The real answer is ?it depends? and that is a terrible answer but it is the most honest. When referring to the death of the borrower(s), the loan documents including the Deed of Trust and Note state that lender may require an immediate payment in full, due upon death once the property is not the principal residence of at least one surviving borrower.
There is no 6-month period or 12-month period described in the documents given to heirs to pay the loan back but people routinely use these timeframes as ?guides? to tell borrowers and heirs what can be expected of them.
If you look at the HUD website, the only timeframes that HUD mentions are: The reverse mortgage is due and must be paid within 30 days of the date of the death of the last surviving borrower; 90-day extensions may be granted to enable heirs to sell a property with satisfactory evidence that the property is being actively marketed and that if you are the spouse of the deceased borrower, you must supply your documentation within 30 days. Other than that, there are no dates or timeframes mentioned by HUD. So, this is the only real answer I could give a borrower that agrees with the HUD written information.
The question is what happens if the reverse mortgage loan is not paid in the 30 days mentioned in the loan documents on the HUD site? Do they come in and throw you out? Do you lose the house on day 31? The answer to both of these is a resounding NO. We receive comment after comment from people who notify us that they have a home in their family or neighborhood that has a HUD reverse mortgage on it that the lender has not called due and payable yet where the owners have passed many years before.
We routinely have heirs contact us who tell us that they themselves either contacted their lender or HUD more than 2 years prior and have been trying to complete a foreclosure and the lender has still not taken the property back.
HUD changes the expectations and the timeframes for heirs to sell properties based on market conditions. When the market conditions are such as they are now, when houses are selling like hotcakes, they expect heirs to move more quickly than at times when it takes more than a year to market and sell a home.
That?s why they give 90 days at a time and give extensions as needed. If heirs are marketing the home diligently and things just are not selling, there is no reason for HUD to try to take the home and do the same thing the heirs are doing. They will wait longer for that home to sell whereas if they see that the heirs are doing nothing to sell the home, they will step in and foreclose eventually.
When is a Reverse Mortgage Repayment Required?
So, what is the right answer? The reverse mortgage becomes due and payable when the last borrower permanently leaves the home. The lender or their servicer will contact the heirs to ask them what they intend to do (do they want to keep the home, sell it, Deed it back to the lender in Lieu of Foreclosure or just let the lender foreclose and take the property back). They will ask the current disposition of the property (is it vacant or occupied, is it secure or does the lender need to take steps to secure the property).
Then the lender will take the appropriate steps based on the answers they get from the heirs. For example, if the heirs say they want to sell the home, the lender would need to order an appraisal so that they would know the current value of the property. Once they get that report, they need to contact the heir(s) back and give them the options regarding the amounts needed to repay the loan based on the amount owed or 95% of the current market value, whichever is less.
BUT and here is a very important consideration, the lender most likely didn?t find out on the first day that the last borrower had passed, it could have been 2 months or longer since the passing of the last borrower. If the lender began foreclosure immediately when they finally do find out, it would still take a minimum of almost 6 months to complete a foreclosure action based on foreclosure laws, assuming the lender filed the paperwork to foreclose that day.
If they were quick enough to make the determination within 60 days of the passing of the last borrower, that would be almost 8 months that the heir actually had before the home was foreclosed and the home taken back by the lender. Considering a foreclosure almost never starts on or within the first 60 days of the passing of the last borrower, in all practicality, the time stretches out even longer.
There’s No Concrete Timeframe Required to Repay
So again, can we promise any specific timeframe that heirs will have to sell a home after the last borrower dies? No, we cannot.
Our experience talking to hundreds of people and heirs is that once they receive the letter from the servicer, if they let them know that they are selling the home, they almost always get at least two 90-day periods to market and sell the home if they remain communicative with the lender and are showing a good faith effort to sell the home and that is all they need at this time.
When market conditions were bad, we saw people routinely getting extensions for 2 years in some markets. But our experience has also been that this time almost always starts months and sometimes years after the death of the last borrower, that the lender is almost never in contact with the heirs within 60 ? 90 days of the last borrower?s passing.
Heirs Should Have a Plan to Repay
But let?s talk about what heirs should do and what borrowers should do with their heirs before then. First thing is to sit down with your family attorney and discuss the plans for the disposition of the home. Have the plans in place so that the title can pass quickly to the heirs so that they are not held up any longer than necessary when trying to sell the home.
The interest on the HECM continues to accrue until the loan is paid off. Therefore, the sooner it is paid, the better it is for the estate or heirs as they keep more proceeds and pay less to outstanding interest. Borrowers should talk to their heirs and have a plan in place which includes giving them authorization in advance so that they can contact the lender when needed for final payoffs on the loan and other necessary communication regarding the loan.
Talk to your attorney but it might mean a Durable Power of Attorney and a letter to the lender authorizing them to communicate with your heirs about all matters relating to the loan (if your attorney does recommend the POA, be sure to send a copy to the lender in advance so they have already received your directives). If selling the home is the plan, then your heirs should execute your plan as quickly as is practical when the time comes. There are real estate companies that specialize in working with senior estates and can conduct estate sales if one is needed and have the house on the market quickly.
Have the family remove all personal items they wish to keep and then let the estate sale company sell any remaining items then donate anything left and give the receipt to the heirs to help offset any possible taxes owed at the completion of the sale (this is not tax advice; this is just a suggestion to resolve things quickly but you should check with your tax advisor to make sure this is best for your circumstances).
Then place the home on the market. This action can help in a couple of ways. It can have a home sold before the lender even calls the loan due and payable or if they do, it goes a long way toward showing them that you are serious about selling the home quickly.
As I stated earlier, most heirs wind up getting more than 6 months or even 12 months from the date of death to sell a home but there is no reason to wait and interest is accruing. Once things start to move toward completion, it will move faster and faster if they are not prepared and the time to start thinking about what you need to do is not right after you lose a loved one.
No one wants to think about what happens when someone dies, but everyone will someday and if you are prepared for what you need to do in advance, the situation will be much easier and less stressful.
When researching a reverse mortgage, it?s important to speak to your family and trusted financial advisor to weigh both the pros and cons. Learn more about how a HECM loan might be right for you by contacting one of our top reverse mortgage lenders, or check your eligibility with our free reverse mortgage calculator.