Inherited house with a reverse mortgage
A reverse mortgage on a parent's house? Find out if there's equity left.
When the last borrower passes away, a reverse mortgage becomes due, and the clock starts. Many of these houses still have real equity, especially when the loan was taken years ago or only partly used. The first step is finding out where you stand.
The timeline
What happens after a parent passes.
For the most common type, a federally insured reverse mortgage (HECM), the loan becomes due when the last borrower dies. The loan servicer contacts the estate or heirs, who generally have about 30 days to say what they plan to do.
Heirs then generally have up to six months to sell the house or pay off the loan. The servicer may grant extensions, usually in 90-day steps, when the family shows it's actively selling. Extensions aren't automatic, so it pays to move early.
Property taxes, homeowner's insurance and upkeep still have to be kept current while the estate is being settled. In New Jersey, someone also has to be appointed through the county Surrogate's Court before the house can be sold.
Equity or not
Two very different situations.
There's equity
If the house is worth more than the loan balance, the difference belongs to the estate after the loan and closing costs are paid. This is common when a parent took the loan many years ago, drew only part of the money, or the house had little or no mortgage beforehand.
It's underwater
If the loan balance is more than the house is worth, federally insured reverse mortgages are generally non-recourse: heirs aren't personally responsible for the shortfall. The estate can usually sell for at least 95% of the appraised value to settle the loan, or hand the house back to the lender.
Not sure which?
Two numbers tell you a lot: roughly what's owed, from the latest loan statement, and roughly what the house is worth. Call us with those and we'll help you think it through, even if it turns out we're not the right fit.
How we help
Private, patient and organized.
One person, start to finish
You deal with one person at Gembrook from the first call to closing, and we explain each step in plain language.
The right estate attorney
We connect your family with an experienced New Jersey estate attorney we trust, who represents the estate, and we coordinate the rest.
Costs covered
When your family sells the property to us, we can cover the probate costs, including the attorney's fees, as part of our purchase.
Each heir, privately
We speak with each heir on their own, so no one has to negotiate as a group.
Common questions
How long do heirs have after a parent with a reverse mortgage dies?
For a federally insured reverse mortgage (HECM), heirs generally have about 30 days to respond to the servicer and up to six months to sell or pay off the loan. Extensions, usually in 90-day steps, may be granted when the family is actively selling. Private reverse mortgages can have different terms.
Do we have to pay the reverse mortgage out of our own pocket?
Generally no. Federally insured reverse mortgages are non-recourse, so heirs aren't personally responsible if the loan is more than the house is worth. The loan is paid from the sale of the house.
What if the house is worth more than the loan?
Then the difference generally goes to the estate after the loan and closing costs are paid. That equity is why it's worth finding out where you stand quickly, before the deadlines pass.
Can we sell a reverse-mortgage house as-is?
Yes. When your family sells the property to us, we buy it as it stands, coordinate the payoff with the servicer at closing, and can cover the probate costs as part of our purchase.
Do we still need probate in New Jersey?
In most cases, yes. Someone has to be appointed through the county Surrogate's Court before the house can be sold. We guide you through it and connect you with an experienced estate attorney we trust.
General information only, not legal or tax advice. Every estate is different. We can guide you and connect you with an experienced New Jersey estate attorney we trust.
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