A Reverse Mortgage Came Due When the Owner Died. Now What?
When the last borrower on a reverse mortgage dies, the loan becomes due and payable and a set of federal deadlines starts running. Almost everything written about those deadlines online is slightly wrong — including the famous 95% rule and the six months people believe they have. The regulations are public and short enough to read, so this article works from them directly and shows you where the usual version drifts.
The covered front porch of a modest older house in autumn with an empty wooden rocking chair, a dried potted plant and fallen leaves against the railing
When the last borrower dies, a HECM reverse mortgage becomes due and payable. Federal rules then give the estate or heirs 30 days from the date of the lender's notice to do one of six things — pay it off, sell, deed it back, or fix the condition that triggered it. Nobody inherits the shortfall: the lender may enforce the debt only through sale of the property. Two things you will read elsewhere are wrong, and we go through both below: the 95% figure is not an heir discount, and the six months is the lender's deadline, not yours.
What "due and payable" starts, and when
A Home Equity Conversion Mortgage — the FHA-insured reverse mortgage, and the kind most people have — does not have to be repaid while the borrower lives in the house. The death of the last surviving borrower is one of the events that ends that arrangement. From there the regulation runs on notices, and the notices set the clock.
The lender tells HUD
The lender tells you
Your 30 days begin
Read those three steps together and you will see that a good deal of time can pass between a death and the letter that starts your 30 days. That is not a reason to panic, but it is a reason not to wait for the letter before finding out what the house is worth and what the balance is. The useful work — a payoff figure, a value, a decision about who wants the house — can all be done before the clock starts.
Need a number before the letter arrives?
We can tell you what the house is worth to a cash buyer without you committing to anything. Knowing the value early is what turns a 30-day deadline from a scramble into a decision.
The six things you may do
The regulation lists them. They are not alternatives a lender offers as a courtesy — they are what the rule says the applicable party may do inside the window.
The actions available under 24 CFR 206.125(a)(2)
| Division | The action | What it means in practice |
|---|---|---|
| (i) | Pay the outstanding loan balance in full, including accrued interest, mortgage insurance premium and lender advances | Refinance, or pay cash, and keep the house |
| (ii) | Sell the property for at least the amount HUD sets by notice — which may not exceed 95 percent of appraised value — with net proceeds applied to the balance | The route most families take |
| (iii) | Provide the lender with a deed in lieu of foreclosure | Hand it back without a foreclosure |
| (iv) | Correct the condition that made the loan due and payable — available for reasons other than the death of the last surviving borrower | Not available where death was the trigger |
| (v) | For an Eligible Non-Borrowing Spouse, correct the condition that ended the Deferral Period | A surviving spouse who was not a borrower |
| (vi) | Any other action HUD permits by notice | The catch-all |
Division (iv) is worth reading twice. If the trigger was the death of the last borrower, "fix the problem and carry on" is expressly not one of your options — the loan is due, and the question is only how it gets satisfied.
The 95% rule is not what it is usually described as
This is the single most repeated fact about reverse mortgages and heirs, and the common version of it is not what the regulation says. The usual phrasing is that heirs may pay 95% of the home's value to settle a loan that has grown larger than the house is worth. Here is the actual text.
Sell the property for an amount not to be less than the amount determined by the Commissioner through notice, which shall not exceed 95 percent of the appraised value as determined under § 206.125(b), with the net proceeds of the sale to be applied towards the outstanding loan balance. Closing costs shall not exceed the greater of: 11 percent of the sales price; or a fixed dollar amount as determined by the Commissioner through Federal Register notice. For the purposes of this section, sell includes the transfer of title by operation of law.
Follow the grammar. The property must be sold for not less than an amount HUD determines. That HUD-determined amount is then capped: it may not exceed 95 percent of the appraised value. So the 95 percent is a ceiling on the minimum — an upper limit on how high HUD may set the floor. It is a rule about the lowest acceptable sale price, with a cap to stop that floor being set at the full appraised value.
The practical effect for a family whose house is worth less than the balance is often close to what the popular version promises, which is why the shorthand survives. But the shorthand invites people to believe they have a right to name 95 percent and be done, and they do not. The number is set by HUD, and 95 percent is where it stops.
Closing costs on such a sale may not exceed the greater of 11 percent of the sales price, or a fixed dollar amount HUD sets by notice. We have not read that separate notice, so we are not going to quote the dollar figure — but the 11 percent cap is in the regulation itself and is worth knowing before anyone hands you a settlement statement.
Where the "six months" actually comes from
Search this topic and you will be told repeatedly that heirs get 30 days, extendable up to six months. The six months is real and it is in the regulation — but it is not a period granted to heirs. It is the lender's obligation:
- Six months — the lender shall commence foreclosure within six months of the due date, or within such additional time as HUD approves.
- Nine months — a deed in lieu of foreclosure must be filed for recording within nine months of the due date for the lender to be required to accept it.
- Six months, again — HUD may pay a "Cash for Keys" incentive where the property is deeded within six months of the due date. The amount is set by HUD, so we are not quoting one.
- Six months, a third time — once the lender owns the property, it must make diligent efforts to sell within six months of acquiring it.
Extensions do exist — the foreclosure provision says "or within such additional time as may be approved by the Commissioner" — and in practice servicers do request them so a sale can complete. But the regulation does not fix that additional time at six months, or at any number, so we will not tell you that you have it. Ask your servicer in writing what they have requested and what HUD has approved, and get the answer in writing too.
Nobody inherits the shortfall
This is the fear that brings most people to this subject, and the regulation answers it plainly.
The borrower shall have no personal liability for payment of the outstanding loan balance. The mortgagee shall enforce the debt only through sale of the property. The mortgagee shall not be permitted to obtain a deficiency judgment against the borrower if the mortgage is foreclosed.
Note what it says precisely: the protection is written as to the borrower. Heirs are not named in it — but heirs never signed the note, so the balance was never a personal debt of theirs to begin with. What heirs inherit is a house with a lien on it, and the lender's remedy runs against the house. If the balance exceeds what the property is worth, the gap is covered by the FHA insurance the borrower paid premiums for across the life of the loan.
That is the general shape of it, and it is why "we cannot afford to inherit this" is usually a misplaced worry. It is not a substitute for advice on your own facts, particularly if someone signed something at closing or afterwards that a summary cannot know about.
Selling is the route most families take
If the plan is to sell, the deadline is the thing to design around — a sale that closes inside the window is worth more than a slightly higher price that misses it. We can close as fast as 7 days when that is what the timing needs.
If you sell: two details that decide whether it closes
The appraisal, and who pays for it
The lender must have the property appraised by an appraiser on the FHA roster no later than 30 days after receiving the request in connection with a potential sale. Who pays depends on status: the appraisal is at the requesting party's expense unless the mortgage is due and payable, in which case the lender bears the cost — though the lender may be reimbursed out of the proceeds of any sale.
Since death makes the loan due and payable, heirs selling after a death are generally in the second case. If a servicer tells you to pay for the appraisal, that is worth a polite question citing the provision.
Junior liens can stop the whole thing
This is the condition that most often surprises a family who has done everything else right. The lender is required to satisfy the mortgage of record so the sale can close — but only provided that there are no junior liens and all the net proceeds from the sale are paid to the lender.
A second mortgage, an old judgment lien, a contractor's lien, a municipal assessment: any of them can sit between you and a closing that otherwise met every federal deadline. Find out what is recorded against the property early, not in the final week. A title search costs very little compared with a missed window.
If it goes to a foreclosure sale
If nothing is done, the lender must commence foreclosure. Two provisions then matter to the family. The lender is required to bid at least the lesser of the outstanding balance plus incurred expenses, or the current appraised value. And if a party other than the lender is the successful bidder, the net proceeds of the sale are applied to the outstanding loan balance.
Whether anything is left after that — and how a surplus is claimed — is Ohio procedure rather than federal rule, and we have written about that separately. The short point is that a foreclosure sale is not automatically the end of any value in the property, but it is a far worse way to find out than a sale you controlled.
Where this leaves your options
The deadline narrows the field, but it does not remove the choices. Honestly stated, they are:
- Keep it. Someone pays the balance in full — cash, or a refinance in their own name. Realistic where there is meaningful equity and someone who wants the house.
- Repair, then list. Possible, but the clock is the problem: repairs plus a market timeline rarely fits inside the window unless the servicer has an approved extension in writing.
- Rent it out. Not available while the loan is due and payable. The balance has to be satisfied first, which usually means a refinance — so this is really the "keep it" route with a tenant.
- List it with an agent. Expect 5.5%–6% commission plus closing costs, and a market timeline. Workable if the window allows, and it may fetch the highest gross price.
- Sell it yourself. Saves the listing-side commission, and puts the deadline management on you.
- Sell direct to a cash buyer. No repairs, no cleanout, and a close as fast as 7 days — typically around 21 days. The reason families choose it here is usually certainty of date rather than price.
We will not tell you a cash sale nets more, because often it does not. What it does is make the closing date something you choose rather than something you hope for, and in a situation governed by a federal deadline that is worth a real amount of money. Work out the net in each case — the figure after commission, closing costs, repairs, and every month of carrying an empty house — and compare those, not the headline prices.
The exact wording of the two deadlines people most often get wrong
The mortgagee shall notify the borrower, Eligible Non-Borrowing Spouse, borrower's estate, and borrower's heir(s), as applicable, within 30 days of the later of notifying the Commissioner or receiving approval, if needed, that the mortgage is due and payable. The mortgagee shall give the applicable party 30 days from the date of notice to engage in the following actions…
The mortgagee shall commence foreclosure of the mortgage within six months of the due date defined in § 206.129(d)(1), or within such additional time as may be approved by the Commissioner.
This article summarises 24 CFR 206.125 and 206.27 as we read them and is provided for general information. It is not legal or financial advice. HECM servicing involves HUD notices and mortgagee letters that sit outside the regulation text, and your loan documents may matter. Talk to an Ohio attorney and to your servicer about your own situation, and get the servicer's answers in writing.
A reverse mortgage on an inherited Cleveland house?
Tell us the situation and we will be straight with you about whether selling to us actually helps, or whether you have more room than you think. Call or text 216-899-CASH — no obligation, and no pressure if the answer is that you should list it.
Frequently asked questions
The regulation gives the estate or heirs 30 days from the date of the lender's notice to take one of six listed actions — pay the balance, sell, hand over a deed in lieu, or correct the condition that triggered the due-and-payable status. The lender itself must send that notice within 30 days of notifying HUD, and must notify HUD within 60 days of the loan becoming due and payable.
Not quite, and the difference matters. The rule says the property must be sold for an amount not less than the amount HUD determines by notice, and that amount may not exceed 95 percent of the appraised value. So 95 percent is a ceiling on the minimum sale price HUD can require — a floor with a cap on it — rather than a discount heirs are entitled to claim.
The regulation states that the borrower has no personal liability for the outstanding balance, that the lender may enforce the debt only through sale of the property, and that no deficiency judgment may be obtained against the borrower if the mortgage is foreclosed. Heirs never signed the note, so the debt is not personally theirs either — but you should confirm your own position with an attorney.
From the lender's side of the rule, not the heirs'. The lender must commence foreclosure within six months of the due date, or within such additional time as HUD approves. A separate provision requires a deed in lieu of foreclosure to be filed for recording within nine months of the due date. Neither is a guaranteed extension of the heirs' 30 days.
It depends on the loan's status. The appraisal is at the requesting party's expense unless the mortgage is due and payable — in which case the lender pays for it, though the lender may be reimbursed out of the proceeds of any sale. The appraisal must be done by an FHA-roster appraiser no later than 30 days after the request is received.
Yes. Where the loan is not yet due and payable, it may be sold for at least the lesser of the outstanding balance or the appraised value. Where it is due and payable when the sales contract is signed, the amount in the due-and-payable rule applies. The lender then satisfies the mortgage of record to let the sale close.
Yes, and it is the most commonly missed condition. The lender satisfies the mortgage of record to facilitate the sale only if there are no junior liens and all the net proceeds of the sale are paid to the lender. A second mortgage, a judgment lien or a contractor's lien can therefore stall a sale that otherwise met every deadline.
If a party other than the lender is the successful bidder, the net proceeds of the sale are applied to the outstanding loan balance. Whether anything remains after that, and how a surplus is claimed, is a matter of Ohio procedure rather than the federal rule.
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