Mom Had a Reverse Mortgage and Passed Away: The 30-Day Letter and Your Four Choices

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SunnyNest Homes is a San Diego company that buys houses, and on this page we will tell you when you should not sell to us.

Your mom or dad had a reverse mortgage, and they passed away. Now there is a letter from a loan company you may never have heard of, and it says something is due.

The loan is only half of what you are dealing with. The other half is the house itself. It is the place your parent lived, full of their things, and you are being asked to make money decisions about it while you grieve.

So take a breath. You have more choices and more time than the letter makes it sound, and the rules protect you more than most people expect. This page is part of our guide to selling an inherited house, and it covers both halves.

What happens to a reverse mortgage when the owner dies?

The loan becomes due when the last borrower dies. The lender tells HUD, then sends the estate or heirs a due-and-payable letter. From the date of that letter, heirs have 30 days to tell the lender their plan: pay it off and keep the house, sell it or hand it back with a deed in lieu. More time may be possible while the family sells.

Most reverse mortgages in the U.S. are HUD's Home Equity Conversion Mortgage, called a HECM. The rules on this page are the HECM rules. If your parent had a private reverse mortgage, the loan papers decide, so ask the servicer which kind it is.

Two things can change when the clock starts. If two people were on the loan, it is not due until the last one dies or moves out. If an eligible non-borrowing spouse still lives in the house, different rules apply and the loan may not be due yet. In either case, call the servicer before you do anything else. (Source: CFPB)

The deadlines, on one timeline

Every clock below counts from the due date or from the letter. The loan becomes due when the last borrower dies. Ask the servicer for the exact due date in writing, because the other dates hang on it.

Sources: 24 CFR 206.27 and 206.125 (the federal HECM rule), and the CFPB for the 30 days and the six-month extension.

Two things stand out. First, the letter can show up a month or two after the funeral, because the lender has 60 days to tell HUD and 30 more to write to you. The house is on a clock before you hear anything. Second, the foreclosure date and the extension can overlap. That is why you put every request in writing and get every answer in writing.

You may read online that heirs get two 90-day extensions, or about a year in all. We could not confirm that in a government source, so we do not count on it here. Ask the servicer exactly how much time it can give in your case.

Do I have to decide everything in 30 days?

No. You do not need to panic on day one. The 30 days are for telling the lender your plan and getting it started. The CFPB says the timeline may be extended up to six months so heirs can sell the house or get their own loan to buy it. Asking for that time is a normal request.

Put the request in writing. Say what you plan to do (list the house, get a loan to keep it or sign it back) and where things stand. Keep a copy.

Your first call to the servicer, word for word

First, find the right company. Use the phone number on your parent's last reverse mortgage statement. If a letter or a caller you do not recognize says they handle the loan, do not use their number. Call the one on the statement and ask whether the letter is real.

Have these ready in case they ask: a death certificate, and papers that show you can act for the estate, such as letters from the probate court or the trust document. They may also send you a form to sign so they can talk to you about the loan.

Then use this script. Write the answers down as you go.

Then call a HUD-approved housing counselor. They are free, they know these loans and they work for you, not for the lender. You can find one through the CFPB's housing counselor search, or by calling the CFPB at 855-411-2372.

If the house will go through probate, you also need a probate attorney. In California, the person with legal power to sell is usually the executor, or the successor trustee if your parent had a living trust. Our page on selling a house without probate in California explains which paths skip court.

The four choices

Every family ends up in one of these four. The federal rule names them, and the CFPB explains the first three.

Choice 1: Sell the house

This is the most common path. The sale pays off the loan, and whatever is left goes to the estate.

If the house is worth more than the loan, the family keeps the difference. If the loan is bigger than the house is worth, heirs can sell for at least 95 percent of the appraised value. The sale money goes to the lender, and the mortgage insurance your parent paid for covers the rest. (Source: CFPB)

A house can be “underwater” on a reverse mortgage and still be sold cleanly, with no bill sent to the kids.

Choice 2: Keep the house

To keep it, you pay off the loan with your own money or a new mortgage. The open question is how much.

A CFPB page on what happens to a reverse mortgage at death says heirs repay the full loan balance or 95 percent of the home's appraised value, whichever is less. Another CFPB page says keeping the home means paying the full balance. Both are on the CFPB's site today.

That gap can be worth tens of thousands of dollars, so do not guess. Ask the servicer, in writing, what exact amount your family would pay to keep the house. Then check it with a HUD-approved counselor.

Choice 3: Hand it back with a deed in lieu

A deed in lieu of foreclosure means you sign the house over to the lender. There is no auction and no foreclosure process.

Under the federal rule, the lender must accept a deed in lieu from the person with the legal right to sign if it is recorded within 9 months of the due date. HUD may pay a cash incentive if the house is deeded over within 6 months of the due date. That incentive is not promised and no amount is set, so ask the servicer if one applies. (Source: 24 CFR 206.125)

This is often the right choice when there is no equity and nobody wants the work of selling.

Choice 4: Do nothing

If no one acts, the lender forecloses. The federal rule tells the lender to start foreclosure within 6 months of the due date unless HUD approves more time. You lose control of the price and the timing, and you lose any equity a good sale could have saved. There is almost never a reason to pick this one on purpose.

Do heirs have to pay a reverse mortgage out of pocket?

No. Under the federal rule for HUD reverse mortgages, the borrower has no personal liability for the loan and the lender can collect only by selling the house. It cannot get a deficiency judgment after a foreclosure. Mortgage insurance covers any shortfall. (Sources: 24 CFR 206.27, CFPB)

So your own savings and your own home are not part of this. What you can lose is equity. The loan balance keeps growing every month with interest and mortgage insurance until it is paid, so every month the house sits, there is a little less left for the family.

What about the appraisal?

The lender orders the appraisal from an appraiser on the FHA list. When the loan is already due, the lender pays for it up front and gets paid back from the sale. (Source: 24 CFR 206.125) We could not find a federal rule that lets heirs dispute the appraisal. If the value looks wrong, send the servicer recent nearby sales in writing and ask how to request a review.

A worked example: one house, two loan balances

These are made-up numbers for one example house in San Diego County. Your numbers will be different. The point is to show how the math works.

The house appraises at $650,000. It needs some work, and nobody in the family plans to live there.

Example A: the loan is $410,000 (there is equity)

Selling costs of $45,000 on the listing are an assumption for this example (commission, escrow, title and a few fixes). Our cost of selling a house guide shows how to estimate your own.

Here, listing puts about $110,000 more in the family's pocket than the cash offer. The trade is time and work: cleaning out the house, fixing what buyers will notice, showings and a few months on the market while the balance grows. For most families in Example A, that trade is worth it. List the house.

Example B: the loan is $700,000 (the house is underwater)

The loan is $50,000 more than the house is worth. Ninety-five percent of $650,000 is $617,500.

In Example B, nobody makes money from a sale. If someone in the family wants the house, the servicer's written answer to question 4 in the script decides whether that is a $617,500 house or a $700,000 house. If nobody wants it, a deed in lieu is often the least work.

While you decide: taxes, insurance and the bills

Keep the house protected while the family works it out.

• Keep paying the property taxes, the homeowners insurance and any HOA dues. Your parent had to keep these current under the loan, and falling behind only adds problems. (Source: CFPB)
• Call the insurance company. Tell them the owner passed away and the house may sit empty, and ask whether the policy still covers a vacant house. Get that answer before you need it.
• Keep the utilities on, the doors locked and the yard looking lived in.

Taxes on the sale. The IRS says the basis of inherited property is generally its fair market value on the date of death. That can mean little or no capital gains tax on a sale that happens soon after. Your situation may differ, so ask a tax professional before you sell. (Source: IRS)

The hardest part is often the stuff

For a lot of families, the loan is not what hurts. It is walking into the house and seeing a whole life still sitting on the shelves. You do not have to clear it in a weekend, and you do not have to do it alone.

Here is one pace you can use:

• First week: protect what matters. Find the papers (the will or trust, the deed, the loan statements, insurance policies, bank and tax records) and put them somewhere safe. Lock up jewelry, cash and anything small and valuable.
• Before anything moves: walk through with your phone and take photos or a video of every room. It helps the executor list what the estate owns, and it helps the family remember what was there.
• Before anything leaves:if the house is in probate, check with the probate attorney first. Your parent's things usually belong to the estate until it is settled, so giving or selling them early can cause trouble later.
• Then go one room at a time, in short sessions. Sort into keep, family, donate, sell and toss. Ask each family member ahead of time to name the few things that matter most to them, so nobody finds out too late that a favorite item went to a thrift store.
• Leave the hardest room for last.Photos and letters can take the longest, and they are the easiest to box up and sort later at someone's kitchen table.

Help is out there. Friends and neighbors often want to help and do not know how to offer. An estate sale company can price and sell what the family does not keep. A junk removal crew can clear what is left in a day. A professional organizer or a senior move manager can run the whole sort for you if you live far away.

Keep the clock in mind and do not let it run you. If clearing the house is taking longer than the deadline allows, tell the servicer in writing and ask for time. A listing can usually wait until the main rooms are clear. If nobody can face it at all, a cash buyer will take the house with the belongings still inside. That costs you in price, so weigh it with real numbers before you choose it.

When several of you inherit the house

When there are brothers and sisters, keep, sell or hand back is rarely one person's call. Everyone grieves at a different speed, and the lender's letter does not wait for any of you.

A few things make it easier:

• Get everyone together early, by phone or video if you have to. Share the lender's letter and the loan balance with all of you at once, so nobody is working from rumors.
• Pick one person to talk to the servicer. Usually that is the executor or the successor trustee, because they have the legal power to act. Everyone else gets the updates.
• Let the dates in the letter be the shared clock. Then the deadline is pushing, not one sibling.
• Put each decision in a short email to everyone. “We agreed to list the house on March 1” heads off a lot of hurt feelings later.
• If one of you wants to keep the house, that person needs to pay off the loan. Ask the probate attorney how that works for everyone else's share before anyone makes promises.
• If you are stuck, bring in a neutral person. A mediator or the estate's attorney can help the family reach a decision before the lender makes one for you.

Is SunnyNest the right call for you?

Usually not. Most families should not sell to us, and here is how to tell.

List with a Realtor if there is real equity, the house is in fair shape and you have a few months. That describes most of Example A. Use a Realtor (a licensed agent who belongs to the National Association of Realtors and follows its Code of Ethics) and have a real estate attorney review the contract before you sign. Please do not sell it yourself to save the commission. Pricing, disclosures, the contract and escrow would all land on you during a deadline and a loss, and one mistake can cost more than the commission saves. Here is the longer version of why we say that.

Talk to the servicer about a deed in lieu if the loan is bigger than the house is worth and nobody wants it. That is Example B.

A written cash offer may fit if the house needs a lot of work, the family lives far away, the clock is short or there is only a little equity and a long listing would eat it. A cash sale closes on a date you pick, as-is, with no cleanout and no showings. It also pays less than a good listing, and the offer shows you both numbers in dollars so you can see the gap.

If foreclosure has already started on a California house an heir lives in, SunnyNest will not buy it under contract, because California law sets strict rules for buying a home in foreclosure from the person living there. We will point you to a HUD-approved counselor and a real estate attorney instead, for free.

Common mistakes to avoid

• Waiting for the letter. The clock is already running before it arrives. Call the servicer first.
• Paying the loan from your own savings because you feel you should. You are not personally liable. Get advice before you pay anything.
• Letting the insurance or the taxes lapse on an empty house.
• Signing with the first buyer who calls. Get a listing price from a Realtor before you look at any cash offer, so you have a real number to compare.
• Not asking for more time. If you are listing or getting a loan and the deadline is close, ask the servicer in writing.

Questions sellers ask us