When the last borrower on a HECM reverse mortgage dies, the loan becomes due. Selling a house with a reverse mortgage usually means the heirs sell it, pay off the loan, and keep whatever is left. Under HUD's HECM rules, heirs generally get 30 days to tell the servicer their plan, about 6 months to sell or pay off, and possibly two 90-day extensions if they're actively selling. They usually never owe more than the home is worth. Here's how I teach agents to help, gently and accurately.
The short answer
The servicer sends a due-and-payable notice. The heirs respond quickly with their plan. The home gets listed and priced to sell. If the home is worth less than the loan, heirs can generally sell for at least 95% of the appraised value and FHA insurance covers the rest. Agents keep the timeline moving and keep the heirs talking to the servicer.
Step by step
- Be kind first. These clients are grieving. Slow down.
- Get the servicer's contact info. It's on the loan statements.
- Respond within 30 days. The heirs (or estate representative) tell the servicer they intend to sell. They should ask what the servicer needs.
- Confirm who can sign. In most cases, the personal representative of the estate. That may require probate. Refer to an attorney.
- Get a payoff and an appraisal plan. The servicer will order an appraisal. Ask for a written payoff.
- Price it to sell. Build a pricing report. Time matters. See how to explain a pricing report.
- List fast and track activity. Keep proof of marketing: listing date, showings, offers. The servicer may require it for extensions.
- Request extensions in writing. If it's not sold by about 6 months, the heirs can request extension time through the servicer with proof they're actively selling. HUD's rules allow up to two 90-day extensions.
- Close. The loan is paid from the sale. The heirs receive what's left.
A worked example (illustration only)
Home value: $400,000. Reverse mortgage payoff: $310,000. Monthly holding costs (taxes, insurance, utilities, upkeep): about $700.
| Amount | |
|---|---|
| Sale price | $400,000 |
| Payoff | −$310,000 |
| Selling costs (assume 7%) | −$28,000 |
| Six months of holding costs | −$4,200 |
| Heirs keep (before taxes and other estate costs) | about $57,800 |
If the payoff were $450,000 instead: heirs could generally sell at 95% of the appraised value and owe nothing more. FHA insurance covers the shortfall. That's the non-recourse protection.
Illustration only. Exact timelines, extensions and the 95% rule are set by HUD rules (24 CFR 206.125) and the servicer. Check current guidance at HUD's HECM page and the CFPB's reverse mortgage resources.
How to explain it to your client
"I'm so sorry about your mom. Here's the good news. You don't have to figure this out overnight, and you won't owe more than the house is worth. The loan company will want to hear from you within about 30 days. You just tell them you plan to sell. Then you usually have around six months, and they can give more time if we're actively selling. I'll handle the house: pricing, getting it ready, showings. You'll want an attorney for the estate paperwork. Let's take it one step at a time."
Watch-outs
- Talk to the servicer early. Silence can trigger foreclosure steps.
- Probate. Who can sign depends on the estate. Send them to an attorney.
- Insurance and taxes. Keep paying them and keep the home insured, especially if vacant.
- Vacant home risks. Winterize, check weekly, and keep the utilities on for showings.
- Don't predict the payoff. Get it in writing from the servicer.
- Taxes on the sale. Inherited homes can have tax questions. Send them to a CPA.
- Non-borrowing spouses may have special protections. The servicer and an attorney explain.
This is training for real estate agents. It isn't legal, tax or lending advice. Send estate questions to an attorney and tax questions to a CPA. Check with your managing broker.
Questions
Do heirs have to pay the reverse mortgage out of pocket?
No. The loan is usually paid from the sale. They can also pay it off and keep the home.
What if the house is worth less than the loan?
On HECM loans, heirs generally can sell for at least 95% of appraised value and won't owe the rest.
How long do heirs have?
About 30 days to respond, about 6 months to sell or pay off, plus up to two 90-day extensions with servicer approval.
Can heirs keep the house?
Yes, by paying off the loan, often with their own mortgage, at the lesser of the balance or 95% of appraised value.
Who signs the listing?
Usually the estate's personal representative. Check with an attorney.
Brian Lee Burke is the founder of PadLeaders, a Colorado real estate broker licensed since 2003, team leader of The Kenna Group at Keller Williams DTC (formerly Kenna Real Estate Group) and the author of Mastering Real Estate and The Real Estate Playbook. More about Brian.
- Agent training by Brian Lee Burke, The Kenna Group at Keller Williams DTC
- Brian's reverse mortgage heirs guide research (24 CFR 206.125, HUD HECM guidance)
- HUD's HECM page
- CFPB's reverse mortgage resources