The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage insured by the FHA, and available through FHA approved lenders. If the home owner dies or moves out permanently (this is when the borrower has not lived in the house for 12 consecutive months) the lenders are repaid through the sale of the house. Since the loan is insured, the lender is reimbursed, should the sale fall short of the loan amount.
In cases where the borrower dies and has heirs, they will receive a letter from the lender about the mortgage. The heirs in this case have a few options. If the home exceeds the value of the loan balance, they can sell the property and keep the difference. Heirs can give the house to the lender if they choose not to keep it or if the balance owed is more than what it’s worth. They may even choose to keep the home and pay it off themselves, in which case the amount is no more than 95 percent of the appraised value.