Prepare Your Heirs to Resolve Your Reverse Mortgage

If the holder of a reverse mortgage does not have a living spouse when she dies, her heirs will have to act quickly to meet the requirements of the loan. As reported in the March, 2013, issue of Kiplinger’s Retirement Report, heirs have six months after the death of the last borrower to reach agreement regarding paying off the loan. They can request up to two 90-day extensions, but must demonstrate that they are either actively trying to arrange financing or to sell the home. The heirs can choose to keep the property, sell the property or turn the keys back to the lender.

The heirs should notify the lender as soon as possible after the borrower’s death. Until the loan is settled, the interest on the balance of the loan and the required insurance will continue to be charged, although loan payments that were disbursed as monthly payments will stop, and lines of credit secured by the reverse mortgage will be closed. However, according to federal law, reverse mortgages must be “non-recourse” which means that, if the amount of the loan exceeds the value of the home, the lender cannot go after the estate or the heirs to cover the shortfall.  On the other hand, if the heirs do turn the keys over to the lender and the home is sold for more than the loan amount, those funds are returned to the estate.

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