Selling a house with a reverse mortgage on it
How the loan is paid off at closing, what the 95 percent rule means for heirs, which deadlines the servicer sets after the last borrower dies, and how an as-is sale fits when the house needs work.
A house with a reverse mortgage can be sold at any time. The sale pays off the loan balance at closing and any equity left goes to the owner or the estate. With a federally insured HECM, heirs who sell never have to pay more than 95 percent of the appraised value, even when the balance is higher.
Two kinds of calls, one loan to pay off.
Amy and Jenny hear about reverse mortgages from two directions. Sometimes it is the borrower who is ready to move and wondering whether the loan makes selling complicated. More often it is an heir: a parent or relative has died, a letter from the loan servicer has arrived, and the clock on that letter is already running.
Both situations come down to the same thing. A reverse mortgage is a lien on the house like any other mortgage, except that the balance usually grows over time instead of shrinking because interest and mortgage insurance are added to it each month. The sale pays it off at closing. What changes from case to case is how much equity is left and how much time you have.
This page covers home equity conversion mortgages, the federally insured kind most reverse mortgages are, along with the Colorado steps that matter when the borrower has died. Proprietary reverse mortgages follow their own loan documents. This is general information, not legal advice; confirm with a Colorado attorney, and confirm every date with the servicer.
The reverse mortgage situations we buy
- The borrower is moving out. Moving out permanently is one of the events that makes the loan due. Selling on your own timeline, before the servicer starts counting, keeps the choices with you.
- The last borrower has died. The loan is now due, and the servicer has written to the estate. We can make a written offer quickly so the heirs know their number before the first deadline.
- The balance is close to the value, or above it. For a HECM, the 95 percent rule caps what heirs need to accept. We price the house against its as-is value so you can see where the payoff lands.
- The house needs work. Years of deferred maintenance are common with these loans. We buy as-is, as long as the numbers work for both of us, and nobody has to clean out the house.
- The heirs live out of state. Much of the sale can happen by phone, email and a mobile notary. One walkthrough with Amy or Jenny, and the title company handles the payoff.
- Property taxes or insurance fell behind. Unpaid property charges can make a reverse mortgage due early. A sale on a fixed date can resolve the loan before the servicer moves toward foreclosure.
How the reverse mortgage is paid off at closing
The title company orders a payoff statement from the reverse mortgage servicer, the company that sends the monthly statements. That figure includes the money advanced, the interest, the mortgage insurance premiums and any fees added over the life of the loan, good through a specific closing date. It is usually larger than people expect, because nothing was paid down along the way.
At closing, the payoff comes out of the sale price first and then any other liens and the seller’s costs. Whatever remains belongs to the borrower, or to the estate if the borrower has died. The servicer releases the lien and the buyer takes clear title.
Get the payoff figure early. It decides everything else.
Selling while the borrower still lives in the house
A borrower can sell at any time, and the loan simply gets paid off from the proceeds. If the house is worth more than the balance, you keep the difference like any other sale.
If the balance has grown past the value, federal rules still allow a sale. Under the HUD regulation at 24 CFR 206.125(c), a borrower whose loan is not yet due may sell the property for at least the lesser of the loan balance or the appraised value, and the FHA insurance covers what the sale does not. Ask the servicer how it wants the appraisal handled before you sign a contract.
Plan the move and the sale together. Once you have moved out for good, that move itself can make the loan due, so the servicer’s timeline starts whether or not the house is listed.
After the last borrower dies
The loan becomes due when the last surviving borrower dies, unless an eligible non-borrowing spouse qualifies under HUD rules to stay in the house. If a spouse who was not on the loan still lives there, talk to the servicer before doing anything else.
The servicer will notify the estate or the heirs that the loan is due and payable. Under 24 CFR 206.125(a)(2), that notice gives them 30 days to take one of the listed steps: pay off the loan, sell the house, or sign the house over with a deed in lieu of foreclosure. Answer that letter even if you do not know yet. Servicers can work with an estate that is actively selling, and the dates that follow are set in their letters, so ask in writing what date the sale needs to close by and whether more time is possible while a sale is pending.
Someone also needs legal authority to sign the deed. In Colorado that usually means a personal representative appointed through probate with Letters from the court, because a small estate affidavit cannot transfer real property. If the borrower recorded a beneficiary deed before death, the beneficiary may be able to sell without probate.
Read more: Sell an Inherited House: Belongings, Siblings, Distance, One Sale →
When the balance is more than the house is worth
This is where the HECM protects heirs. According to the Consumer Financial Protection Bureau, heirs selling the house will not have to pay more than 95 percent of the appraised value to satisfy the loan, and the FHA mortgage insurance covers the rest of the balance. The heirs are not billed for the shortfall. The HUD regulation sets the minimum sale amount by notice and caps it at 95 percent of appraised value.
In practice that means an appraisal ordered through the servicer, and a sale price at or above the figure the servicer approves. When the balance is underwater, there is no equity for the estate, and the practical goal becomes closing cleanly and on time.
Not sure whether it is a HECM? Look at the loan documents or ask the servicer. The 95 percent rule belongs to the federal program. A proprietary reverse mortgage follows its own contract.
Listing the house after the loan comes due or selling the house to us as it stands.
Listing the house after the loan comes due
- Repairs Usually needed first, paid by the estate before any buyer’s lender will finance.
- Cleanout The house has to be emptied and staged for showings.
- Servicer deadline Keeps running while the house is listed and under contract.
- Your costs Commission and seller closing costs come off the top along with the payoff.
Selling the house to us as it stands
- Repairs None. We buy as-is and price the work into the offer.
- Cleanout Take what matters to you and leave the rest.
- Servicer deadline A closing date you choose, as little as 14 days out, to match it.
- Your costs No fees or commissions, and we cover the seller’s closing costs.
What to have on hand.
- The most recent reverse mortgage statement and the servicer’s contact information
- Any due and payable letter from the servicer
- The death certificate, if the borrower has died
- Letters from the probate court, or a recorded beneficiary deed
- The property tax and homeowners insurance details
How a reverse mortgage sale comes together
Tell us about the house and the letter
The address, the servicer, any deadline in the letter you received, and who has authority to sign. Two minutes with Amy or Jenny, by form or phone.
Get a written offer to send the servicer
You receive a written cash offer within 24 hours of talking with us about the house. It gives you a number to compare against the payoff and a contract you can show the servicer.
Close before the deadline
Pick a closing date as soon as 14 days out. The title company pays off the loan, we cover the seller’s closing costs, and any equity goes to you or the estate.
Questions homeowners ask us.
Can a house with a reverse mortgage be sold?
At any time. The loan is a lien on the property like any mortgage, so the title company pays the servicer’s payoff from the proceeds at closing and records the release. Any money left after the payoff and the seller’s costs goes to the borrower or the estate.
What is the 95 percent rule on a reverse mortgage?
For a federally insured HECM, heirs who sell the house will not have to pay more than 95 percent of its appraised value to satisfy the loan, even if the balance is higher. FHA mortgage insurance covers the remaining balance, so the shortfall is not billed to the heirs.
How long do heirs have to sell after the borrower dies?
The servicer’s due and payable letter starts the clock. Federal rules give the estate 30 days from that notice to pay off the loan, sell, or deed the house back. The later dates come from the servicer, so ask for them and for any extension in writing.
Do heirs owe the difference if the loan is more than the house is worth?
With a HECM, no. The heirs can satisfy the loan by selling for at least 95 percent of the appraised value, and FHA insurance absorbs the rest. A proprietary reverse mortgage follows its own contract. Read it or have a Colorado attorney review it.
Can we sell a reverse mortgage house that needs repairs?
Repairs are common on these houses, and we buy them as-is, as long as the numbers work for both of us. Nobody has to fix, clean or stage anything. The repair costs are priced into the offer, and the payoff is handled at closing.
Who signs the sale papers after the borrower has died?
Whoever holds legal authority over the house. In Colorado that is usually a personal representative with Letters from the probate court, or the beneficiary named in a beneficiary deed recorded before death.
Pages that usually come next.
The loan gets paid at closing. You pick the date.
Tell us about the house and any letter from the servicer. Within 24 hours of that conversation you will have a written cash offer to compare against the payoff. You pay no fees or commissions, and you pick a closing date that fits the deadline.