Reverse Mortgage: What Heirs Actually Owe

Updated August 4, 2026. Quick answer: heirs of a HECM borrower are never personally liable for the loan — the lender may enforce the debt only against the house. Heirs get 30 days from the due-and-payable notice to choose what to do, and if they sell, the required price is capped: it may not exceed 95 percent of appraised value. That last figure is widely misquoted, and the regulation is quoted below so you can see exactly what it says.

You are not personally liable

This is the fact that changes the decision, and it is in the regulation rather than in a brochure. 24 C.F.R. § 206.27(b)(8):

“The mortgagee shall enforce the debt only through sale of the property. The mortgagee shall not be permitted to obtain a deficiency judgment against the borrower if the mortgage is foreclosed.”

If the loan balance exceeds what the house is worth, the shortfall is covered by FHA insurance, not by the family. An heir who walks away owes nothing. That is what “non-recourse” means and it is the single most common thing families do not know when they are deciding under time pressure.

The 95 percent rule is not quite what you were told

The popular version is “heirs can buy the house for 95% of its appraised value.” The regulation, § 206.125(c)(2)(ii), says something more precise:

“Sell the property for an amount not to be less than the amount determined by the Commissioner through notice, which shall not exceed 95 percent of the appraised value as determined under § 206.125(b), with the net proceeds of the sale to be applied towards the outstanding loan balance. Closing costs shall not exceed the greater of: 11 percent of the sales price; or a fixed dollar amount as determined by the Commissioner through Federal Register notice.”

Read it carefully. 95 percent is a ceiling on the minimum the Commissioner may set — not a price heirs are entitled to demand, and not a discount off the loan balance. Where the loan balance is below appraised value the rule does nothing at all, because the heirs simply pay off the balance and keep the difference. The 95 percent figure matters only when the balance exceeds the value, which is exactly the case where the family assumed they had a problem and did not.

Note the second sentence too: closing costs are capped at the greater of 11 percent of the sales price or a fixed amount set by the Commissioner. That cap is rarely mentioned anywhere and it is money.

The clock, and it is short

Under § 206.125(c), once a due-and-payable condition occurs the mortgagee notifies HUD within 30 days, then notifies the borrower, an eligible non-borrowing spouse, the estate and the heirs within 30 days of that — and gives them 30 days from the date of notice to pay the balance in full, sell under the rule above, hand over a deed in lieu of foreclosure, or correct the condition.

Extensions exist and are commonly granted where a sale is genuinely in progress, but the default is 30 days. The practical failure is not choosing badly — it is not answering the letter. Run the wider sequence with the deadlines calculator and the checklist after a death.

If a spouse is still living there

This is a different question with a different answer, and getting it wrong costs a home. An eligible non-borrowing spouse may be able to remain under a deferral period rather than face the due-and-payable clock at all — the conditions are specific and unforgiving. That page owns it: the HECM non-borrowing spouse rules. Nothing on this page overrides it.

The four choices, priced

• Pay the balance and keep the house — sensible when the house is worth clearly more than the balance. Financing it usually means a conventional refinance in the heir’s own name.
• Sell and keep the surplus — the balance is paid from proceeds and the rest belongs to the estate. Price the tax first: the stepped-up basis and the gain that survives it.
• Sell at the capped price — the § 206.125 route, which only matters when the balance exceeds value.
• Deed in lieu, or simply walk away — owing nothing, per § 206.27(b)(8). No stigma and no deficiency.

Where several heirs disagree, the arithmetic of one buying the others out is at the sibling buyout calculator; if the plan is to keep and let it, see heirs inheriting a rental.

Does this need probate

Often, yes — someone has to have authority to sell. Whether an estate must open at all is at when probate is required, what it costs by state is at probate cost by state, and the whole sequence is at settling an estate. The wider machine is on the estate planning front door.

How this is sourced

Both regulations were read from the Legal Information Institute’s text of the Code of Federal Regulations on 2026-08-04 and are quoted verbatim; eCFR serves the same text. This page states the federal rule and does not describe any lender’s own policy, which can be more generous but never less. Method: methodology. Mistakes: corrections.