Reverse Mortgage & Estate Planning: What Heirs Need to Know [2026]

Non-Recourse Protection: The Foundation

The most important protection for reverse mortgage borrowers and their heirs is the non-recourse feature mandated by FHA:

Example: Non-Recourse in Action

What Happens When the Borrower Passes Away

Immediate Steps

1. Servicer is notified: The loan servicer learns of the borrower's passing
2. Heirs receive notice: Servicer contacts heirs with information and options
3. Timeline begins: Heirs have 30 days to state their intentions

Timeline for Heirs

Key Point: Communication Matters

Heirs who communicate with the servicer and show progress typically receive extensions. Those who go silent may face foreclosure proceedings earlier. Stay in touch with the servicer.

Options for Heirs

Option 1: Sell the Home

The most common choice—sell the home and satisfy the loan:

• List with real estate agent or sell privately
• Loan paid from sale proceeds at closing
• Heirs keep any equity above loan balance
• If sale price is below loan balance, no deficiency owed (non-recourse)

If Home Is Worth More Than Loan

If Home Is Worth Less Than Loan

Option 2: Keep the Home

Heirs can keep the home by paying off the reverse mortgage:

Pay the Lesser of:

• The full loan balance, OR
• 95% of the current appraised value

Ways to Pay Off the Loan

• Cash: Use personal funds or inheritance
• Refinance: Get a traditional mortgage in heir's name
• Other financing: Personal loan, family loan, etc.

Example: 95% Rule in Action

Option 3: Deed in Lieu of Foreclosure

If heirs don't want the home and it's not worth selling:

• Sign over the deed to the lender
• No obligation to pay anything
• Clean resolution with no credit impact to heirs
• Appropriate when loan balance exceeds home value significantly

Option 4: Let Foreclosure Proceed

Not recommended, but possible:

• Heirs do nothing
• Lender eventually forecloses
• Heirs still owe nothing (non-recourse protection)
• However, deed in lieu is cleaner and faster

Estate Planning with a Reverse Mortgage

Discuss with Your Heirs

The most important step is communication:

• Explain you have a reverse mortgage and why
• Discuss their options when the time comes
• Share servicer contact information
• Review non-recourse protection so they understand limits

Keep Documents Organized

Make these accessible to heirs:

• Reverse mortgage closing documents
• Servicer name and contact information
• Monthly statements (know approximate balance)
• Property deed and title information

Consider Life Insurance

Some borrowers purchase life insurance to provide heirs with funds to:

• Pay off the reverse mortgage and keep the home
• Replace the inheritance that would have been home equity
• Cover other estate needs

Line of Credit Strategy

Using the line of credit option (rather than lump sum) can preserve more equity:

• Only draw what you need
• Interest only accrues on amounts drawn
• Unused credit grows (but doesn't create debt)
• More equity potentially remains for heirs

Impact on Medicaid and Government Benefits

Medicaid Considerations

Reverse mortgage funds can affect Medicaid eligibility:

• Monthly payments: Generally treated as income in the month received, then as an asset
• Lump sum or line of credit: Funds become countable assets
• Spend-down rules: Must spend down assets to maintain Medicaid eligibility

Social Security and Medicare

Reverse mortgage proceeds generally don't affect:

• Social Security benefits (not means-tested)
• Medicare (not means-tested)

Consult with an elder law attorney or benefits specialist for your specific situation.

Common Misconceptions

"The Bank Takes the House"

False. Borrowers retain full ownership. The lender has a lien (same as traditional mortgage), but the title stays in the borrower's name. Heirs inherit the property, not the lender.

"Heirs Will Be Stuck with Debt"

False. Non-recourse protection means heirs can never owe more than the home is worth. They can simply walk away with no personal obligation.

"There's No Equity Left"

Not necessarily. Many reverse mortgage borrowers die with significant equity remaining, especially if they used the line of credit conservatively or home values appreciated.

"Heirs Have to Decide Immediately"

False. Heirs have at least 6 months, potentially 12 months, to make decisions. Communicate with the servicer to ensure adequate time.

Frequently Asked Questions

Do heirs inherit reverse mortgage debt?

No. HECM reverse mortgages are non-recourse loans, meaning heirs are never personally liable for the debt. The maximum obligation is the home's value. If the loan balance exceeds the home value, FHA insurance covers the difference—heirs owe nothing beyond the property.

What happens to a reverse mortgage when the borrower dies?

Heirs typically have 6 months (with possible extensions to 12 months) to decide: sell the home and keep any equity, refinance and keep the home, pay off the loan, or deed the property to the lender with no further obligation.

Can heirs keep the home with a reverse mortgage?

Yes. Heirs can keep the home by paying off the reverse mortgage balance or 95% of the current appraised value, whichever is less. This can be done through cash, refinancing, or other financing.

Will a reverse mortgage leave my heirs with debt?

No. HECM reverse mortgages are non-recourse, meaning the debt cannot follow your heirs. Their maximum liability is the home itself.

Next Steps

If you're considering a reverse mortgage and concerned about inheritance, the required HUD counseling session will address these topics. Understanding the non-recourse protection and communicating with your heirs can provide peace of mind for everyone.