How to Stop a Reverse Mortgage Foreclosure

If you’re facing a potential reverse mortgage foreclosure, you’re likely in one of two difficult situations: 

You’re the original reverse mortgage borrower and have moved out or fallen behind on property taxes, home insurance, or other requirements, triggering the foreclosure process on your home. Or, you’ve inherited a home with a reverse mortgage, and you’re now trying to avoid foreclosure.

Thankfully, reverse mortgages have built-in features to protect you financially if you foreclose on a home but still lose your home. However, you may avoid foreclosure and keep your home with the right approach. We’ll review your options below and explain what resources are available to help guide you.

Why would reverse mortgage foreclosure occur? 

A reverse mortgage is a type of home loan for homeowners over the age of 62 to access their home equity. Instead of making monthly payments, the loan balance grows over time and becomes due when the borrower moves out or passes away. However, failure to meet the terms can lead to foreclosure.

Here are some situations in which your lender may try to foreclose on the loan:

Reason	Details
You stop paying property taxes	You’re required to continue paying these
You let your home insurance lapse	You’re required to maintain coverage
You move out for an extended period	The home must be your primary residence
You don’t maintain the home	You can’t let your home fall into disrepair
You stop paying HOA or condo fees	Falling behind can trigger foreclosure

Who can foreclose on a mortgage?

The lender initiates foreclosure on a reverse mortgage. This is typically the bank, credit union, or mortgage company that provides your reverse mortgage loan.

The lender monitors whether you’re meeting the terms of the reverse mortgage agreement. If you fail to meet them, the lender has the legal right to foreclose on the home to recoup its investment.

If your lender starts the reverse mortgage foreclosure process, it will send you an official “due and payable” letter within 30 days of defaulting. This letter explains:

• Your current loan balance
• The reason your lender is foreclosing (like death, unpaid taxes, or home neglect)
• Your options to avoid foreclosure, like paying off the loan or selling the home
• Any deadlines you need to be aware of, including how long you have to respond

If you receive a due and payable notice, read and respond immediately. The more you communicate with the lender, the smoother this process will go.

Tip

The reverse mortgage balance usually becomes due immediately following a triggering event, but lenders often give you six months to settle the debt. If you need longer than this, you may qualify for 90-day extensions if you can prove you’re actively trying to pay off the loan.

How to stop a reverse mortgage foreclosure

Depending on why the foreclosure process has started, there are several ways you can try to stop it:

Fix the issue that triggered the foreclosure

If the foreclosure is happening because you fell behind on property taxes, let your homeowner’s insurance lapse, or stopped paying HOA/condo fees, you may be able to halt the process by taking care of those issues.

The Consumer Financial Protection Bureau (CFPB) gives these tips: 

For unpaid property taxes or lapsed insurance:

• Contact your lender immediately and explain that you’re ready to keep those payments current. They may be willing to cancel foreclosure if you can resolve the problem.
• Look into state/local assistance programs that may be able to help cover missed charges. Your local Area Agency on Aging (AAA) is a good resource.
• If you can’t afford the back payments, talk to a reverse mortgage counselor or attorney to explore options.

If the home fell into disrepair:

• Ask your lender for a written list of required repairs. Get estimates from contractors and complete the work.
• If you can’t afford the repairs, again contact your local AAA about programs to assist with home maintenance costs.

For extended vacancy:

• Verify your home is still your primary residence and update your contact info with the lender.

Pay off the reverse mortgage loan

The most direct way to stop foreclosure is to pay off the reverse mortgage balance. You could use funds from savings, retirement accounts, or by refinancing the home with a traditional mortgage.

According to the National Reverse Mortgage Lenders Association, you and your heirs have up to six months to satisfy the debt after the loan becomes due and payable. During this time, you can use your own savings, purchase the home for 95% of its current appraised value, or sell the home (which we’ll talk about next).

Sell the home

If paying off the full loan isn’t possible, you can try to sell the home instead. 

Even if you sell for less than the loan amount, your lender’s mortgage insurance will cover the remaining balance. This allows you to avoid foreclosure and walk away without owing more than the home’s appraised value. And if the sale price exceeds the balance, you get to keep the extra equity.

Request a deed in lieu of foreclosure

As a last resort, you may be able to give the home back to the lender through a “deed in lieu of foreclosure.” This allows you to surrender the property to avoid the foreclosure process voluntarily. Your lender may agree to this if you’ve exhausted your other options. 

Tip

If you need help weighing your options, consider meeting with a housing counselor or attorney. They can review your circumstances and advise you on the best path forward to potentially stop a reverse mortgage foreclosure. 

Avoid foreclosure

The best way to avoid foreclosure is to stay on top of the requirements for your reverse mortgage. Make sure to:

• Pay your property taxes on time
• Keep your homeowner’s insurance current
• Maintain your home and prevent it from falling into disrepair
• Pay any required HOA or condo fees

If you think you may have trouble meeting these obligations, reach out to your lender right away. They may be willing to work with you to find a solution before foreclosure becomes an issue.

Reverse mortgage foreclosure process

The reverse mortgage foreclosure process begins when a “triggering event” occurs, such as the last surviving borrower passing away or the home no longer being the borrower’s principal residence. Once this happens, the full loan balance becomes due and payable, typically within 30 days.

At this point, the lender will send you a “due and payable” notice, informing you that the loan must be repaid. You and your heirs then have up to six months to settle the debt, either by fixing the triggering issue, paying off the full balance, selling the home, or purchasing the home for 95% of its appraised value.

If the loan is not resolved during these six months, the lender may be required to initiate foreclosure proceedings. They’ll send pre-foreclosure notices, even if you’re actively working to refinance or sell the home to pay off the debt. 

It’s important to stay in close contact with your lender during this process. You can request 90-day extensions to allow more time to sell the home, but these need approval from the Department of Housing and Urban Development.

Ask the expert

Eric Kirste

CFP®

The Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) program has built-in features to minimize the financial consequences of a reverse mortgage foreclosure. The consequences are similar to what happens with a regular foreclosure—you’re no longer responsible for the loan. However, HECM loans have items that help mitigate the financial damage.

What if it’s too late to stop foreclosure on my reverse mortgage?

If you’ve missed the deadlines and your lender has already moved forward with the foreclosure process, your options become more limited. But there are still a few steps you can take.

1. First, review all the notices you’ve received from the lender. These should outline the timeline for the foreclosure, including when the home will actually be sold. 
2. If possible, try to sell the home yourself before the foreclosure sale date. This allows you to repay the reverse mortgage loan and potentially walk away with some home equity. But you’ll need to act quickly.
3. You can also try negotiating a “deed in lieu of foreclosure” with your lender. This involves voluntarily transferring the home’s ownership to the lender, rather than going through a full foreclosure. While it still ends in losing the home, it may be a better outcome than a foreclosure.
4. If neither of those options pan out, prepare for the foreclosure sale. The lender will auction off your home, using the proceeds to pay off the reverse mortgage balance. 

While facing foreclosure is stressful, remember that reverse mortgages are non-recourse loans. This means the lender can only recover the amount owed from the home sale itself—it can’t go after your personal savings to settle the debt. So, while you may lose the home, you won’t be left owing the lender any additional money.

Reverse mortgage foreclosure resources

If you need professional help, here are some reverse mortgage foreclosure resources you can turn to:

• HUD-approved housing counseling agencies. These nonprofit agencies provide free foreclosure prevention counseling. Find one near you at www.hud.gov/findacounselor or call 800-569-4287.
• Legal associations. The National Reverse Mortgage Lenders Association recommends using MyCaringPlan.com to find free legal services for seniors. Many states also have free or low-cost legal aid organizations. You can also find your nearest legal aid office.

Don’t try to navigate this alone. A professional can help you understand your options and know your rights.

FAQ

Can I sell my home to stop a reverse mortgage foreclosure?

Yes, selling your home is one option to avoid a reverse mortgage foreclosure. After selling the house, use the proceeds to clear the reverse mortgage. Keep in mind that selling is not a universal solution. 

The decision should depend on the market value of your house, the amount owed on the mortgage, and other individual financial considerations. It’s best to consult with a financial professional or an expert in real estate transactions before making this significant decision.

How long do I have to act after receiving a foreclosure notice?

In most cases, the lender must notify you about the impending foreclosure 120 days in advance, according to the Consumer Financial Protection Bureau. 

You should have around four months to rectify the situation from the date you receive the notice. It’s critical to verify this timeline with your local and state foreclosure laws; these may differ.

Can family members or heirs assist in preventing the foreclosure of a reverse mortgage?

Yes, family members or heirs can get involved in preventing a foreclosure. If they can pay off the remaining balance on the reverse mortgage, they’ll halt the foreclosure process. Family members or heirs can also purchase the house for 95% of its appraised value to prevent foreclosure. 

They must promptly communicate this intent to the lender, and accepting these options is at the lender’s discretion. We recommend reviewing all decisions with a knowledgeable attorney or financial professional.