If you’ve inherited a house with a reverse mortgage, the loan is due now, but you are not personally liable for it. Reverse mortgage inheritance rules give you three choices: pay off the loan and keep the home, sell it, or hand the deed back to the lender. Federal law makes the loan non-recourse, so if the balance has grown past what the home is worth, the lender absorbs the loss.1Office of the Law Revision Counsel. 12 USC 1715z-20 – Insurance of Home Equity Conversion Mortgages The timeline is shorter than most families expect.
Your Three Choices
Within 30 days of the borrower’s death, the servicer sends a Due and Payable Notice laying out the same three options every heir gets: pay off the loan, sell the property for at least 95 percent of appraised value, or transfer the title through a deed in lieu of foreclosure.2U.S. Department of Housing and Urban Development. Mortgagee Letter 2015-10
Keeping the Home
To keep the property, you owe the lesser of the full loan balance or 95 percent of the home’s current appraised value.3Consumer Financial Protection Bureau. What Happens to My Reverse Mortgage When I Die If the home is worth more than the balance, you pay the balance. If the balance is higher than the home’s value, the 95 percent cap kicks in and you pay that.
Few heirs have that kind of cash sitting around. Most take out a conventional mortgage or FHA loan to cover the payoff. If you’re 62 or older, you may qualify for a new HECM on the inherited property, though you’d need to cover any gap between the new loan proceeds and the payoff from your own funds.4U.S. Department of Housing and Urban Development. Home Equity Conversion Mortgages for Seniors
Selling
Selling on the open market is the most common choice. Loan balance and closing costs come off the top of the sale proceeds; anything left belongs to the estate. When the home is worth more than the debt, this preserves the remaining equity for the heirs.
If the home is underwater, you can still sell for at least 95 percent of appraised value, and the lender must accept that as full satisfaction of the debt.5eCFR. 24 CFR 206.125 – Acquisition and Sale of the Property FHA insurance covers the shortfall. That is the mechanism that makes the no-personal-liability promise work in practice.
Deed in Lieu of Foreclosure
When the debt far exceeds the home’s value and nobody in the family wants the property, you can transfer the title directly to the lender and walk away. The deed must be filed for recording within nine months of the due date.5eCFR. 24 CFR 206.125 – Acquisition and Sale of the Property Because the loan is non-recourse, the lender cannot come after you for anything left over.
How Long You Have
The clock starts on the date of the borrower’s death, not the day the servicer finds out or mails the notice. HUD requires the servicer to initiate the first legal foreclosure action within six months of that date unless an extension is granted.2U.S. Department of Housing and Urban Development. Mortgagee Letter 2015-10 In practical terms, that gives you roughly six months to pay off the loan, close on a sale, or surrender the deed.
If you’re actively working toward a resolution but can’t finish in time, you can request up to two 90-day extensions. You’ll need evidence you’re genuinely marketing the property or pursuing financing: a listing agreement, a signed purchase contract, a pending loan application. The servicer submits the request to HUD, which must approve it. While an extension is in effect, foreclosure proceedings and associated fees are paused.2U.S. Department of Housing and Urban Development. Mortgagee Letter 2015-10
That is a theoretical maximum of about twelve months from the date of death if both extensions come through. Treating extensions as guaranteed is a mistake. Heirs who go silent or miss documentation deadlines often face foreclosure well before that mark. Treat six months as the hard deadline.
You Are Not Personally Liable
A reverse mortgage cannot become a personal debt of the heirs. Federal law requires every FHA-insured HECM to include a non-recourse clause, meaning the borrower’s estate and heirs can never owe more than the home is worth when the loan comes due.1Office of the Law Revision Counsel. 12 USC 1715z-20 – Insurance of Home Equity Conversion Mortgages If the balance is $350,000 and the home appraises at $225,000, you owe at most $213,750 (95 percent of the appraised value) to keep the home, and nothing at all if you surrender it.
This holds even in severe housing downturns. If a servicer or collector calls in a way that suggests personal financial urgency, knowing you can walk away without owing a dime changes the conversation.
What to Do in the First Few Weeks
Find the Servicer
If you don’t know who services the loan, use the MERS ServicerID tool, a free lookup maintained by the Mortgage Electronic Registration System. You can search by property address, borrower’s name, or the Mortgage Identification Number printed on the original loan documents.6MERSINC. Find Your Servicer Monthly statements, coupon books, or tax documents at the borrower’s home may also identify them.
Send Documentation Early
Once you’ve identified the servicer, send the death certificate along with any will, trust, or probate documents as quickly as possible. The death certificate is the formal trigger that starts the close-out process. Add a Letter of Intent explaining who the heirs are and what you plan to do with the property. Early contact matters. Servicers have internal deadlines, and silence from the family almost always accelerates them.
If a Surviving Spouse Still Lives in the Home
If the borrower’s surviving spouse was not a co-borrower, they may still be able to stay under HUD’s deferral rules. An Eligible Non-Borrowing Spouse can delay the loan’s due-and-payable status indefinitely if they continue to meet certain conditions.7eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance – Section 206.55
To qualify, the spouse must have been married to the borrower at closing and remained married until the borrower’s death, disclosed to the lender at origination and specifically named as an Eligible Non-Borrowing Spouse in the loan documents, and living in the home as their primary residence. A spouse who didn’t meet these conditions at origination cannot become eligible later.7eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance – Section 206.55
Once the deferral is in place, the spouse must certify annually that the property remains their principal residence and that they still meet the qualifying criteria. They must keep paying property taxes, homeowners insurance, and any other obligations the borrower carried. Within 90 days of the borrower’s death, the surviving spouse must establish legal ownership or a legal right to remain there for life. Divorce ends eligibility entirely.8U.S. Department of Housing and Urban Development. What Are the Ongoing Requirements for HECM Borrower and Non-Borrowing Spouse Certifications
One important limit: during the deferral period, the surviving spouse cannot receive any new loan proceeds. Any line of credit or monthly payments stop at the borrower’s death. The spouse gets to stay, but the reverse mortgage itself is frozen.
Taxes
Stepped-Up Basis
When you inherit a home, your cost basis for capital gains purposes resets to fair market value on the date of death, not what the original owner paid decades earlier.9Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent This applies whether or not the home has a reverse mortgage. If a parent bought the house for $80,000 in 1990 and it’s worth $310,000 at death, your basis is $310,000. Sell for $315,000, and you owe capital gains tax only on the $5,000 difference.10Internal Revenue Service. Gifts and Inheritances
This is why selling an inherited home often generates little or no taxable gain, even on property that appreciated significantly. The rule applies automatically. No special election or filing is required.
Forgiven Debt Is Not Taxable Income
When the loan balance exceeds the home’s value and the lender accepts less than the full amount owed, the forgiven difference is not taxable income to the heirs. Because a HECM is non-recourse, the IRS treats the home sale as the full extent of the borrower’s obligation. The lender may issue a Form 1099-C reporting the canceled amount, but non-recourse debt satisfied by surrendering the collateral does not generate cancellation-of-debt income.11Internal Revenue Service. Recourse vs Nonrecourse Debt If a 1099-C shows up, run it past a tax professional so the estate’s return handles it correctly, but the result should be no additional tax liability.
Probate and Title
Whether the estate has to go through probate before you can sell or refinance depends on how the property was titled. Homes held in a living trust or with a transfer-on-death deed generally pass outside probate, which speeds settlement considerably. Homes titled solely in the deceased borrower’s name almost always require some probate proceeding to establish who has legal authority to sign a deed or loan documents.
The reverse mortgage itself is a secured debt against the property, so the balance gets resolved through sale or payoff rather than through the probate court’s distribution process for unsecured debts. But the title transfer still has to happen through the correct legal channel. Heirs who try to list a property without clear legal authority to sell often discover the problem only when a title company refuses to close, burning weeks of the settlement window. A brief consultation with a probate attorney early on can head that off.
Small estate affidavits, which let heirs claim certain assets without full probate, generally cannot be used to transfer title to real estate regardless of the property’s value. If the home didn’t pass through a trust or similar mechanism, expect to open a probate case.
Maintaining the Home While You Decide
From the moment the borrower dies until the loan is resolved, someone needs to keep the home in reasonable condition. The estate is responsible for property taxes, homeowners insurance, and any HOA fees during this period. Letting insurance lapse or falling behind on taxes can give the servicer grounds to accelerate foreclosure independent of the normal timeline.
Basic upkeep matters too. A vacant home that deteriorates can lose appraised value, which directly affects how much equity the estate recovers or how much you pay to keep the property under the 95 percent rule. Winterizing pipes, keeping the lawn cut, and securing the home against vandalism are not optional when the estate’s financial interest depends on the property’s condition at appraisal time.