A maturity event makes the HECM balance due and payable in full. Maturity events include (but are not limited to) the death of the last surviving spouse or non-borrowing spouse, changes in title, failure to pay the required property charges, permanently moving out of the home, or letting the home fall into extreme disrepair.
Once a maturity event is triggered, the servicer is required by HUD to order a real estate appraisal and notify the heirs, estate, or homeowner (if the homeowner is still living in the home) that they have three options to pay the loan balance in full:
- Pay the lesser of the loan balance or 95% of the appraised value to keep the home. The heirs can settle the loan by refinancing or using other assets.
- Sell the property, repay the balance, and keep the remaining equity.
- Give the lender a Deed in Lieu of foreclosure. The lender will use the foreclosure process to sell the property and repay the loan balance.
If the loan balance isn’t repaid in response to a Due and Payable Notice, the lender is required by HUD to begin foreclosure proceedings.
Though the term foreclosure is loaded with negative connotations, it simply refers to the sale of a property to repay a mortgage. Foreclosure is a normal part of settling a reverse mortgage. It doesn’t imply that anything is wrong or the homeowner fell on hard times and is losing the home. Foreclosure is a normal part of settling up a reverse mortgage after a maturity event. The most common maturity event is the passing of the last borrower or non borrowing spouse.
The HECM reverse mortgage is a non-recourse loan, which means the most that will have to be repaid is the value of the home. If the home isn’t worth enough to settle the entire balance, FHA will cover the shortage out of the Mutual Mortgage Insurance Fund.