When someone who has a reverse mortgage passes away, their estate and beneficiaries might need to fulfill some obligations to keep the home from being foreclosed. Here is what happens when someone dies with a reverse mortgage:
First and foremost, the lender will receive official notification of the borrower’s death, usually from the estate’s executor or one of the heirs.
As per the terms of the reverse mortgage, the lender will then send a repayment notice to the estate or heirs, stating the amount owed to satisfy the debt, including any interest and fees incurred.
The heirs will have several choices to repay the debt, including paying off the loan balance by selling the home, using their resources, refinancing the reverse mortgage, or keep the home and pay off the debt from other assets.
If the heirs decide to keep the home, they may have up to six months to complete the repayment, which may include extensions granted by the lender under certain conditions.
In the event the repayment isn’t made on time, the lender would initiate foreclosure proceedings, and the home will be sold at an auction to recoup their lost investment.
In conclusion, if you have a reverse mortgage, it’s essential to plan ahead and consider the potential obligations your heirs may have upon your passing. Being proactive and consulting with a financial advisor to discuss different scenarios can help make the best decision for your loved ones.