A reverse mortgage can be a helpful financial tool for seniors, but it can also create challenges for heirs after the homeowner passes away. If you are handling an estate with a reverse mortgage in probate, understanding your options and obligations is essential. Here’s a step-by-step guide to navigating this situation.
What Happens to a Reverse Mortgage After Death?
A reverse mortgage allows homeowners aged 62 and older to access their home equity while continuing to live in the property. However, the loan becomes due when the last borrower dies, moves out, or sells the home. This means heirs must act quickly to resolve the loan during probate.
Step 1: Notify the Lender
As soon as the borrower passes away, the lender must be notified. The lender will then provide details about the outstanding loan balance and repayment options. Heirs typically have 30 days to respond and begin making arrangements.
Step 2: Determine the Home’s Value
The next step is assessing the home’s value compared to the outstanding loan balance. Heirs generally have several options:
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Pay Off the Loan – If the home’s value exceeds the loan balance, heirs can pay off the reverse mortgage and keep the home.
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Sell the Home – If heirs do not wish to keep the home, selling it can cover the loan and potentially provide additional funds.
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Deed the Home to the Lender – If the loan balance exceeds the home’s value, heirs can opt to give the home back to the lender in a process called a "deed in lieu of foreclosure."
Step 3: Understand the Timeline for Probate
Probate can take several months to a year, but reverse mortgage lenders typically allow heirs six months to settle the loan, with two possible three-month extensions if they are actively working on repayment or sale.
Step 4: Explore Repayment Options
Heirs have multiple options for handling the debt:
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Use Other Assets – If they want to retain ownership, they can use personal funds or refinance with a traditional mortgage.
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Sell the Property – If the home is worth more than the loan balance, selling ensures repayment while keeping any remaining equity.
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Walk Away Without Owing More – Since reverse mortgages are non-recourse loans, heirs won’t owe more than the home’s market value, even if the loan balance exceeds that amount.
Step 5: Seek Legal and Financial Guidance
Since probate laws and lender policies can be complex, consulting with an estate attorney or financial advisor can help heirs navigate the process efficiently.
Final Thoughts
Handling a reverse mortgage in probate requires prompt action and careful decision-making. By understanding the process, communicating with the lender, and exploring repayment options, heirs can make informed choices that best suit their financial and emotional needs.
If you need assistance managing a reverse mortgage in probate, our team is here to help. Contact us today to discuss your options and ensure a smooth resolution.
