Many Colorado families only learn that a parent had a reverse mortgage after the parent has passed away. Then the letters from the loan servicer start arriving, and the deadlines feel urgent. Here’s what heirs need to know about a reverse mortgage after death, and the options for the house.
Please note: I’m a real estate broker, not an attorney or financial advisor. Rules depend on the specific loan, so contact the loan servicer and a probate attorney right away.
What happens when the borrower dies
Most reverse mortgages are FHA-insured Home Equity Conversion Mortgages (HECMs). When the last borrower passes away, the loan becomes due and payable. The estate or heirs should contact the loan servicer promptly, usually within about 30 days, to let them know what they plan to do.
If a spouse who wasn’t on the loan still lives in the home, special protections may let them stay, but there are strict deadlines and paperwork. Contact the servicer immediately.
How much time do heirs have?
Heirs are typically given several months, often up to six, to sell the home or pay off the loan. The lender may approve additional 90-day extensions if the family shows it is actively working on a sale or payoff, such as having the home listed or under contract. Keep records of everything and stay in contact with the servicer.
Your options
- Keep the home: pay off the loan balance, often by refinancing or using other funds.
- Sell the home: sell, pay off the loan and keep any remaining equity. This is the most common choice.
- If the home is worth less than the loan: for FHA-insured loans, heirs can generally sell the home for at least 95% of its current appraised value, and the lender accepts the net proceeds even if they don’t cover the full balance. Heirs typically aren’t personally responsible for the shortfall.
- Deed in lieu: if no one wants the house and there’s no equity, the estate can sign it over to the lender to avoid foreclosure.
Don’t forget taxes and insurance
Until the home is sold or transferred, property taxes, insurance and upkeep still need to be paid. Keep the home secured and heated, especially in a Colorado winter.
Why speed matters
Interest continues to grow on the loan balance, which reduces any equity left for the family. Moving quickly, getting an accurate valuation and choosing the right selling strategy can protect what’s left. If time is very short or the home needs work, a cash offer can help meet the servicer’s deadlines.
We can help
We help Colorado families sell homes with reverse mortgages, coordinate with servicers and attorneys, and provide fast valuations. Read our guides to selling a home in probate and the probate timeline, or call us at (720) 403-2940.