When the last borrower on a reverse mortgage passes away, the loan comes due and must be paid back. Heirs can handle reverse mortgage loan repayment in multiple ways, but first, they need to decide what to do with the home.
Options Heirs Have for Repaying a Reverse Mortgage
Heirs will not take on any personal debt to satisfy the loan balance. There are four options available to heirs when deciding how to repay the 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. Heirs will receive any funds that exceed the loan balance.
- 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 can be expensive.