Selling a house with a reverse mortgage in Maryland: the heirs’ clock and the 95 percent rule

Most of the reverse mortgage calls we get start the same way. A parent in Silver Spring, Bowie or Parkville passed away, the family found a statement from a servicer they had never heard of, and a letter arrived a few weeks later saying the loan is now due and payable. The balance on the letter is larger than anyone expected, because interest and insurance premiums on a reverse mortgage compound for years with no payments going the other way. The family’s first question is whether they still own anything. The answer is usually yes. The rules that protect what is left are federal, they favor the heirs, and they run on a clock that starts the day the servicer learns of the death.

What a reverse mortgage is, in one paragraph

Nearly every reverse mortgage in Maryland is a Home Equity Conversion Mortgage, or HECM, insured by the Federal Housing Administration. The borrower had to be at least 62, live in the house, and complete counseling with a HUD-approved agency before closing. Maryland added its own layer in 2010 with the Reverse Mortgage Homeowners Protection Act, which requires that counseling for any reverse mortgage made in the state and regulates how the loans are advertised. The borrower drew cash against the house, made no monthly payments, and the balance grew. The loan comes due when the last borrower dies, sells, moves out for twelve months or more, or stops paying property taxes and insurance.

The clock: 30 days, six months, and two extensions

When the servicer learns the last borrower has died, it sends the estate a due-and-payable notice. The heirs generally have 30 days to respond with their intent: pay the loan off, sell the house, sign a deed in lieu, or let the servicer foreclose. From there the estate has six months to complete a sale or payoff. If the house is listed and moving, or the estate is still waiting on the Register of Wills, the servicer can request two 90-day extensions from HUD, which take the total to about a year. Extensions are not automatic. The servicer has to ask, the estate has to show progress, and a house that has been sitting unlisted for five months is a hard case to make.

Two things eat into that year in Maryland. The first is probate itself. Nobody can sign a deed for the house until the Register of Wills issues letters of administration to a personal representative, and that step alone takes several weeks even in a simple estate. Our guide to letters of administration walks through the timeline. The second is the house itself. Reverse mortgage borrowers were often in the house for decades, and deferred maintenance is the norm, which narrows the pool of retail buyers and stretches the days on market.

The 95 percent rule

A HECM is non-recourse. The estate never owes more than the house is worth, no matter how large the balance has grown, and the FHA insurance fund covers the shortfall to the lender. The rule that makes this work for heirs is this: an heir who wants to keep the house can satisfy the loan by paying the lesser of the full balance or 95 percent of the home’s current appraised value. If the balance is $380,000 and the house appraises at $300,000, the family keeps it for $285,000, and the servicer orders that appraisal itself.

If the family sells instead, the sale price simply pays the loan. When the price is higher than the balance, the difference belongs to the estate. When the price is lower, the estate walks away with nothing owed, provided the sale was an arm’s-length transaction at fair market value and the servicer approved it. That approval step matters. A servicer will ask for the contract and often for its own appraisal before releasing the lien on a sale below the balance, which is one more reason a sale with no financing contingency and a firm date is easier to get approved than a listing with a buyer still waiting on a lender.

The surviving spouse who was not on the loan

Some Maryland couples took the reverse mortgage in one spouse’s name because the other was under 62. For loans made on or after August 4, 2014, HUD rules let an eligible non-borrowing spouse stay in the house after the borrower dies, with the loan deferred, as long as the spouse keeps living there and stays current on taxes and insurance. For older loans the protection is narrower and depends on the servicer’s election. If you are that spouse, call the servicer before you do anything else and ask specifically about deferral. Selling is still an option later, but it is not the only one.

What usually goes wrong

• Nobody tells the servicer. The estate waits for probate to finish before making the call, and by then the servicer has learned of the death from other records and started its own clock without the family’s input.
• Taxes and insurance lapse. The borrower was paying them out of pocket. After the death nobody does, the county sends a tax sale notice, and the servicer treats the lapse as a separate default.
• The house is listed at a hopeful price. Six months go by with two showings a week and no contract, the extension request has nothing to show, and the servicer refers the file to foreclosure.
• Heirs spend money on repairs. A new roof on a house that is underwater against the loan balance is a gift to the servicer, not to the family.

How a cash sale fits the deadlines

A cash sale removes the two variables the servicer cares most about: whether a buyer’s lender will close, and when. Once the personal representative has letters, we put a written offer in front of the estate, usually within a day, with the math shown against what a listing would likely net after repairs, commissions and months of carrying costs. If the offer clears the loan balance, the estate keeps the difference. If it does not, we send the servicer the contract and the appraisal it needs to approve a short payoff, and the estate owes nothing. Settlement runs through a licensed Maryland title company that orders the payoff figure, pays the servicer, and wires the balance to the estate. Two to three weeks is typical once the servicer has responded, and we buy with the contents still in the house.

We see the most reverse mortgage estates in Montgomery County and Prince George’s County, where long-tenured owners and high home values made the loans common in the 2000s and 2010s, and a steady number in Baltimore County and Howard County. Our page on selling an inherited house in Maryland covers the rest of the probate process, and our FAQ explains how we calculate an offer.