9. Settling the Loan Account

Your HECM will be paid back in full when you reach what is called a Maturity Event. You can pay off your HECM in full at any time—or you can wait until you reach a Maturity Event.

Maturity Event occurs when a borrower:

  • Sells the home;
  • Conveys title of the property to someone else;
  • Passes away;
  • Resides outside of the principal residence for a period exceeding 12 consecutive months due to physical or mental illness;
  • Fails to pay property taxes, insurance premiums, condo fees, and other “mandatory obligations” and all options to bring the loan current have been exhausted; or
  • Fails to maintain the home and allows it to fall into disrepair.

The following guide will help you prepare when a Maturity Event occurs and the loan has to be repaid. It includes:

  • A step-by-step walk through the end of loan process
    Step One: You reach a Maturity Event
    Step Two: Contact Your Servicer
    Step Three: Plan to Pay Off Your Debt
    Step Four: Settle the Loan

    Step Five: If Loan Cannot Be Settled, Face Foreclosure
  • Advice for surviving spouses of HECM borrowers
  • Advice for children or other heirs of HECM borrowers
It is very important that you communicate with your Loan Servicer whenever you have a question about your reverse mortgage. Your Loan Servicer will always help you through the end of the loan process. 

Make sure you keep the telephone number and or email address of your Loan Servicer someplace convenient.

Step One: You reach a Maturity Event 

Single Persons
When you pass away, sell your home, convey title to someone else, or live outside of the property for more than 12 consecutive months due to physical or mental illness, you have reached a Maturity Event and the reverse mortgage must now be paid back.

As long as both spouses were 62 or older and on title when they obtained the reverse mortgage, the loan does not need to be paid back until the last surviving spouse passes away, moves out, or lives outside of the property for more than 12 consecutive months due to physical or mental illness. If one spouse passes away, the surviving spouse can continue living in the home and will have access to any remaining reverse mortgage proceeds. 

Please be aware: Servicers audit the death records of borrowers using a variety of tools. It is not to your advantage to delay notifying your servicer about this event, as many of the deadlines listed below are based upon the date that the borrower passed away – not the date that the Loan Servicer was made aware of the borrower’s death.

Step Two: Contact Your Servicer

When a Maturity Event occurs, you or your heirs should immediately contact the Loan Servicer by telephone or by email.

Within 30 days of being notified of a Maturity Event, the Loan Servicer will mail a “Demand Letter” to the estate that discloses the current loan balance and explains the options for paying back the reverse mortgage, number of days to respond, and options to avoid foreclosure. An appraisal is also ordered by the Loan Servicer within the same timeframe to determine the property’s current market value.

It is very important that the estate responds to the Demand Letter within 30 days or the Loan Servicer can initiate foreclosure as required by federal regulation.

Please also know that no further funds can be disbursed to you from the reverse mortgage once a maturity event has occurred.

Please be aware: Some borrowers pass away without having any heirs. The Loan Servicer needs the flexibility to foreclose, or take legal ownership of the property, so that it can dispose of the home and get repaid. Therefore, it’s important that the heirs keep in contact with the Loan Servicer and carefully follow the prescribed timelines in order to avoid any legal complications.

Step Three: Plan to Pay Off Your Debt

Payment is due immediately, but the estate may have up to six months to satisfy the debt.  The estate can sell the property to pay off the debt, use private savings, or the property can be purchased for 95 percent of its appraised value.

If additional time is needed to sell the property, you can request a 90-day extension from the Loan Servicer, but the request must be approved by the U.S. Department of Housing and Urban Development (HUD). If the property still has not sold after the first extension has expired, you may request one additional 90-day extension, subject to approval from HUD.

The balance owed equals the total sum of the loan proceeds advanced, plus interest and other unpaid fees, such as mortgage insurance.

Interest, mortgage insurance premiums and homeowner’s insurance will continue to accrue until the loan is paid and settled.  This means your loan balance will continue to grow during the settlement period.

Please be aware: You must contact the Servicer to request these 90-day extensions and they may require specific documentation that has to be submitted to HUD to substantiate your request.  As an example, if you have listed the property for sale, HUD would need to see a copy of the real estate listing for the property.

Step Four: Settling the Loan

If the initial Demand Letter is not responded to, or if the 90-day extensions have expired and the property still has not sold, the borrower has no heirs to help pay off the loan, or the loan is not otherwise satisfied, then the Servicer may be required to initiate foreclosure.

Pre-foreclosure notices will be mailed to the borrower’s home address by the Loan Servicer or a foreclosure attorney. A foreclosure attorney must take First Legal Action to initiate foreclosure within 6 months of the “due and payable” date, unless prior time extensions have been approved by HUD.

You or your heirs may receive these foreclosure notices, even if you are actively working to refinance the property or sell it to pay off the loan. In some cases, state law may require these notices be sent. Don’t let this worry you. You should, however, contact the Loan Servicer and make them aware that you have received these letters and ask them for further instructions.

Please be aware:  Your HECM is a non-recourse loan, which means 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, the additional equity is retained by you or your heirs.

Step 5: If Loan Cannot Be Settled, Face Foreclosure
We hope the information in this section will prevent you from getting to this point in the process. Foreclosure is a legal term where, at the end of that process, the investor on your loan assumes ownership of the property and will sell it to pay off the loan balance.  When foreclosure occurs, the borrower has no more responsibility for the home or the loan, nor will the borrower receive any remaining proceeds after the loan balance is satisfied.

Advice to Spouses of Borrowers
All HECM borrowers must be 62 years or older and identified on the deed as an owner of the property.
The amount of proceeds you receive from a reverse mortgage loan is based on the age of the borrower, the value of the property and interest rates at the time of closing. The older you are, the more you can borrow.

When a couple jointly owns a property, the loan amount will be based on the age of the youngest borrower.  For example, if a husband is 75 and a wife is 65, the principal limit will be based on the wife’s age.

If a borrower dies and the surviving spouse is listed on the deed as a homeowner and on the HECM loan, no action needs to be taken.  The preceding information about a Maturity Event is then applicable to the surviving spouse.

Please be aware: If you are a surviving spouse who is under 62 years of age, or if your name was removed from the title so that your spouse could get a reverse mortgage, you may be eligible to remain in the home.

As long as you qualify as an “Eligible Non-Borrowing Spouse,” the reverse mortgage will not become due and payable until another Maturity Event occurs. To qualify as an Eligible Non-Borrowing Spouse, the following conditions must be met:

  • You are current in making timely tax and insurance payments;
  • You are maintaining the property under the terms and conditions of the HECM;
  • You were legally married to the borrowing spouse when the reverse mortgage originally closed, OR you were engaged in a committed same-sex relationship with the borrower akin to marriage but were prohibited under state law from legally marrying the borrower at the time of the loan’s origination, but became legally married prior to the death of the borrower;
  • You have lived in the property as a principal residence throughout the duration of the HECM;
  • You have, or are able to obtain, within 90 days following the last surviving borrower’s death, good, marketable title to the property or a legal right to remain in the property for life.

Unfortunately, if you do not qualify as an Eligibly Non-Borrowing Spouse, the reverse mortgage will become due and payable and you will have to find a way to pay off the loan, or sell the property and find alternative housing.

It’s important that you contact the Loan Servicer and find out what your options are.

Advice to Children of Borrowers (or Other Heirs)
If you are the heir to your parents’ (or anyone else’s) estate and the last surviving borrower passes away, you assume responsibility for the future of the reverse mortgage.  

You (and your siblings) can satisfy the debt by selling the home or purchasing the property for 95 percent of its appraised value. If the home depreciates in value to the point that the balance owed exceeds the value of the home, you will not be responsible for repaying more than what the home is worth.

Another option to consider is a “Deed In Lieu of Foreclosure.” If you or your siblings live in different parts of the country, or otherwise don’t want to take responsibility for selling the property, the Loan Servicer can assume that obligation.   

Please be aware: Upon the passing away of a parent, if you are the heir to the estate, you will be subject to Step 3, Step 4 and Step 5. Please contact your parent’s loan’s Servicer as soon as possible for assistance with this process.