Remember: Your HECM reverse mortgage is a loan, and it has to be repaid.
Remember: If the borrower dies, the loan servicer must be contacted immediately after the death. Do not delay informing the servicer! The deadlines in the following steps depend on the date of the borrower's death and not the date the servicer was informed of it.
The servicer will send a “due and payable” letter to the borrower or the borrower’s heirs within 30 days of the maturity event. The letter includes information about the current loan balance as well as the options to repay the HECM, the deadline to respond to the letter, and what to do to avoid foreclosure.
The servicer will order an appraisal to find out the property’s current market value.
The borrower or heirs must respond to the due and payable letter within 30 days. If they do not respond, the loan servicer can begin the foreclosure process.
To know: Heirs to the property must stay in contact with the loan servicer and follow the servicer's deadlines and instructions to avoid foreclosure. The loan servicer needs to be repaid for the loan. Foreclosure is a process to ensure the servicer is repaid.
Payment of the HECM loan balance is due immediately; however, the heirs can have as much as six months to repay it. The loan balance includes the total sum of the HECM loan proceeds plus interest and any unpaid fees, such as mortgage insurance.
If the heirs need more time to sell the property or refinance it for purchase, they can request a 90-day extension from the servicer. The U.S. Department of Housing and Urban Development (HUD) must approve the extension. If needed, a second 90-day extension can be requested for HUD's approval.
During the settlement period, interest, mortgage insurance premiums and homeowner’s insurance will continue to accrue until the loan is paid. In other words, the loan balance will increase until the loan is settled and repaid.
The servicer may initiate foreclosure for the following reasons:
The loan servicer or a foreclosure attorney will send pre-foreclosure notices to the borrower’s home address. First legal action on foreclosure must be initiated within six months of the due-and-payable date, unless HUD has approved extensions.
The loan is satisfied.
Note: The servicer may send pre-foreclosure notices to borrowers or heirs who are trying to refinance the property or sell it to repay the loan. State law may require servicers to send these notices.
The pre-foreclosure notices aren't necessarily cause for immediate concern. They are a signal that you should contact the servicer to acknowledge the letters and ask for additional instructions.
The HECM is a non-recourse loan. When the home is sold, you do not have to pay any more than the current appraised value. If the loan balance is less than the market value of the home when sold, you or your heirs keep the additional equity in the home.
Foreclosure is not the ideal outcome when the HECM is ending, but it's important to know what happens when foreclosure occurs.
During foreclosure, the bank that invested in your loan will take ownership of the home and will sell it to satisfy the loan balance.
Note: After foreclosure, the borrower or heirs no longer have responsibility for the home or the loan. The HECM has ended, and no additional loan proceeds will be provided to the borrower after foreclosure.
You must meet the following conditions to qualify as an eligible non-borrowing spouse:
If you're not qualified as an eligible non-borrowing spouse, the HECM will become due and payable. The options are to repay the loan or sell the property and find other housing. Contact the loan servicer to confirm your options.
If you are the heir to the estate and the last surviving borrower dies, you are responsible for settling the HECM loan.
Source: The National Reverse Mortgage Lenders Association publication, "What Do I Do When My Loan Is Due?" http://www.reversemortgage.org/Repayment