What Happens to a Reverse Mortgage When the Owner Dies

When the loan comes due

A Home Equity Conversion Mortgage (HECM), the federally insured reverse mortgage, becomes due and payable when a borrower dies and the home is not the principal residence of at least one surviving borrower (24 CFR 206.27(c)(1), eCFR, checked October 14, 2026). If a co-borrower is still living there, nothing changes yet. If an eligible non-borrowing spouse lives there, repayment can be deferred (below).

Once it is due, no more money can be drawn (HUD, Inheriting a Home Secured by an FHA-insured HECM, September 2019). Property taxes and insurance remain the estate's responsibility until title is transferred (same source). Keep paying them, keep the house insured and secured, and do not let it sit empty and uncared for.

The heirs' three choices and the clock

After the servicer tells HUD the loan is due, it must notify the estate and heirs within 30 days, and give them 30 days from that notice to do one of these (24 CFR 206.125(a)(2), eCFR, checked October 14, 2026):

1. Pay off the full balance, including interest, mortgage insurance and any advances. This is how heirs keep the house; the CFPB says heirs who want to keep it must pay the full balance and may need their own loan to do it (CFPB, heirs keep or sell, last reviewed August 28, 2026).
2. Sell the house for at least the amount HUD sets, which cannot be more than 95% of the appraised value, with the net proceeds paid to the loan. Closing costs on that sale may not exceed the greater of 11% of the price or a dollar amount HUD sets (24 CFR 206.125(a)(2)(ii)).
3. Give the house back with a deed in lieu of foreclosure. The servicer must accept one recorded within 9 months of the due date if title is clean, and HUD may pay a "cash for keys" incentive when the deed comes within 6 months (24 CFR 206.125(f)).

Thirty days is rarely enough to sell a house. HUD's fact sheet says the lender may approve 90-day extensions with documentation that the heirs are actively selling or arranging to repay (HUD, September 2019), and the CFPB says the timeline may be extended up to six months (CFPB, August 28, 2026). The servicer generally must start foreclosure within six months of the due date unless HUD approves more time (24 CFR 206.125(d)(1)). Send the servicer the death certificate, a listing agreement or loan application, and ask for each extension in writing.

Non-recourse: heirs never owe more than the house

The borrower has no personal liability for the balance; the lender can collect only through the sale of the property and cannot get a deficiency judgment (24 CFR 206.27(b)(8), checked October 14, 2026). If the balance has grown past the home's value, the heirs can sell for at least 95% of the appraised value and the remaining balance is paid by FHA mortgage insurance (CFPB, balance larger than home value, last reviewed July 11, 2022). That insurance is what the borrower paid for through the upfront and annual premiums (see reverse mortgage costs).

If the house is worth more than the balance, the heirs keep the difference after the loan and selling costs are paid (CFPB, August 28, 2026).

The surviving spouse who is not on the loan

This is where families get hurt. A spouse who was not a borrower can stay only if they qualify as an eligible non-borrowing spouse. Under the current rule, that spouse must have been married to the borrower at closing and stayed married, been named as an eligible non-borrowing spouse in the loan documents, and lived in the home as a principal residence then and since (24 CFR 206.55(c), eCFR, checked October 14, 2026).

Within 90 days of the borrower's death, the spouse must establish legal ownership or another legal right to remain for life, and must keep meeting the loan obligations: taxes, insurance, upkeep (24 CFR 206.55(d)). During the deferral, no further money can be drawn (24 CFR 206.27(b)(1)). A spouse who was not eligible at closing cannot become eligible later (24 CFR 206.55(c)(2)). Older loans may follow different rules, depending on when the loan was made, so a surviving spouse should contact a HUD-approved housing counselor or an attorney (CFPB, moving out of the home, last reviewed September 11, 2024).

Taxes for the heirs: the step-up in basis

Heirs generally take a basis equal to the home's fair market value at the date of death (26 U.S.C. 1014(a), Cornell LII, checked October 14, 2026; IRS, Publication 523 (2025)). A sale soon after death at about that value usually produces little or no taxable gain. A surviving spouse who owned the home jointly gets a new basis only on the deceased spouse's share, under the IRS rules for joint owners (same Publication 523). Run your numbers with the step-up in basis calculator, read selling inherited property taxes, and check with a tax professional, since community property states differ.

Reverse mortgage interest is generally not deductible as it accrues, because the IRS treats it as home equity debt interest (IRS, Publication 936 (2025)). Ask a tax professional before assuming any deduction when the loan is repaid.

When a reverse mortgage can still make sense for a family

A reverse mortgage can work well for a family that has talked it through: the parents get to stay home with no monthly loan payment, the children understand the house will likely be sold to repay the loan, and any surviving spouse is either a co-borrower or properly named. The CFPB suggests talking to your children now about repayment options and considering an estate plan (CFPB, August 28, 2026). See also does a beneficiary override a will.

A plain example: three outcomes for the heirs

Hypothetical: a widow, 72, opened an adjustable HECM with a starting balance of $150,000 (draws plus costs) and took nothing more. We assume a hypothetical note rate of 6.5% plus the 0.5% annual mortgage insurance premium (HUD Mortgagee Letter 2017-12), so 7.0% a year, added monthly, held constant for simplicity. For scale, the 1-year Treasury constant maturity rate was 4.53% on October 14, 2026 (U.S. Treasury Daily Par Yield Curve), so 6.5% implies a hypothetical 2% margin. She dies 12 years later.

Balance: $150,000 x (1 + 0.07 / 12) to the 144th power = $346,608. Selling costs are a hypothetical 6% of the price.

Arithmetic for the middle row: $700,000 minus $42,000 minus $346,608 = $311,392. With a step-up in basis to $700,000, a sale at that price would show no gain before selling costs. In real life the rate changes over time, and taxes, insurance and repairs paid during the wait reduce what the heirs keep.

Sources

The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.