Agents sell reverse mortgages to seniors who need money to meet their living expenses. When the senior dies without paying the reverse mortgage, the heirs generally have between one and six months to turn the home over to the mortgage company or pay off the loan balance. If you have inherited a house with a reverse mortgage, you may encounter several problems.
Spouse
If you are the spouse who is a co-borrower on the loan, then you can remain in the home and receive the payments. If you are not a co-borrower, you may still be able to live in the house if you can get declared an Eligible Non-Borrowing Spouse by the U.S. Department of Housing and Urban Development (HUD).
Heirs who want to keep the home
If you are not the spouse but want to keep the home, you must repay some of the money. The law says you must either pay off the loan or pay 55% of the home’s appraised value, whichever is less. Sometimes, the heirs can take out a traditional mortgage to fulfill their obligations.
Inheriting a home and selling it
Often seniors cannot keep their homes up. Therefore, the house may sell for less than the amount owed to the reverse-mortgage company on it. In that case, the Federal Housing Authority pays the difference to the company, but the person inheriting the home walks away with nothing.
Disputes with family members
While the simple solution is often to sell the home, this can be a problem if there are multiple heirs. If the heirs can’t agree on what happens to the home probate proceedings can become complex, lengthy and expensive.
Reverse mortgages can be problematic for heirs who are not spouses because they must pay off the loan or surrender the property.