The good news: you have options, and equity is usually still there. The harder news: the timeline is real and the lender will start the foreclosure process if you don’t engage.
Most reverse mortgages in California are HECM loans (Home Equity Conversion Mortgage), insured by HUD. The borrower drew equity out over the years — either as a lump sum, a line of credit, or monthly payments — without making payments back.
When the last borrower passes, the loan balance becomes payable. The home is collateral. As an heir, you do not inherit the debt personally — but you do need to decide what to do with the home within the lender’s timeline.
HECM loans are non-recourse: even if the loan balance exceeds the home’s value, the lender can only collect from the home. They cannot pursue the heirs for the shortfall.
If the home’s market value exceeds the loan balance, this is usually the cleanest path. List, sell, pay off the loan at close, distribute the equity.
Best when: Equity remains and no heir wants the home.
An heir who wants the home can refinance the reverse mortgage into a conventional loan in their own name, at the loan balance or 95% of appraised value — whichever is less.
Best when: One heir wants the home and qualifies for new financing.
If the loan balance is higher than the home’s value, HUD lets you (or a buyer in an arm’s-length sale) pay off the loan at 95% of current appraised value. The lender writes off the rest.
Best when: The loan is underwater and you want to preserve the relationship between the home and the family.
Hand the home back to the lender voluntarily. No proceeds, but also no foreclosure on the record. Reasonable when there’s no equity and no emotional reason to hold on.
Best when: No equity, no heir wants the home, no desire to manage a sale.
The lender doesn’t know yet. They’ll find out when no one signs the annual occupancy certification or when an heir or attorney notifies them.
Send a death certificate and a letter stating your intent (sell, refinance, or deed in lieu). This stops the lender from assuming abandonment and starting foreclosure prematurely.
HUD gives heirs up to 6 months to sell or refinance after the loan becomes due. Order an FHA-compliant appraisal early — the lender uses it for the 95% payoff calculation.
HUD allows two 90-day extensions (12 months total) if the heir is making documented progress — signed listing agreement, executed purchase contract, etc. Apply through the servicer.
Avoidable, but the process can begin if there’s no engagement. California is a non-judicial foreclosure state; the timeline from notice of default to trustee’s sale is roughly 4–6 months.
HECM payoffs aren’t complicated, but they are particular. The lender wants a specific format for the payoff statement, a specific HUD-approved appraiser, and specific documentation for any short payoff.
I’ve walked enough of these to know which servicers move quickly and which need three follow-ups. That’s most of the value here.
If a non-borrowing spouse is still living in the home, the rules are different and you have more time. HECM loans originated after 2014 have specific protections for an eligible non-borrowing spouse. Bring the loan documents to our call.