Selling a House With a Reverse Mortgage After a Death

Your mother died six weeks ago. A letter has arrived from a company you have never heard of, using the phrase due and payable, mentioning thirty days, and asking what you intend to do about a loan nobody in the family knew the details of. Nothing in that letter is designed to be read while you are grieving, and the deadline in it is real.

This article sets out what actually happens to a reverse mortgage when the last borrower dies, what the four options are, why the family almost never ends up owing money personally, and the Oklahoma paperwork that sits underneath all of it.

What happens when the last borrower dies

Most reverse mortgages are Home Equity Conversion Mortgages, usually shortened to HECM, and they are insured by the Federal Housing Administration. A smaller number are proprietary products from private lenders and those follow their own contract terms rather than the rules below, so the first thing to establish is which one your parent had.

On a HECM, the Consumer Financial Protection Bureau sets out the sequence plainly. The loan becomes due and payable after the death of the borrower and of any co-borrower or eligible non-borrowing spouse. Once the heirs receive a due and payable notice from the lender, they have thirty days to buy, sell or turn the home over to satisfy the debt. The Bureau also notes that the timeline may be extended up to six months so the heirs can sell the home or arrange their own financing to buy it.

Thirty days is to say what you intend. It is not thirty days to complete a sale. Missing it is what turns a manageable situation into a foreclosure.

Two things keep running while you decide. Interest continues to accrue on the balance, and so does the mortgage insurance premium. A house sitting untouched for four months is a house whose payoff figure has grown.

The four options

Sell the house and keep what is left. If the property is worth more than the balance, the loan is repaid from the proceeds and the difference belongs to the estate. This is the ordinary outcome where a parent took a modest draw against a house they owned outright.

Pay the balance and keep the house. Usually with a new mortgage in an heir's own name, or with cash.

Hand it back through a deed in lieu of foreclosure. The title goes to the lender, the debt is satisfied and the family walks away owing nothing further. Where the balance is close to or above the value, this is frequently the cleanest exit and it costs the family nothing.

Do nothing. The loan goes to foreclosure. This is the option families end up in by accident, through not opening the letters, and it is the only one with no upside.

If the loan is worth more than the house

This is the fear that keeps families awake, and the answer is better than most people expect.

A HECM is a non-recourse loan. The heirs are not personally liable for a shortfall. If the balance exceeds what the house is worth, the FHA insurance covers the gap rather than the family covering it. Nobody inherits the difference.

There is a second protection on top. Where the heirs want to keep the property, the Consumer Financial Protection Bureau states they repay either the full loan balance or 95 per cent of the home's appraised value, whichever is less. So a house worth 140,000 dollars with a balance of 190,000 dollars can be kept for 95 per cent of the appraised value rather than for the balance.

If the family does not want it, an ordinary sale at market value to an unrelated buyer also satisfies the loan. What the programme does not allow is selling it cheaply to a relative and expecting the insurance to absorb the difference.

If a spouse is still living there

Stop before anybody puts a house on the market. A surviving spouse who was not named as a borrower may still be able to remain in the home under federal protections for eligible non-borrowing spouses. The conditions are specific and they are a matter of what the loan documents and the servicer's records show.

If somebody is living in that house, establish their position with the servicer and a HUD-approved counsellor before making any decision about selling. Getting this wrong moves an elderly person out of a home they were entitled to stay in.

The Oklahoma paperwork underneath it

The loan rules are federal. Who is allowed to sign a deed is not, and that is where most Oklahoma families lose time.

If the house was held with a recorded transfer-on-death deed, it passes outside probate and the beneficiary can act, which our article on the transfer-on-death deed explains. If it was not, somebody normally needs authority through probate before a sale can close. Our page on the Oklahoma probate timeline covers how long that takes, and where the estate is small enough, summary administration is considerably faster than the full process.

Servicers deal with this constantly and will usually work with a family that is visibly making progress. What they cannot do is wait indefinitely for a family that has not started. A copy of the recorded deed is the first document to find, and our page on getting a copy of your deed in Tulsa County sets out how.

What to do in the first fortnight

1. Find the loan documents and identify the servicer. The name on the letter is the place to start
2. Contact the servicer in writing and say what you intend to do. Keep a copy. This is what the thirty days is for
3. Send the death certificate when they ask, and ask for a written payoff figure with a good-through date
4. Speak to a HUD-approved housing counsellor. It is free, they do this every day, and they are not selling you anything
5. Find out what the house is realistically worth before deciding anything, because every option depends on that number
6. Ask for an extension in writing before the deadline passes, not after, and keep evidence that the property is genuinely being marketed

Where we come in

If there is real equity and the family has time, list it. An open market sale of a house in ordinary condition will usually net the estate more than we will pay, and the extension route exists precisely so that families have room to do that. We will say so on the phone. Our page comparing a cash offer against listing with an agent has the arithmetic.

If the balance is close to or above the value, do not sell to anybody. Ask the servicer about a deed in lieu. It satisfies the debt, it costs the family nothing, and it takes less work than a sale. There is no version of that situation where selling to us helps you and we are not going to pretend otherwise.

Where we are useful is the narrower case: real equity, a clock that will not move, and a house that needs work no heir can fund or wants to manage. Out-of-state families, houses full of forty years of belongings, and estates where nobody can take three months off to project manage repairs. Our page on selling an inherited house in Tulsa covers how that works, and our article on the inherited house nobody wants deals with the family side of it.

The short version

• A reverse mortgage becomes due and payable when the last borrower dies
• The Consumer Financial Protection Bureau says heirs have thirty days from the due and payable notice to say what they intend, and the timeline may be extended up to six months to sell or arrange financing
• Interest and mortgage insurance keep accruing while you decide
• Four options: sell, pay it off and keep, deed in lieu, or do nothing and let it foreclose
• A HECM is non-recourse. Nobody in the family inherits a shortfall
• Heirs keeping the home repay the balance or 95 per cent of appraised value, whichever is less
• A surviving spouse who was not a borrower may still be able to stay. Check before anybody sells
• HUD-approved housing counselling is free and it is the right first call