Can You Lose Your Home With a Reverse Mortgage? What Triggers It

Can you lose your home with a reverse mortgage? Yes, but not the way most people fear. You keep the title, there is no required monthly principal and interest payment, and the lender cannot call the loan due because the balance grew or home prices fell. A HECM can come due, and end in foreclosure, if you stop living in the home, fall behind on property taxes or homeowners insurance, let the home fall into disrepair, or break another term of the loan. Every one of those triggers is in your control, and HUD's rules build in notices, repayment options and a right to cure before a sale.

"Can the bank take my house?" is the question under almost every other question I hear. Sometimes it is asked outright. More often it shows up as "what's the catch?" or as an adult son asking whether his mother will be put out at 85. It deserves a precise answer, because the myth and the reality point in opposite directions.

The myth is that a reverse mortgage hands the house to the bank. The reality is narrower and, for most households, more manageable: the loan has a short list of obligations, and HUD's regulations spell out exactly what happens when one is missed. This page walks through that list, the actual sequence from a missed tax bill to a foreclosure notice, and the steps that keep you in the home. The five tests for whether a reverse mortgage is a good idea cover the bigger decision; this page goes deep on the one fear that stops most people: can you lose your home with a reverse mortgage, and how?

This material is not from HUD or FHA and was not approved by HUD or a government agency. A reverse mortgage is a loan that must be repaid, not a government benefit. This page summarizes federal and Oregon rules for general education; it is not legal advice.

Can You Lose Your Home With a Reverse Mortgage? The Short Answer

A HECM (the FHA-insured Home Equity Conversion Mortgage) becomes due and payable under 24 CFR 206.27(c) in two groups of situations.

Due automatically: the last surviving borrower dies and the home is not the principal residence of another borrower (subject to a deferral for an Eligible Non-Borrowing Spouse), or every borrower conveys away all title to the home.

Due with HUD's approval:

• The home stops being the principal residence of at least one borrower for reasons other than death.
• A borrower is away for more than 12 consecutive months because of physical or mental illness, and no other borrower lives there.
• The borrower does not pay property charges (property taxes, homeowners insurance and any required flood insurance) as the loan requires.
• Another obligation of the mortgage is not performed, such as keeping the home in good repair.

Notice what is missing from that list. There is no monthly payment to miss. The loan does not come due because the balance has grown, because it has passed the home's value, or because Bend home prices dropped. A HECM is non-recourse under 206.27(b)(8): the lender can collect only through the sale of the home, and it may not get a deficiency judgment against you if the home sells for less than the loan balance. So can you lose your home with a reverse mortgage? Only through one of the triggers above, and each is something a borrower can see coming.

What the Bank Cannot Take Your Home For

Much of the fear comes from confusing a reverse mortgage with a traditional mortgage. Can you lose your home with a reverse mortgage for any of the reasons below? No. Here is what a HECM lender cannot do:

• Call the loan for a missed payment. There is no required monthly payment. You may prepay, in part or in full, without penalty under 206.27(b)(4), but you never have to.
• Call the loan because you owe more than the house is worth. The balance rising above the value is a risk the FHA mortgage insurance covers, and it is why you pay the insurance premium. It is not a default.
• Pursue your savings, your other property or your children. The debt is enforceable only against the home.
• Take ownership at closing. You keep the title. The lender holds a lien, just as it would on any mortgage.

That last point is where many people's fears begin, especially if they remember the aggressive reverse mortgage marketing of the past. The is a reverse mortgage a scam page separates the loan itself from the bad actors who have used it.

The Four Ways You Can Lose Your Home With a Reverse Mortgage

When people ask me "can you lose your home with a reverse mortgage?", these four patterns are the real answer. In practice, nearly every HECM that ends in foreclosure while the borrower is alive falls into one of four patterns.

1. Property taxes or insurance go unpaid. This is the most common one by far. Under 24 CFR 206.205, property taxes, including special assessments, hazard insurance and any required flood insurance must be paid on or before the due date, either by you or through a set-aside in the loan. HOA and condominium dues are your responsibility as well. A lapsed insurance policy is as serious as a missed tax bill.

2. The home stops being your principal residence. Moving in with a daughter, spending most of the year somewhere warmer, or renting the house out all qualify. A stay in a hospital or care facility counts only after more than 12 consecutive months, and only if no other borrower still lives there. Servicers check occupancy with an annual certification, and HUD's guidance in Mortgagee Letter 2016-07 treats a failure to return that certification on time as a reason to send the loan to HUD as due and payable. Open that envelope and send it back.

3. The home is not kept in good repair. Section 206.27(b)(5) requires it. That does not mean a remodel; it means the house cannot be allowed to deteriorate to the point it threatens the lender's security. A failing roof left unrepaired for years is the kind of thing that gets attention.

4. Another term of the mortgage is broken. Transferring title to a child or a trust without keeping any borrower on title, or allowing a new lien that is not subordinate to the HECM, can trigger it. In Oregon, that includes the state's senior property tax deferral lien. Under ORS 311.700(2), a home pledged for a reverse mortgage is generally not eligible for that program anyway, and 206.27(b)(3) bars a tax deferral lien that is not subordinate to the HECM. Talk to your servicer or an attorney before you change the deed.

If you are asking "can you lose your home with a reverse mortgage if you do everything right?", the answer is no. The loan comes due when the last borrower dies or permanently moves out, which is when it was designed to be repaid.

Can You Lose Your Home With a Reverse Mortgage Over Property Taxes?

Because property charges are the most common trigger, it is worth knowing the actual sequence. A missed tax bill does not mean an immediate foreclosure. There are several steps in between, and each one is a chance to fix it.

Step 1: the servicer pays it from your loan, if it can. On an adjustable-rate HECM with available principal limit, 206.205(c)(4) directs the servicer to pay the overdue tax or premium in full from your available funds and add it to your balance. That keeps the county paid, though it shrinks your line of credit.

Step 2: you get a letter, and 30 days to explain. The servicer must notify you in writing within 30 days of learning that a property charge is outstanding, and you have 30 days to respond and explain what happened.

Step 3: if there are no funds, the loan can be called due. If there is no available principal limit to pay the bill, which is always the case on a fixed-rate lump-sum HECM once the money has been drawn, and the bill stays unpaid, the loan becomes eligible to be called due and payable under 206.27(c)(2).

Step 4: HUD's loss mitigation options. HUD's guidance for property charge defaults, in Mortgagee Letters 2015-11 and 2016-07, gives servicers room to work with you before foreclosure:

• A small-balance delay. If the total unpaid taxes and insurance are under $2,000, and you are willing to repay and are making payments, the servicer may hold off on sending a due and payable request to HUD. Once the arrearage passes $2,000, you say you will not repay, or 12 months pass with no contact, the request must go in.
• A repayment plan. The servicer can divide the arrearage into equal monthly installments over no more than 60 months, sized so that each payment stays at or below 25 percent of your monthly surplus income, and ending before the balance reaches 98 percent of the loan's maximum claim amount. A plan is considered failed when a full payment is more than 60 days late.
• An "at-risk" extension. If a repayment plan is not enough, the servicer may ask HUD for more time when the youngest living borrower is at least 80 and faces critical circumstances, such as a documented terminal illness, a long-term physical disability, or a family member with a terminal illness being cared for in the home. It is reviewed at least once a year and ends if the circumstances change.

Two cautions. HUD states plainly that these letters give the borrower no right to any of these options; they are tools the servicer may use. And they are not available during a non-borrowing spouse's deferral period. So can you lose your home with a reverse mortgage over one late tax bill? Rarely, if you act quickly. The practical lesson is simple: call the servicer the day you know a bill will be late. A servicer that hears from you early has far more room than one that finds out from the county.

As an illustration, suppose a Bend borrower misses a $4,800 tax bill and has $900 a month left over after living expenses and the coming year's taxes and insurance. A quarter of that surplus is $225, so a repayment plan could run 24 months at $200 a month, well inside HUD's 60-month ceiling. The numbers are hypothetical, but the arithmetic is exactly how the plan is sized.

From Missed Bill to Foreclosure: The Timeline

Here is the sequence once a HECM is in default for a reason other than the borrower's death, with the rule behind each step. Timelines vary by servicer and case, but none of these steps can be skipped. Can you lose your home with a reverse mortgage without warning? Not under these rules.

From the first missed bill to a sale is usually many months, often longer. That time is not a reason to wait. Every month adds interest and costs to the balance, and a reinstatement gets harder as the arrearage grows.

Can You Lose Your Home With a Reverse Mortgage After It Is Called Due?

Being called due and payable is serious, but it is not the end of the road. Under 206.125(a)(2), the notice gives you 30 days to do one of the following:

1. Pay the loan balance in full, from savings or a new loan.
2. Sell the home. Once the loan is due, a sale for at least the lesser of the balance or 95 percent of the appraised value satisfies it, and any equity above the balance is yours.
3. Give the lender a deed in lieu of foreclosure. Under 206.125(f), the servicer must accept one recorded within 9 months of the due date if it can get clean title, and HUD may authorize a "cash for keys" incentive when the deed comes within 6 months.
4. Correct the condition that caused the default, such as paying the back taxes or restoring insurance.

The right to reinstate. This is the protection most people have never heard of. Under 206.125(a)(3), even after a foreclosure has started, the servicer must let a borrower correct the default and reinstate the loan, and the FHA insurance stays in force. The servicer may add its costs, including foreclosure costs and reasonable attorney's fees, to the balance. It may refuse a reinstatement only in three cases, including when it already reinstated the loan within the previous two years.

Oregon's own cure window. Most Oregon home loans are secured by a trust deed, and a trust deed can be foreclosed by a trustee's sale without going to court. Under ORS 86.764, the notice of sale must go out at least 120 days before the sale. Under ORS 86.778, the borrower can cure the default and stop the proceeding up to five days before the date last set for the sale, paying the amount due plus costs; on a residential trust deed, combined trustee and attorney fees are capped at $1,000 or the actual charge, whichever is less. Oregon law also requires a plain-language notice headed "You are in danger of losing your property if you do not take action immediately." If you ever receive one, call a HUD-approved counselor and an attorney that week.

So can you lose your home with a reverse mortgage once the loan is called due? Only if the default is never cured and none of the four options is used. Most borrowers who respond early never reach a sale.

Can Your Spouse or Heirs Lose the Home?

Can you lose your home with a reverse mortgage when a spouse dies? It depends on whether that spouse was on the loan.

A spouse on the loan. If both spouses are borrowers, the loan stays in place as long as either one lives in the home and keeps up the obligations. Nothing happens at the first death.

A younger spouse who is not a borrower. A spouse under 62 can be named as an Eligible Non-Borrowing Spouse at closing. Under 206.27(c)(3), the due and payable status is then deferred after the borrower's death for as long as that spouse lives in the home and meets the loan's obligations. No new money can be drawn during the deferral, and HUD's property charge loss mitigation options do not apply during it, so the surviving spouse's budget has to carry the taxes and insurance alone. A spouse who was not named at closing does not get this protection. The reverse mortgage rules page covers the spouse requirements in more detail.

Heirs. After the last borrower dies, the loan is due, and the estate or heirs receive the same 30-day notice and options. They can pay it off, sell, or give a deed in lieu, and they can keep the home by paying the lesser of the balance or 95 percent of the appraised value. Because the loan is non-recourse, heirs are never personally liable for any shortfall. Can you lose your home with a reverse mortgage after you are gone? Not in the sense people fear: this is not a foreclosure on a living borrower; it is the loan being repaid as designed. The guide for adult children walks families through that stage, and how to get out of a reverse mortgage covers every exit.

How to Keep Your Home With a Reverse Mortgage

Every foreclosure trigger on a HECM is something a borrower can manage. These are the habits that keep the loan in good standing for life, and the practical answer to "can you lose your home with a reverse mortgage?" for anyone willing to follow them:

• Consider a set-aside for taxes and insurance. A fully funded Life Expectancy Set-Aside (LESA) reserves part of the principal limit so the servicer pays property taxes and insurance for you. Under 206.205(c), the servicer must pay the bills before they become delinquent, take advantage of early-payment discounts when it helps you, and may not charge you late penalties it caused. In Deschutes County, paying the full tax bill by the November due date earns a 3 percent discount. A LESA can be required by the financial assessment or chosen voluntarily, and it lowers the money available for other uses, so weigh it with real numbers.
• Keep the insurance active and the servicer on the policy. Watch renewal dates, and if a carrier non-renews the policy, for wildfire risk or any other reason, a replacement policy needs to be in place before the old one lapses.
• Return the annual occupancy certification. It is a one-page form, and not returning it is one of the triggers HUD lists.
• Name an alternate contact. Under 206.40(c), the lender asks at origination whether you want to designate someone it can contact if it cannot reach you. Pick a person who will act.
• Budget for the house. Set aside for the roof, the furnace and the deck. HUD's financial assessment checks for this up front, but the discipline lasts for the life of the loan.
• Plan the moves you can see coming. If a move to assisted living or to family is likely, a sale on your terms is better than a due and payable letter. The downside of a reverse mortgage page covers the cost of a short stay.
• Call early. The servicer and a HUD-approved housing counselor both have more options before an arrearage grows than after.

A proprietary or jumbo reverse mortgage is not FHA-insured, so HUD's loss mitigation letters do not apply. Those loans carry similar occupancy, tax, insurance and upkeep obligations, but the remedies are set by the loan documents and state law, so read them closely. Can you lose your home with a reverse mortgage that is proprietary? Yes, on similar triggers, and the cure steps depend on the contract.

Can You Lose Your Home With a Reverse Mortgage in Bend?

The federal rules are the same everywhere, but two Central Oregon realities matter. First, property taxes and insurance are the costs that trigger defaults, and on a fixed income they can rise faster than the budget does. Many Bend retirees own homes worth far more than they paid, so the carrying costs deserve a real plan, not a guess. Second, much of Central Oregon sits in wildfire country, so it is worth knowing how your insurer treats your property and what a replacement policy would cost before a renewal notice arrives.

Deschutes County's population is 21.8 percent age 65 and older, and many of those households hold most of their wealth in the house. For them, the fear of losing the home is often what keeps them from a loan that would make the home easier to afford. Can you lose your home with a reverse mortgage in Central Oregon? The same four triggers apply here as anywhere. The answer is not to avoid the question but to size the loan, and any set-aside, so the carrying costs are covered for the long run.

Whether you are in Bend, Redmond, Sisters, Sunriver or La Pine, a HUD-approved counselor will go over these obligations with you before any HECM can move forward, as required by 24 CFR 206.41. The reverse mortgage counseling page explains what to expect, and the Oregon reverse mortgage guide covers the state picture.

Can You Lose Your Home With a Reverse Mortgage? Frequently Asked Questions