When a reverse mortgage comes due
A HECM, the FHA-insured kind of reverse mortgage, doesn’t require monthly payments while the borrower lives in the house. It comes due on specific events listed in 24 CFR 206.27:
- The last borrower dies, and the house isn’t the principal residence of another borrower.
- The house stops being a borrower’s principal residence, for example after a permanent move.
- The borrower is away more than 12 consecutive months because of physical or mental illness, such as a stay in a nursing home or assisted living, and no other borrower lives there.
Unpaid property taxes or homeowners insurance can also cause trouble with the servicer, so keep both current while you decide. If the move is to assisted living, see selling a house when moving to assisted living for the rest of that transition.
The deadlines after the due-and-payable letter
Once the loan is due, the servicer sends a due-and-payable notice, and the clocks start. Under 24 CFR 206.125:
| Step | Federal rule |
|---|---|
| Respond to the notice | 30 days for the borrower, estate or heirs to pay, sell, or give a deed in lieu |
| Extensions | The CFPB says the time might be extended by up to six months |
| Foreclosure | Must start within six months unless HUD extends the time |
| Deed in lieu | Accepted if it’s recorded within nine months |
In practice, call the servicer right away, tell them you intend to sell, and ask what they need from you to grant more time. Usually that’s a listing agreement or a signed purchase contract, plus proof of who has authority to sign for the estate. Our page on selling a house in probate covers that authority question.
Selling when the loan is more than the house is worth
Reverse mortgage balances grow over time, because interest and fees are added each month. After enough years, the balance can pass the home’s value. That’s where the HECM rules help the family.
The loan is non-recourse. Under 24 CFR 206.27, the borrower has no personal liability and there’s no deficiency judgment. The CFPB explains that if the loan is more than the house is worth, heirs can sell for at least 95% of its appraised value, and FHA insurance pays the lender the rest. The regulation says the sale must bring at least the amount HUD sets, which can’t be more than 95% of the appraised value.
So the key number is the servicer’s appraisal, not the loan balance. Ask for it, and if it looks high for the condition of the house, ask how to challenge it. An offer at or above 95% of that appraisal generally lets the sale close with nothing owed by the family.
When there’s equity left
If the house is worth more than the loan, the estate or the heirs keep the difference after payoff and closing costs. Heirs who inherit the house generally take a basis equal to the value at death (IRS Publication 551), so a quick sale may produce little taxable gain, and a borrower who sells while living may qualify for the home sale exclusion described in IRS Publication 523. A tax professional can confirm your numbers.
The payoff works like any other mortgage at closing. The title company orders a written payoff from the reverse mortgage servicer, pays it from the proceeds, and records the release. Ask for the payoff early, because it grows each month the loan stays open, and compare it with the line of credit statements the borrower received.
Even with equity, the servicer’s deadlines still apply. An empty house with a reverse mortgage can’t sit for a year while the family decides, so plan the cleanout and the sale together.
Spouses who weren’t on the loan
Older reverse mortgages sometimes listed only one spouse. Federal rules now protect an eligible non-borrowing spouse, defined in 24 CFR 206.55 as someone who was married to the borrower at closing, was named in the loan documents, and keeps living in the house as a principal residence. Within 90 days of the borrower’s death, that spouse must establish ownership or another legal right to remain for life. If that’s your situation, see selling a house after your spouse dies.
If you’re the heir and the house is in another state from you, selling a house from out of state covers handling the sale remotely. For a number to put in front of the servicer, send us the address and the payoff.
