Key Takeaways
- Reverse mortgage foreclosures typically occur only after the loan is due to be paid and the borrower or heirs fail to comply with the loan terms.
- Borrower communication matters. Staying current on taxes, insurance, and maintenance—and contacting your servicer early if issues arise—may help keep your loan in good standing.
- There are solutions before foreclosure. Extensions, repayment plans, or home sales may provide options to resolve the loan before legal action begins.
If you’re considering a reverse mortgage, you may be concerned about what can go wrong. Foreclosure is a serious risk associated with any mortgage, including a reverse mortgage, and understanding how it happens may help you avoid it.
While the idea of a reverse mortgage foreclosure may sound alarming, it generally occurs only after clear conditions are met, such as failing to pay taxes or fees, failing to maintain the home, the borrower’s death, or the borrower no longer living in the property. Recent FHA updates have added additional safeguards that help borrowers stay informed and supported throughout the life of the loan.
This article explains what foreclosure means in the context of a reverse mortgage, why it happens, how to help avoid it, and what steps you could take if you are at risk.
Reverse mortgage basics
A reverse mortgage is a loan that allows homeowners age 55 or older to convert part of their home equity into cash. The most common type—the Home Equity Conversion Mortgage (HECM)— requires borrowers to be 62 years or older, is insured by the Federal Housing Administration (FHA), and regulated by the U.S. Department of Housing and Urban Development (HUD). Other proprietary reverse mortgages are not insured by the FHA.
These materials were not provided by HUD or FHA and were not approved by FHA or any government agency.
Instead of paying the lender each month, the loan disbursement is sent to the borrower, either as a lump sum, in monthly disbursements, as a line of credit, or as a combination of these options. The loan balance increases over time and must be repaid when the borrower dies, sells the home, or fails to meet the loan obligations, including paying property taxes, maintaining homeowners insurance, paying fees, living in the home as a primary residence, and maintaining the home.
The eligibility requirements for a HECM reverse mortgage are:
- Age: At least one borrower must be 62 or older at the time of application.
- Principal residence: The property must be the borrower’s primary home, meaning you must live in it as your main residence for the majority of the year.
- Financial obligations: Borrowers must stay current on all property charges, including property taxes, fees, homeowners insurance, and any applicable HOA costs.
- Maintenance: The home must be kept in good condition and meet FHA property standards throughout the life of the loan.
- HUD-approved counseling: Before applying, borrowers are required to participate in a consumer information session given by a HUD-approved counselor. This ensures a full understanding of loan terms, obligations, and alternatives.
- Fees: Borrowers are responsible for loan-related fees and closing costs, which may include origination fees, mortgage insurance premiums, HUD-required counseling costs, and third-party expenses such as appraisals or title insurance.
Meeting and continuing to meet these requirements is essential to keeping the loan in good standing. If any of them are violated, for example, if taxes are unpaid or the home is no longer used as the principal residence, the loan becomes due.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
To learn more, please visit the CFPB’s “Reverse Mortgage: A Discussion Guide.”
What is a reverse mortgage foreclosure?
A reverse mortgage foreclosure occurs when the loan becomes due and payable, but the balance is not repaid according to the terms of the agreement. In other words, it’s the process a lender may begin when the borrower no longer meets the obligations of their reverse mortgage loan.
Unlike a traditional mortgage foreclosure, which are usually caused by missed monthly payments, a reverse mortgage foreclosure may be triggered by other events, such as the death of the borrower, moving out of the home, failing to pay property-related expenses, or neglecting to maintain the property.
It’s important to understand that foreclosure on a reverse mortgage is not an immediate action. Lenders are required to follow strict HUD and FHA guidelines, notify borrowers in advance, and provide opportunities to correct the issue before foreclosure proceedings begin.
What triggers a reverse mortgage foreclosure?
The reverse mortgage foreclosure process typically begins when the borrower no longer meets one or more of the loan’s obligations and is unable to repay the loan. After the servicer issues a demand, often within 30 days of the maturity event, the first legal action may occur within approximately six months unless the borrower obtains an approved extension.
Common triggers for a reverse mortgage foreclosure include:
1. Sale or transfer of the property
If the home is sold or the title is transferred to someone else, the reverse mortgage becomes due. This is known as a due-on-sale clause and applies to all Home Equity Conversion Mortgages (HECMs). The borrower or their estate must repay the loan balance at that point.
2. The borrower no longer lives in the home
A reverse mortgage requires that the property remain the borrower’s principal residence. If the borrower does not live in the home for more than 12 consecutive months—for example, if they go to stay with family, enter a rehabilitation center, or purchase another home, the loan becomes due and may enter foreclosure if repayment arrangements aren’t made.
3. Failure to pay property taxes or homeowners insurance
Borrowers are required to stay current on all property charges, including taxes, homeowners insurance, and any applicable HOA fees. Failure to make these payments may result in a foreclosure of the reverse mortgage.
4. The home falls into disrepair
The reverse mortgage borrower must keep the property well maintained and in compliance with FHA property standards. Significant neglect or damage that threatens the home’s value or safety may trigger a default if not resolved after the lender notifies the borrower of an issue.
5. Death of the borrower
When the last remaining borrower passes away, the reverse mortgage loan becomes due and payable. However, foreclosure does not automatically occur.
- If there is an eligible non-borrowing spouse still living in the home, they may be allowed to remain there if they continue to meet all ongoing obligations, including using the home as their principal residence, keeping up with taxes, homeowners insurance, fees, and maintenance.
- Heirs or the borrower’s estate generally have the option to repay the loan balance, often by selling the home or using other assets.
These triggers don’t automatically mean foreclosure will happen. Lenders will contact the borrower or their heirs when the loan becomes due, giving them time to make payments, make necessary repairs, or request an extension.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Reverse mortgage foreclosure timeline
When a triggering event makes the loan due and payable, the repayment process for a reverse mortgage begins. Below is a typical timeline.
Stage 1: Triggering event
A reverse mortgage becomes due when one or more of the borrower’s loan obligations are not met—for example, the home is no longer the principal residence, property taxes aren’t paid, or the borrower dies.
Once a triggering event occurs, the servicer must send a due and payable notice. According to Federal Housing Administration (FHA)’s Mortgage Letter (ML) 2022-15, borrowers or heirs must receive this letter within 30 days of the loan becoming due.
Stage 2: Notice and borrower/heir response
The lender will send a notice, which will include the current loan balance, options for repayment or sale, and deadlines. After the servicer issues the notice, reverse mortgage borrowers or their heirs generally have a window to respond—commonly up to 30 days (though state and servicer policies may vary).
Stage 3: Extension or resolution
If a borrower or their requests and is eligible for an extension or repayment arrangement, the servicer may delay foreclosure. HUD guidelines state that servicers must take first legal action within six months after the loan becomes due unless an approved extension is granted.
Stage 4: Foreclosure initiated
If a satisfactory resolution isn’t reached within the extension window, the servicer may initiate foreclosure proceedings. The home may then be sold and the loan repaid from the proceeds, with any remaining equity belonging to the borrower or their heirs (though HECMs are designed so heirs aren’t personally liable beyond the home’s value).
Receiving a notice of due-and-payable status does not necessarily mean your home will be sold immediately. The timeline above shows there is a structured process with options, however policies and state laws vary so timing may differ slightly.
Options to avoid reverse mortgage foreclosure
If you’ve received a notice that your reverse mortgage loan is due, foreclosure isn’t inevitable. Borrowers and their heirs often have several ways to resolve the issue, request more time, or bring the loan back into good standing. Acting early is key.
Here are some of the most common options:
- Request an extension: Servicers may grant up to two extensions, typically 90 days each, if you’re actively working to sell, refinance, or repay the loan balance. Contact your servicer and provide documentation of your efforts.
- Set up a repayment plan: If the issue involves unpaid property taxes or homeowners insurance, some lenders may allow a repayment plan to bring those charges up to date. You may need to show you can maintain future payments.
- Sell the home: Borrowers or heirs may sell the property to satisfy the reverse mortgage. If the home sells for more than what’s owed, any remaining equity belongs to the borrower or their estate.
- Deed in lieu of foreclosure: If selling isn’t possible, you may be able to voluntarily transfer ownership of the home to the lender to satisfy the debt. This may help avoid a formal foreclosure and may have a less severe impact on your credit.
- Work with a HUD-approved counselor: A HUD-approved housing counselor can explain your options, help you contact your servicer, and offer guidance on avoiding foreclosure. Visit hud.gov/counseling or call (800) 569-4287 to find one near you.
Even if you’re uncertain where to begin, reaching out to your servicer or a counselor early could make all the difference. Many issues may be resolved before the reverse mortgage foreclosure process begins.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Consequences of reverse mortgage foreclosure
If foreclosure occurs on a reverse mortgage, the outcome can be serious, but it’s important to understand what it actually means for reverse mortgage borrowers, their heirs, and their financial future.
- Loss of the home and remaining equity: Foreclosure generally results in the sale of the home. The proceeds from that sale go toward repaying the reverse mortgage loan balance and any related costs. If the sale price exceeds the amount owed, the remaining equity is returned to the borrower or their estate.
- Impact on credit and future borrowing: A foreclosure is typically reported to credit bureaus and may negatively affect a borrower’s credit score. This may make it more difficult to qualify for future credit, though the impact could vary based on individual circumstances and the timing of other accounts.
- Possible impact on emotional security: Beyond financial impact, foreclosure may mean losing a long-term residence and the emotional comfort that comes with it. This is why early communication with your servicer and exploring all available options is critical if a problem arises.
While a reverse mortgage foreclosure may have lasting effects, it doesn’t happen suddenly or without warning. Borrowers and heirs receive multiple notices and have opportunities to resolve issues, sell the property, or work with HUD-approved counselors to avoid foreclosure before the process reaches this stage.
What to do if you receive a notice of foreclosure for your reverse mortgage loan
Receiving a foreclosure notice may be unsettling, but it doesn’t mean you’ve immediately lost your home. Lenders are required to provide written notice before taking any legal action, giving you time to review your options, respond, and potentially prevent foreclosure. Acting quickly is the most important step.
Read the notice carefully
Begin by reviewing the letter to understand why your loan has been marked due and payable. The notice will explain what triggered the action, the amount owed, and any deadlines for response. Look for key information such as:
- The reason the loan became due.
- The amount required to bring the loan current or repay the balance.
- The timeline for action, which may include options to request an extension or submit proof of ongoing occupancy.
Talk to your lender or servicer
Contact your loan servicer as soon as possible. Explain your situation, ask questions, and clarify what steps you can take. In many cases, servicers may help you in requesting an extension, submitting missing documentation, or setting up a repayment plan to correct the issue. Keeping communication open may prevent misunderstandings and buy valuable time.
Make a plan
Once you understand your options, take action quickly. Possible steps may include:
- Getting current on property taxes, homeowners insurance, or flood insurance premiums, if that triggered the notice.
- Making necessary repairs to meet FHA property standards.
- Selling the home if you or your heirs decide that repayment through sale is the best path.
- Requesting an extension from the servicer while you finalize your next move.
Get advice from an expert
If you’re unsure what to do next, reach out for help. A HUD-approved housing counselor can review your situation, explain available resources, and help you contact your servicer. Legal aid organizations may also provide free or low-cost advice for homeowners facing reverse mortgage foreclosure.
To find a HUD-approved counselor near you, visit hud.gov/counseling or call (800) 569-4287.
Considering a reverse mortgage?
Foreclosure is a risk every homeowner should understand, but it generally doesn’t occur without warning. With clear communication, regular property upkeep, and timely payment of taxes and insurance, most borrowers can find a way to maintain their loans successfully.
If you’re already a borrower, staying in touch with your servicer and addressing any issues early may prevent minor problems from escalating into serious ones. If you’re considering a reverse mortgage, take advantage of HUD-required counseling to learn what to expect and how to protect your investment.
