Reverse Mortgage California | For Heirs

One of the biggest myths about reverse mortgages is that "the bank takes the house" and leaves nothing for the children. This is false. You retain title, and your heirs inherit the home, the equity, and specific rights protected by federal law.

Scenario A: The Home Has Equity

If the home is worth more than the loan balance when the last borrower passes away (which is the most common scenario due to historical appreciation), your heirs have a simple path:

Sell the Home: They can list the home for sale on the open market. Once the home sells, the reverse mortgage loan is paid off, and 100% of the remaining proceeds go to your heirs (or estate).
Keep the Home: If they want to keep the property (e.g., to live in or rent out), they can refinance the reverse mortgage into a regular forward mortgage (if they qualify) or pay off the balance with other cash assets.

Scenario B: The "Upside Down" Protection

What if the housing market crashes, or you live to be 105, and the loan balance grows higher than the home's value?

The Non-Recourse Guarantee: The HECM is a "non-recourse" loan. This means the lender can never come after your heirs' other assets (bank accounts, stocks, cars) to pay off the debt. The debt is limited to the value of the home.

The "95% Rule" for Heirs:

If your heirs want to keep the home but the balance is higher than the value, FHA guidelines allow them to purchase the home for 95% of its current appraised value. The rest of the loan balance is forgiven by the FHA insurance fund.

The Timeline: What Happens When?

First 30 Days

The servicer will send a "Condolence Letter" notifying the estate that the loan is Due and Payable. Heirs must respond to this letter stating their intent (Sell, Keep, or Walk Away).

Initial 6 Months

Heirs typically have 6 months to settle the debt (usually by listing the home for sale). During this time, they must show they are actively marketing the property or securing financing.

Extensions

If the home is listed for sale but hasn't sold yet, heirs can request up to two 90-day extensions (with HUD approval), giving them up to 12 months total to sell the home in an orderly fashion.

Pro Tip: The Living Trust

We highly recommend funding your Reverse Mortgage into a Revocable Living Trust. This allows your designated Successor Trustee to act immediately upon your passing to sell the home or manage the loan, avoiding the lengthy and expensive California Probate court process.

For Your Heirs