If you inherit a house with a reverse mortgage, there are a few things that can happen.

First, you’ll want to understand your relationship with the decedent who bequeathed the property to you. There is a different set of circumstances for a surviving spouse versus an heir who is not the spouse of the deceased. This is often a child, grandchild, a niece or nephew, or other close relative.

If you are the surviving spouse, chances are, you won’t have to take any further action. You will simply inherit the house and continue benefiting from the reverse mortgage payments. It’s important that you understand, however, that this will eventually affect your own heirs. The house becomes a part of your estate and the reverse mortgage along with it. (That is, unless you decide to sell the house or pay off the loan.) This applies if you are on the loan as a co-borrower, or if you are treated as an eligible non-borrowing spouse. If you are not a co-borrower or for some reason do not qualify as a non-borrowing spouse, then the following set of options apply to you as well.

If you inherit a reverse mortgage property and are not an eligible co-borrower or spouse, then you will be responsible for paying off the loan in full. Hopefully, your grantor (the person who bequeathed the property to you through their estate plan) had a discussion about this before their passing and went over your options with you. 

There are typically three options for satisfying the reverse mortgage debt with the lender:

• Sell the property and use the proceeds to pay off the mortgage

• Keep the property and take out a “forward” mortgage to pay off the reverse mortgage balance

• Pay off the mortgage and keep the property by using estate or personal funds

If you’re not attached to the property, then it makes sense to sell it and use the proceeds to satisfy the debt. If you’re lucky, the house could sell for more than the mortgage balance. If this is the case, you’d be able to pocket the difference. Most reverse mortgages provide a safety net so that you don’t have to pay more in case the current market value is less than the mortgage.

If you wish to keep the property in your estate, then you’ll have to pay the reverse mortgage balance in full. Hopefully, your deceased loved one made arrangements such that you are provided with a source of funds to pay off the loan. This could be through life insurance policy proceeds or the liquidation of other assets. If not, you may be forced to use your own funds.

A final option that could be used as a last resort is a foreclosure. If you don’t satisfy the debt, then the lender has the legal right to take over the property through the foreclosure process to recuperate the costs. This essentially means you’re signing over the deed to the lender, which you can do proactively rather than waiting for the lender to take legal recourse.