Inheriting a home with a reverse mortgage can be overwhelming—especially in a state like New Jersey, where property taxes and regulations add layers of complexity. If you’re dealing with the estate of a deceased loved one who had a reverse mortgage, understanding your options is essential to avoid foreclosure, preserve equity, or make a smooth exit.
This guide walks heirs through the practical steps of handling a home with a reverse mortgage in New Jersey, with additional insight into timelines, tax implications, and estate coordination.
📄 What Is a Reverse Mortgage?
A reverse mortgage is a loan available to homeowners aged 62 or older that allows them to convert part of their home equity into cash. The most common type is a Home Equity Conversion Mortgage (HECM), backed by the Federal Housing Administration (FHA).
Unlike a traditional mortgage, there are no monthly payments. Instead, the loan is repaid when the homeowner dies, sells the home, or moves out permanently (e.g., into assisted living). Interest and fees accumulate over time, increasing the balance owed.
These loans are designed to help seniors supplement retirement income but can leave heirs with important decisions once the borrower passes away.
🔖 What Happens When the Borrower Passes Away?
When a homeowner with a reverse mortgage dies, the loan becomes due and payable. As the heir, you typically have 30 days to notify the lender and six months to settle the loan, although extensions of up to 12 months may be granted if you’re actively working on a resolution.
You generally have three options:
1. Pay Off the Loan and Keep the Home
You can choose to keep the home by paying off the reverse mortgage. If the loan balance is more than the home’s market value, you only have to pay 95% of the appraised value (thanks to FHA insurance). This is ideal if the home holds sentimental value or fits into your financial plan.
2. Sell the Home
Most heirs choose to sell the home to repay the loan and pocket any remaining equity. If the home is worth more than the loan, you keep the difference. If it’s worth less, the shortfall is covered by FHA insurance—so there’s no financial burden to the estate.
Keep in mind, homes with reverse mortgages are often older and may need updates or clean-out services before listing.
3. Walk Away
If you don’t want the home or it’s significantly underwater, you can sign a deed-in-lieu of foreclosure and walk away. The FHA mortgage insurance covers the difference. This option is best when the property needs substantial repairs, or there is no equity remaining.
💬 Tip: Be proactive. Lenders will start foreclosure if they don’t hear from you in a timely manner. Extensions are possible, but only if you’re responsive and showing intent to resolve the debt.
🏡 New Jersey Considerations
Reverse mortgages can be especially tricky in New Jersey due to:
- High property taxes that continue to accrue after the homeowner’s death
- Probate requirements that may delay the ability to sell or refinance the home
- Long foreclosure timelines, which can work in your favor if you need time to make a decision
- Maintenance costs for older homes that may have been deferred for years
If the home is located in Bergen County, Passaic County, or other high-cost areas, the stakes may be higher due to larger loan balances and potential equity. However, these homes also offer stronger resale potential.
💼 What Heirs Should Do First
- Notify the loan servicer of the homeowner’s death immediately
- Request a loan payoff statement, including accrued interest and fees
- Order an independent appraisal to determine the home’s market value
- Consult a probate or estate attorney, especially if the home isn’t in your name yet
- Evaluate options: keep, sell, or deed-in-lieu
Depending on your decision, you may need to coordinate:
- Clean-outs
- Minor repairs
- Title transfers
- Communication with co-heirs or beneficiaries
If you’re out-of-state or managing the estate remotely, working with a local real estate professional familiar with reverse mortgage sales can make the process smoother.
✉️ Need Help Selling an Inherited Home with a Reverse Mortgage?
I specialize in helping heirs across New Jersey handle inherited properties—especially those involving reverse mortgages, probate, or as-is sales. Whether you’re in Bergen County or anywhere else in the state, I can:
- Coordinate with attorneys and loan servicers
- Market the property as-is for a fair price
- Work with out-of-state heirs
- Help you avoid foreclosure and protect equity
Don’t let stress, red tape, or distance derail the sale. Let’s walk through your options together.
Reach out today for a confidential, no-pressure consultation.
This article is for informational purposes only and does not constitute legal or financial advice. Always consult an attorney or CPA for guidance tailored to your situation.