’s often a whirlwind of emotions and responsibilities. If that person had a reverse mortgage on their home, it can add another layer of complexity to an already challenging time. Let’s walk through what happens when someone dies with an active reverse mortgage, and what steps heirs or family members need to take next.

The Reverse Mortgage Comes Due

First things first: a reverse mortgage isn’t like a traditional home loan. It’s designed for homeowners aged 62 or older, allowing them to tap into their home’s equity while living there. But when the last borrower passes away, the loan becomes due and payable. This means the lender expects the balance to be repaid—usually within six months of being notified of the homeowner’s passing.

What Are the Heirs’ Options?

Keep the Home: If heirs want to keep the house, they’ll need to pay off the reverse mortgage balance. This can be done by refinancing into a new loan or using other funds.
Sell the Home: More commonly, heirs choose to sell the property. If the sale price exceeds the loan balance, the remaining equity goes to the heirs. If the home sells for less than what’s owed, reverse mortgages are “non-recourse,” so the lender can’t go after the heirs for the difference.
Hand Over the Keys: If keeping or selling the home isn’t feasible, heirs can simply walk away. The lender will take possession and handle the sale.

Special Situations: Surviving Spouses and Co-Borrowers

If a surviving spouse or co-borrower is listed on the reverse mortgage, they can usually remain in the home and continue the loan. If not, they may have to move out or seek an extension from the lender.

Timelines and Communication Matter

It’s important for heirs to notify the lender promptly and understand the timeline for repaying the loan or selling the home. Extensions may be available, but communication is key.

Final Thoughts

Dealing with a reverse mortgage after a loved one’s passing can feel overwhelming, but knowing the steps and options can make the process more manageable. Consulting with a financial advisor or estate attorney can provide valuable guidance tailored to your situation.