Reverse Mortgage Foreclosure: Timeline, 95% Rule and Heirs

A reverse mortgage foreclosure happens when a reverse mortgage becomes due and payable, usually because the last borrower died or moved out or the property taxes and insurance went unpaid, and nobody pays off, sells, or deeds back the home within HUD’s deadlines. For an FHA-insured Home Equity Conversion Mortgage (HECM), heirs can settle the debt for the lesser of the loan balance or 95% of the home’s appraised value, and the servicer generally must start foreclosure within six months of the due date unless HUD approves extensions.

681,000+Reverse mortgages in HUD’s FHA insurance portfolio, Sept. 30, 2025 (HUD)

28,172HECM endorsements in fiscal year 2025 (NRMLA)

95%Share of appraised value heirs can pay to satisfy an underwater HECM (24 CFR 206.125)

For investors, these files are a distinct lead type with their own rules. The seller is often an adult child handling a parent’s estate, the debt cannot follow the family if the house is underwater, and the deadlines come from HUD rather than from the federal mortgage servicing rules most foreclosure guides describe. This guide explains when a HECM comes due, the timeline, how the 95% rule shapes your offer, a worked deal, and how to approach heirs without becoming the kind of buyer regulators warn about.

How reverse mortgages work, briefly

A reverse mortgage lets a homeowner age 62 or older borrow against home equity without making monthly payments. The balance grows over time as interest and mortgage insurance accrue. The FTC notes that HECMs are the most common type of reverse mortgage. They are insured by FHA, and that insurance protects the lender, not the homeowner: it guarantees the lender gets paid even if the loan balance ends up larger than the home’s value.

For 2026, HUD set the HECM maximum claim amount at $1,249,125 nationwide, according to its announcement of the 2026 limits. Proprietary reverse mortgages, sometimes called jumbo reverse loans, exist for higher-value homes, but they follow their own loan documents rather than HUD’s rules. Everything below applies to HECMs unless noted.

What makes a HECM due and payable

The triggers are set out in 24 CFR 206.27(c). Some make the loan due automatically, and others need HUD’s approval.

Due without HUD approval:

A borrower dies and the home is not the principal residence of at least one surviving borrower, unless an eligible non-borrowing spouse qualifies for a deferral.
A borrower conveys all of their title and no other borrower keeps title. Keeping a life estate or a leasehold counts as keeping title.

Due with HUD approval:

The home stops being a borrower’s principal residence for reasons other than death, and no other borrower lives there.
A borrower does not physically occupy the home for longer than 12 consecutive months because of physical or mental illness.
Property charges such as taxes, insurance, or HOA dues go unpaid.
The borrower fails any other obligation under the mortgage, including keeping the home in reasonable repair.

Tax and insurance defaults are a bigger driver than many people expect. A 2019 Government Accountability Office report, GAO-19-702, found that defaults rose from 2% of HECM terminations in 2014 to 18% in 2018, mostly because of occupancy failures or unpaid taxes and insurance. That means some leads come from living owners, not estates.

The non-recourse rule and the 95% math

HECMs are non-recourse. Under 24 CFR 206.27(b)(8), the borrower has no personal liability and the lender cannot get a deficiency judgment. When the loan comes due, the home is the only source of repayment.

The rule that matters most to investors is in 24 CFR 206.125. Once the loan is due and payable, the borrower, estate, or heirs can sell the home and satisfy the debt as long as the sale price is at least the lesser of the full loan balance or 95% of the current appraised value. The CFPB describes it the same way: heirs repay the full loan balance or 95% of the home’s appraised value, whichever is less. Allowable closing costs are capped at the greater of 11% of the sale price or a dollar amount HUD sets.

Two practical points follow:

If the home has equity (value well above the balance), the heirs simply sell for whatever price they negotiate, pay off the balance, and keep the rest. This works like any estate sale.
If the home is underwater (balance above value), the floor price is 95% of the appraised value. Your offer must meet that floor, so the appraisal, and how well it reflects the home’s condition, decides whether the deal works.

If the loan is not yet due and payable, the sale must be at least the lesser of the balance or 100% of appraised value. And once the servicer has taken the home through foreclosure, it must generally try to sell it for at least 100% of appraised value unless HUD approves a lower price, so waiting for the bank-owned listing rarely gets you a bargain.

The reverse mortgage foreclosure timeline

Under 24 CFR 206.125 and HUD Mortgagee Letter 2015-10, a typical file after the last borrower’s death moves like this:

Step	Deadline	Source
Servicer notifies HUD the loan is due	Within 60 days for death or conveyance; within 30 days for occupancy or charge defaults	24 CFR 206.125(a)
Servicer notifies the borrower, estate, or heirs	Within 30 days after that	24 CFR 206.125(a)
Heirs choose a path: pay off, sell at the 95% floor, deed in lieu, or cure	30 days to respond	24 CFR 206.125(a)
Servicer must start foreclosure	Within 6 months of the due date, unless HUD approves more time	24 CFR 206.125(d)
Extensions for heirs actively selling or arranging payoff	Up to two 90-day extensions, requested by the servicer	ML 2015-10
Deed in lieu must be recorded	Within 9 months of the due date	24 CFR 206.125(f)
Foreclosure itself	Follows the state’s judicial or nonjudicial process	State law

Put together, heirs who are actively marketing the house usually have about six months, and up to roughly a year with extensions. Once foreclosure starts, the length depends on the state. A judicial state like Florida or New York takes far longer than a nonjudicial state like Texas or Georgia. Our Florida foreclosure timeline and Texas foreclosure timeline show the contrast.

One rule most foreclosure guides get wrong for these loans: the federal Regulation X loss mitigation protections, including the 120-day waiting period, do not apply. Under 12 CFR 1024.30(b)(2), sections 1024.38 through 1024.41 do not apply to a servicer with respect to any reverse mortgage. HUD’s deadlines and state law govern instead.

Protections that can pause or prevent foreclosure

Several rules keep a surviving spouse or a struggling borrower in the home, and you need to know them before you make an offer:

Eligible non-borrowing spouse deferral. Under 24 CFR 206.55, a spouse who was married to the borrower at closing, was named in the loan documents, lives in the home, and within 90 days of the borrower’s death establishes legal ownership or a legal right to remain, can defer the due-and-payable status as long as they keep meeting the loan obligations. A deferral does not stop the estate or heirs from selling the home if they choose to.
Tax and insurance repayment plans. HUD’s Mortgagee Letter 2023-23 allows repayment plans of up to 60 months for unpaid property charges and lets servicers hold off on small defaults.
At-risk extensions. Borrowers age 80 or older with a critical circumstance, such as a terminal illness or long-term disability, can get extra time on a charge default.

If a living borrower or surviving spouse wants to stay, the honest answer is to point them toward the servicer and a HUD-approved housing counselor, not toward a quick sale.

Cash for keys and other incentives

HUD pays incentives for cooperative exits, which can help an investor’s negotiation. Under Mortgagee Letter 2023-23, a deed in lieu or short sale completed within 365 days of the due date can qualify for $7,500 plus up to $5,000 in probate costs, or $5,000 plus up to $5,000 in probate costs if completed within 366 to 547 days. After foreclosure, occupants can receive $7,500 for moving out within 60 days of the offer or $5,000 within 90 days. Our cash for keys guide explains how these offers work in general.

Where reverse mortgage foreclosure leads come from

Probate filings. Many HECM files start with a death. County probate records list estates, and the inventory often shows the house and the reverse mortgage. See our probate leads guide.
Recorded foreclosure notices. In nonjudicial states, the notice of sale names the servicer. Reverse mortgage servicers and subservicers in the market include PHH, Celink, and Finance of America Reverse; in November 2025 PHH agreed to sell servicing rights on about 40,000 HECM loans to Finance of America Reverse and stay on as subservicer, according to industry reporting.
Lis pendens filings. In judicial states, a lis pendens naming the estate or unknown heirs is a strong signal.
Vacant-home lists. A home sitting empty after an owner’s death or move to long-term care often shows up on vacancy and code violation lists before any foreclosure filing.
Servicer REO. After foreclosure, servicers sell the homes themselves, usually through the MLS or online auctions, with the 100% appraisal floor in mind.

What to ask on the first call with an heir

The first conversation decides whether a reverse mortgage lead is workable. Ask these questions before you run any numbers:

When did the loan become due? The date of death or move-out starts HUD’s clock, so it tells you how much of the six-month window is left.
Has the servicer sent a due-and-payable letter? Ask the heir to share it. It names the servicer, the balance, and the deadlines.
Has an appraisal been ordered? For an underwater loan, the servicer’s appraisal sets the 95% floor. Ask for a copy once it is done.
Who is the personal representative? If no one has been appointed yet, find out whether the estate has a probate attorney and how long appointment usually takes in that county.
Is anyone living in the house? A surviving spouse, relative, or tenant changes both the legal picture and the timeline.
What does the family want? Some heirs want the fastest exit, others want the most money, and some want to keep the house. Your offer should fit the goal, or you should say it does not.

Worked example: two estates, two very different deals

All figures below are hypothetical.

Estate A has equity. The last borrower died four months ago. The reverse mortgage balance is $160,000, and the house would be worth $330,000 renovated, with $45,000 in repairs. Using the 70% rule, your maximum allowable offer before profit is $330,000 × 0.70 − $45,000 = $186,000. You offer $175,000. The estate pays off $160,000, covers about $8,000 in closing costs, and keeps about $7,000. The 95% rule never comes into play because the sale clears the full balance. If the heirs think they can net more with a listing agent, they may be right; show them both options.

Estate B is underwater. The balance is $410,000. The house needs a new roof, a kitchen, and foundation work, and an as-is appraisal ordered by the servicer comes in at $250,000. The floor is 95% × $250,000 = $237,500. Renovated, the house would be worth about $360,000 with $70,000 in repairs, so your MAO is $360,000 × 0.70 − $70,000 = $182,000.

Estate B (hypothetical)	Amount
Loan balance	$410,000
As-is appraisal	$250,000
HUD floor (95% of appraisal)	$237,500
Your MAO at 70%	$182,000
Gap	$55,500

Your number is $55,500 below the floor, and HUD does not take less than the floor. That deal does not work as a wholesale flip. The only realistic buyers are retail purchasers or investors with a different exit, such as a long-term rental, who can pay at least $237,500. If the appraisal missed major defects, the estate can ask the servicer about the appraisal, but do not promise a lower floor you cannot deliver. Run your numbers through the MAO calculator and the ARV calculator before you call the family.

Ethics: how to approach heirs and older borrowers

These sellers are often grieving, overwhelmed, or elderly. The FTC’s guidance on reverse mortgages tells consumers that if they feel pressured to urgently complete a deal, they should walk away, and its mortgage relief scam warning says never to pay a company upfront for promises of relief. Build your process around that:

Never charge a fee or ask for money from the heirs.
Explain that the debt is non-recourse and that they will not owe the shortfall if the house is underwater.
Tell them they can list the house, sell to you, or give a deed in lieu, and that HUD may pay them an incentive for a cooperative exit.
Confirm who has authority to sign: the personal representative, a trustee, or all heirs. Contracts signed by the wrong person do not close.
Put your offer in writing and give them time to review it with the probate attorney.

When a reverse mortgage deal is the wrong move

The house is underwater and your number is below 95%. HUD’s floor is firm. Walk away rather than chase a short sale that cannot be approved.
A surviving spouse is living there. If they may qualify for a deferral, the loan is not ready to resolve, and pushing a sale is a bad look and often a dead end.
No one has authority to sign. Until a personal representative is appointed or title is settled among heirs, you cannot close. See our heirs property guide.
The deadline is nearly gone. If foreclosure is already scheduled and no extension is in place, you may not be able to close in time.
It is a proprietary reverse loan. The 95% rule and HUD timelines may not apply. Read the actual loan documents before you price anything.

Reverse mortgage foreclosure questions

Do heirs have to pay back a reverse mortgage?

Only if they want to keep the house, and even then they can satisfy an underwater HECM for 95% of the appraised value. Heirs are not personally liable for any shortfall.

How long do heirs have before foreclosure?

Typically 30 days to respond and up to six months to resolve the loan, with up to two 90-day extensions if they are actively selling or arranging financing.

Can an investor buy a house with a reverse mortgage from the heirs?

Yes, as long as the price at least pays off the balance or, for an underwater loan, meets the 95% of appraised value floor, and the person signing has legal authority over the estate.

Does a reverse mortgage foreclosure show up like a normal foreclosure?

The filings look similar because they follow state foreclosure law, but the timing is set by HUD rules rather than the 120-day federal servicing rule.

Reverse mortgage files reward investors who know the rules and treat families well. Verify the balance and the appraisal, respect the HUD deadlines, and walk away when the 95% floor sits above your numbers.

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