Reverse Mortgage Foreclosure: What Happens When a Reverse Mortgage Goes Into Default

Yes — but the reverse mortgage must be resolved. You don't automatically lose the home. You can pay off the reverse mortgage (the lesser of the loan balance or the home's value), sell the property and keep any remaining equity, or negotiate a deed in lieu. The reverse mortgage is non-recourse, meaning you will never owe more than the home is worth — the FHA insurance covers any shortfall.

This is the non-borrowing spouse situation — and it's one of the most common reverse mortgage problems. Under HUD Mortgagee Letter 2021-11 (and prior guidance), eligible non-borrowing spouses may qualify for a deferral allowing them to remain in the home after the borrowing spouse dies, as long as they continue paying property taxes and insurance, maintain the home, and occupy it as their primary residence. You must notify the lender promptly after the borrower's death and submit documentation to HUD.

Yes. HUD allows borrowers to cure the default by paying the delinquent property taxes, and in many cases, entering into a repayment plan with the servicer. You should also contact your county tax assessor about payment plans or senior tax deferral programs. The key is acting before the foreclosure sale date — reverse mortgage foreclosures for tax delinquency can move quickly in some states.

It depends on your state. HECM foreclosures follow the same process as traditional foreclosures in your state — judicial in states like Florida, New York, and Illinois; non-judicial in states like California, Texas, and Arizona. The key difference: reverse mortgage foreclosures are always non-recourse, meaning the lender can never pursue a deficiency judgment against the borrower or their estate.