Inheriting a home is both a blessing and a responsibility, especially if the home has a reverse mortgage. A reverse mortgage allows homeowners over the age of 62 to convert a portion of their home equity into loan proceeds, which they do not have to repay until they move out of the home, sell it, or pass away. However, when the homeowner passes away, the reverse mortgage loan becomes due, creating some key decisions for the heirs. Understanding how to sell an inherited home with a reverse mortgage is crucial for navigating this process.

If you’ve inherited a home with a reverse mortgage in Ventura County, it’s essential to understand your options and the potential implications of the reverse mortgage. Here’s what you need to know:

This guide will help you understand how to sell an inherited home with a reverse mortgage effectively.

What Happens When the Homeowner Passes Away?

When the borrower of a reverse mortgage passes away, the loan becomes due. For most reverse mortgages, which are FHA-insured HECMs, heirs generally have 30 days after the lender’s due-and-payable notice to say what they plan to do, and about six months to sell or pay off the loan, with possible extensions of up to a year in total. This can leave heirs in a difficult position, especially if they weren’t expecting to handle this situation. In the case of a reverse mortgage, there are a few options for handling the home:

Option 1: Pay Off the Balance and Keep the Home

If you wish to keep the home, the reverse mortgage must be paid off. This can be done in one of the following ways:

• ✓Using other assets – If the estate has enough assets, the balance of the reverse mortgage can be paid off. You will need to gather the remaining loan amount, including any accrued interest, and work with the lender to pay the balance. To keep a home with a reverse mortgage that is an FHA-insured HECM, heirs can generally pay the lesser of the loan balance or 95% of the home’s appraised value.
• ✓Refinancing the loan – If you have good credit and can afford it, you can refinance the reverse mortgage into a traditional mortgage. This would allow you to keep the home, though refinancing terms depend on your financial situation and the property’s current value.
• ✓Inheritance and taxes – Be mindful of the estate tax implications when using other assets to pay off the reverse mortgage. Depending on the estate’s value and your tax situation, you might need to consult a tax professional to navigate this process.

Pro Tip: If you want to keep the home but need help paying off the balance, ask the lender early about extensions. Lenders can often grant more time when heirs are actively selling or arranging financing.

Option 2: Sell the Home and Use the Proceeds to Pay Off the Loan

If you don’t wish to keep the home, selling the home may be the best option. The sale proceeds would go toward paying off the reverse mortgage loan, and any remaining equity would be distributed among the heirs. Here’s what you need to know:

• ✓Listing the home for sale – You’ll need to work with a real estate agent familiar with reverse mortgage properties to help you determine the home’s market value, prepare it for sale, and attract buyers. We specialize in inherited homes with reverse mortgages and can help you with a smooth, fast sale.
• ✓Paying off the reverse mortgage – Once the home is sold, the sale proceeds will be used to pay off the reverse mortgage loan. If the home sells for more than the reverse mortgage balance, any remaining money will go to the heirs. However, if the home’s value is lower than the mortgage balance, heirs generally don’t owe the difference on an FHA-insured HECM, because the loan is non-recourse.
• ✓Handling the sale – In some cases, the lender may handle the process of selling the home, especially if the heirs decide to liquidate the property to settle the loan. This process is usually more straightforward, but it’s still crucial to consult a real estate agent to ensure you’re getting the best price possible.

Option 3: Foreclosure of the Property

If the home’s value is lower than the reverse mortgage balance, and the heirs don’t have the means to pay off the mortgage or sell the property, foreclosure may be an option. If no action is taken, the lender may foreclose on the property to recover their money.

While foreclosure is never the ideal option, in some situations, it may be the only viable path. However, it’s important to note that the reverse mortgage insurance (through the FHA’s Home Equity Conversion Mortgage program) protects the heirs from owing more than the home’s value, even in the case of foreclosure. This means that if the home sells for less than the reverse mortgage balance, the lender cannot come after the heirs for the remaining amount.

Important Considerations When Inheriting a Home with a Reverse Mortgage

• ✓Consult with a reverse mortgage specialist – Working with a lender or financial advisor who understands reverse mortgages can help you understand all your options and the potential costs involved.
• ✓Know your timeline – After the lender sends its due-and-payable notice, you generally have 30 days to share your plans and about six months to sell or pay off the loan. Contact the lender early and keep a record of every conversation.
• ✓Understand the current value of the home – The current market value of the home will play a significant role in deciding whether you can afford to keep it, sell it, or if foreclosure is the only option. Get a professional appraisal and comparative market analysis from a local real estate agent to understand how much you can expect to sell the home for.

How We Can Help You Sell an Inherited Home with a Reverse Mortgage in Ventura County

Selling a home with a reverse mortgage can be complicated, but it doesn’t have to be overwhelming. Tricia Garcia, a Senior Real Estate & Inherited Home Specialist with Real Estate Toolbox, brokered with EXP Realty, has extensive experience in handling inherited homes with reverse mortgages in Ventura County and the surrounding areas. We’ll guide you through every step of the process, from understanding your options to selling the home quickly and profitably.

We can help with:

✔ Valuing and preparing the home for sale
✔ Listing the property and marketing it to qualified buyers
✔ Coordinating with the lender and handling any paperwork
✔ Ensuring a smooth, timely closing process

If you’ve inherited a home with a reverse mortgage and aren’t sure where to start, don’t hesitate to reach out. Contact us today to get the expert guidance you need.

🌐 www.RealEstateToolbox.com
🏡 Leisure Village Resource: www.LeisureVillageLife.com

What to Request From the Lender

When you inherit a home with a reverse mortgage, ask the loan servicer for these early, in writing:

• ✓A current payoff statement showing the full balance
• ✓A copy of the due-and-payable notice and the deadlines it sets
• ✓Their process for an appraisal if you plan to keep the home at 95% of appraised value
• ✓How to request an extension if you are actively selling or refinancing

Keep copies of everything and note the name of each person you speak with. Clear records make the timeline much easier to manage.

Frequently Asked Questions

Keep Reading

• ✓After Inheriting a House, Slow Down: 5 Costly Mistakes Heirs Make When They Rush
• ✓Named Successor Trustee After a Death? What to Do First
• ✓Step-Up in Basis: How an $800,000 Inherited Home Sold With $0 Taxable Gain

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