Some people think that when a parent dies and the house has a reverse mortgage house after a death reverse mortgage, the bank just takes the house. That is not how it works. The lender does not automatically own the home. The loan has to be paid back, but the heirs have options.

The first thing you will see is a notice from the loan servicer. That letter tells you the loan is due and payable. That sounds final, but it is just the start of the process. You usually have a set amount of time to decide what to do. The exact deadline depends on your situation and the terms of the loan. If you need more time, you can ask. The servicer might give you an extension if you are making good-faith efforts to handle the property.

One option is to buy the house. You can pay off the reverse mortgage balance yourself. You do not have to pay the full appraised value, just what is owed on the loan. If the loan balance is less than the house is worth, you pay that amount and the house is yours. If the loan is more than the value, you can pay the current appraised value instead. That is called a short payoff. You will need to talk to the servicer about that. A real estate agent or a lawyer can help you figure out the numbers.

Another option is to sell the house. You list it, find a buyer, and at closing the reverse mortgage gets paid off from the sale proceeds. Any money left over goes to the estate. If the sale does not cover the full loan balance, that is usually the lender's problem, not yours. But you need to check the loan documents to be sure. A HUD-approved housing counselor can walk you through the rules.

The third option is to hand the house back to the lender. This is called a deed in lieu of foreclosure. You sign the house over to the servicer, and they cancel the debt. You are not responsible for the shortfall. This can be a clean way out if nobody in the family wants the house and there is no equity. But you should talk to a lawyer before signing anything. There may be tax consequences or other issues.

In Sacramento County, the probate court may get involved if the parent did not have a living trust or a joint owner on the deed. Probate takes time and costs money. The executor of the estate has to handle the reverse mortgage while the court process runs. That can be stressful, but it is doable.

Do not ignore the letters from the servicer. They will start the foreclosure process if nobody responds. You do not have to decide everything in the first week, but you do need to act. Call a HUD-approved housing counselor. Talk to a lawyer who knows California real estate. Get a CPA if you are worried about taxes. You have options. You just need to pick one and move forward.

More notes on this topic are at a reverse mortgage house after a death.