Reverse Mortgage and Inheritance: Options for Heirs

Your parent had a reverse mortgage. They have passed away, a letter has arrived from the servicer, and nobody in the family knows what happens next. Here is exactly what your options are, how long you actually have, and the federal protection most families are never told about.

By Ken Powell, Reverse Mortgage Planner and Mortgage Loan Officer, NMLS #2656628 | Serving Calvert, Charles, St. Mary’s, and Prince George’s counties | Updated August 2026

First, the thing that costs families the most: the clock

Almost every difficult inherited-reverse-mortgage situation I see in Southern Maryland has the same root cause. Nobody opened the mail.

When the last borrower dies, the servicer sends a due and payable notice to the estate. From that notice, heirs have 30 days to tell the servicer what they intend to do: pay it off, sell, or surrender the property. Thirty days is not a lot of time in a family that is still planning a funeral.

The good news is that the 30 days is a response deadline, not a resolution deadline. Servicers generally allow up to six months from the due and payable date to complete a sale or arrange financing, and HUD permits two additional 90-day extensions when heirs can show real progress, such as an active listing agreement or a pending purchase contract. That is up to twelve months in total.

The catch is that extensions are not automatic. They are granted to families who are visibly working the problem and documenting it. Families who go quiet for four months and then ask for help are the ones who end up in foreclosure, and that outcome is almost always avoidable.

Option 1: Pay off the loan and keep the home

Heirs who have the cash can repay the reverse mortgage balance directly and take clear title. This is the simplest path and it is the least common, because most families do not have several hundred thousand dollars sitting idle.

It comes up more often than you would expect when there is life insurance in the picture, or when several siblings pool funds to keep a family property. If that is your situation, get a written payoff statement from the servicer with a good-through date. Interest continues to accrue, so a payoff quoted in March is not the number you will owe in June.

Option 2: Refinance and keep the home

Heirs can take out a traditional mortgage on the inherited property and use those proceeds to satisfy the reverse mortgage. This is the practical version of Option 1 for families who want the house but not the six-figure check.

The heir has to qualify on their own income, credit, and debt ratios, exactly as with any purchase. There is no special program that waives underwriting because the property was inherited.

Two things slow these files down, and both are avoidable. Title work on an inherited property takes longer than a standard purchase, because the chain of title has to run through the estate. And appraisals on a home that an elderly owner lived in for thirty years often come back with deferred maintenance items that need addressing.

Start the application early. If the family knows in month one that they want to keep the house, we should be in underwriting by month two, not month five.

Option 3: Sell the home and keep the equity

This is the most common path, and in a market like Southern Maryland, where the last decade of appreciation has been substantial, it usually ends with a check to the family.

The home is listed and sold. Proceeds pay off the reverse mortgage balance. Whatever remains after the payoff and the costs of sale belongs to the estate and passes to the heirs.

The 5 percent figure is an illustration, not a quote. In Maryland, closing costs on a sale commonly include real estate commissions, state and county transfer and recordation taxes, and settlement charges. Charles, Calvert, and St. Mary’s counties each set their own transfer tax rates, so run your own numbers with your agent and title company rather than relying on a round percentage.

What matters is the shape of it. The reverse mortgage did not take the house and it did not take the equity. It took what it was owed, and the family kept the rest.

Option 4: Deed in lieu of foreclosure

If the family does not want the property and there is no equity worth pursuing, heirs can voluntarily transfer the deed to the servicer to satisfy the loan.

The heirs receive nothing from the property. They also pay nothing, and the matter closes without a foreclosure on the record. It is faster and generally less costly than letting the property go through foreclosure, and it is the right answer more often than families expect, particularly when the home is out of state, needs significant repair, or has no equity above the balance.

There is no shame in this option. A reverse mortgage is a tool that let a parent stay in their home. If the tool did its job and there is nothing left over, handing back the keys is a clean ending, not a failure.

The 95 percent rule, and why almost nobody knows about it

Here is the protection that changes outcomes for families, and the one I most often find that nobody has explained.

A HECM is a non-recourse loan. The lender’s recovery is limited to the property. Neither the heirs nor the estate can be pursued for a shortfall, and no other asset can be reached for it. Any gap is covered by the FHA mortgage insurance premiums that were paid into the program for exactly this purpose.

Underneath that sits a specific provision at 24 CFR 206.125. When heirs want to keep or sell a home whose loan balance has grown beyond its value, they can satisfy the debt by paying the lesser of the full loan balance or 95 percent of the home’s current appraised value.

If the family sells that home for $450,000, the net proceeds go to the servicer, the $45,000 gap is covered by FHA insurance, and the heirs walk away owing nothing. No deficiency judgment. No claim against the estate’s other assets. No collection calls.

If instead the family wants to keep that Lexington Park home, the 95 percent rule applies. They would satisfy the $495,000 debt by paying 95 percent of the $450,000 appraised value, or $427,500, and take title. They are not required to pay the full balance on a home that is not worth it.

Two senators once had to write to HUD because servicers were not consistently offering this option to families. If a servicer tells you the only way to keep an underwater home is to pay the full balance, that is your signal to slow down, get the rule in front of them in writing, and speak with a HUD-approved housing counselor or an attorney with reverse mortgage experience.

One limit worth stating plainly: the 95 percent rule is a feature of FHA-insured HECMs. Proprietary reverse mortgages, which are not FHA insured, operate under their own contract terms. Check which kind of loan is on the property before assuming anything.

The four options side by side

Comparison of options for heirs inheriting a home with a reverse mortgage

Option	Heirs keep the home?	Heirs receive equity?	Best when
Pay off the balance	Yes	Retain full equity	Cash or life insurance proceeds are available
Refinance	Yes	Retain equity, take on a payment	An heir wants the home and can qualify on their own
Sell	No	Yes, whatever remains after payoff and costs	The home is worth more than the balance and nobody needs it
Deed in lieu	No	No, but owes nothing	No equity, no interest in the property, or it needs major work

Why I ask families to be in the first meeting

When I sit down with a homeowner considering a reverse mortgage, I ask them to bring their adult children if they are willing.

Not every borrower wants that. Money is private and some parents would rather not discuss their finances with their kids. I respect that, and I never push it.

But when the family is in the room, three things happen that do not happen otherwise. The children hear the terms directly instead of a version filtered through worry. They learn that a reverse mortgage is a lien and not a transfer of ownership, which is the fear underneath most of the resistance. And they know, years in advance, what the options will be when the loan comes due.

The families who struggle after a parent dies are almost never the ones who understood the loan. They are the ones who found out about it from a letter.

If your parent has a reverse mortgage and you have never seen the paperwork, that conversation is worth having while everyone is still here to have it. It costs nothing and it takes an afternoon.

Frequently asked questions

Sources

• 24 CFR 206.125, Acquisition and Sale of the Property, establishing the 95 percent of appraised value provision
• Consumer Financial Protection Bureau, guidance on reverse mortgage repayment and heir options
• U.S. Department of Housing and Urban Development, HECM program requirements at 24 CFR Part 206

Ken Powell | Mortgage Loan Officer | NMLS #2656628 | Fairway Independent Mortgage Corporation d/b/a Fairway Home Mortgage | NMLS #2289 | NMLS Consumer Access | Equal Housing Lender.

Reverse mortgage borrowers are required to obtain an eligibility certificate by receiving counseling sessions with a HUD-approved agency. The youngest borrower must be at least 62 years old. Monthly reverse mortgage advances may affect eligibility for some other programs. This material has not been reviewed, approved, or issued by HUD, FHA, or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD, FHA, or any other government agency.

Borrowers remain responsible for payment of property taxes, homeowners insurance, and property maintenance. Failure to meet these obligations may result in the loan becoming due and payable. The examples in this article are illustrations only. They use assumed values, balances, and a rounded 5 percent cost of sale, and they do not reflect any actual transaction, quote, or offer of credit. Actual costs, timelines, servicer practices, and outcomes vary. This article is provided for educational purposes and is not legal, tax, or financial advice. Estate and probate matters vary by state and by circumstance. Consult your own attorney, tax professional, and a HUD-approved housing counselor regarding your specific situation.