Most people facing this learn about the reverse mortgage only after the funeral, often from a letter sent by a loan servicer they have never heard of. An adult child, a successor trustee or a newly named executor now has a house, a debt that grew quietly for years, and a short window to answer the lender, often while brothers and sisters are asking what happens next. This page walks through the loan, the choices, who has authority to make them, and the property tax and income tax questions that come with the house.
What a Reverse Mortgage Is and How It Works
A reverse mortgage is a loan against the equity in a home that the borrower does not repay month by month while living there. Instead, interest and fees are added to the balance, so the amount owed usually grows over time. California's Civil Code section 1923.2 allows these loans to include costs and fees charged at the start, periodically or at maturity.
The U.S. Department of Housing and Urban Development explains on its Home Equity Conversion Mortgages for Seniors page that the only reverse mortgage insured by the federal government is the Home Equity Conversion Mortgage, or HECM, available only through a Federal Housing Administration (FHA)-approved lender. A HECM is governed by federal program rules, which is why much of what follows comes from federal agencies rather than California courts.
Because the balance grows, a family can find that the loan is close to, or more than, what the house is worth today. People call that being "underwater."
What Happens to the Loan When the Borrower Dies
The last borrower's death is the event that ends the loan's quiet years. The Consumer Financial Protection Bureau explains that a reverse mortgage becomes due and payable after the borrower dies and after the death of any co-borrower or eligible nonborrowing spouse, meaning a spouse who is not on the loan but qualifies under HUD's rules to stay. California's statute lists the events that can make a reverse mortgage due: the home is sold or title is otherwise transferred; all borrowers stop living there as a principal residence, subject to the statute's rules on temporary absences; a fixed maturity date arrives; or an event named in the loan documents puts the lender's security at risk (Civil Code section 1923.2).
The timing comes from the lender's notice. According to the CFPB's page With a reverse mortgage loan, can my heirs keep or sell my home after I die?, once heirs receive a due and payable notice, they have 30 days to buy, sell or turn the home over to the lender. The same page says the timeline might be extended up to six months so heirs can sell or obtain their own loan. The servicer decides whether an extension applies.
The servicer's name usually appears on the borrower's loan statements. The recorded deed of trust is a public record kept by the County Recorder in the county where the house sits, and the first page of a deed of trust securing a reverse mortgage states that it secures a reverse mortgage loan (Civil Code section 1923.2).
The Options Heirs Have
None of these paths is right for every family. Each turns on what the house is worth compared with the balance, and on whether anyone wants to live there.
Sell the home. The CFPB explains that if the house is worth more than the loan, heirs can sell, repay the loan and keep the difference. If it is worth less, heirs can pay off the loan by selling for at least 95 percent of the home's appraised value, and the rest is covered by the mortgage insurance the borrower paid for during the loan. A sale can be a listing with an agent or a cash sale. A cash sale can reduce repairs, showings, financing uncertainty and time, but it is not automatically the best choice for every family. The tradeoffs of keeping or selling the house apply here too.
Pay off the loan and keep the home. The CFPB says heirs can pay the balance and stay, and may need a loan of their own to do it. Under the CFPB's guidance, heirs who keep the home pay the full balance or 95 percent of appraised value, whichever is less. Qualifying for new financing is a separate question from inheriting.
Turn the home over to the lender. The CFPB lists this as a way to satisfy the debt for a family that neither wants the house nor can sell it in time.
A family that makes no choice leaves the lender to enforce the loan against the house, and any equity can be lost along the way.
How California Property Title and Probate Affect the Process
The servicer will deal with the person who has legal authority over the house, and who that is depends on how title was held at death.
A trust. If the house was in a revocable living trust, the successor trustee, the person the trust names to take over its management, usually acts under the trust document without probate. California's Courts self-help page on inventory and property value notes that property held in a trust's name is owned by the trust, not the individual.
Joint tenancy. The same court page explains that with joint tenancy, when one owner dies the property passes to the other. Joint tenancy property and property in a revocable trust are left out when measuring the estate for California's simplified procedures (Probate Code section 13050).
The decedent's name alone. Here probate or a simplified procedure usually comes first. In probate, an executor (the person a will names) or an administrator (the person the court appoints when there is no will or no executor serves) receives court papers called letters. Priority for appointment as administrator starts with the surviving spouse or domestic partner, then children, then grandchildren, and the list continues (Probate Code section 8461). The simplified procedures include the affidavit for collection or transfer of personal property, which is available only after 40 days have passed since the death and only where the estate falls under a value limit that is adjusted periodically (Probate Code section 13100). The others are the petition to determine succession to the decedent's primary residence, the affidavit for real property of small value, and the spousal or domestic partner property petition, which a surviving spouse files in the superior court of the county where the estate may be administered (Probate Code section 13650). The Judicial Council's California Courts self-help pages publish the current limits.
Whatever the path, the servicer will usually ask for proof of authority, such as letters or trust papers, before discussing options.
Property Tax Reassessment and the Inherited Home
A home passing to a new owner generally means the county assessor revalues it, which can raise the property tax, unless an exclusion applies. For transfers on or after February 16, 2021, Rev. & Tax. Code section 63.2, the statute carrying out Proposition 19, excludes some transfers of a principal residence between parents and children. It also covers transfers between grandparents and grandchildren, but only where all of the grandchild's parents who are the grandparents' children have died by the date of transfer.
The statute's conditions are specific. The home must have been the parent's principal residence and must become the child's principal residence within one year, and the child must file for the homeowners' or disabled veterans' exemption within a year. Even then, the exclusion is capped: if the home's market value exceeds its existing taxable value by more than a set amount, part of the difference is added. That amount is adjusted over time, and the county assessor's office publishes the current figure.
A claim must be filed with the county assessor within three years after the transfer, or before the home is transferred to a third party, or before an eligible child stops living there, whichever is earlier. Alternatively, a claim is timely if filed within six months after a notice of supplemental or escape assessment is mailed. A later claim on a home not sold to a third party can still be considered, applying from the lien date of the year it is filed (Rev. & Tax. Code section 63.2).
The exclusion turns on who receives the house and how it is used, not on the reverse mortgage. The county assessor's office handles reassessment and exclusion claims. Living in the house raises its own questions, set out in living in an inherited house.
Federal Income Tax Basis on an Inherited Home
Basis is the starting figure used to measure gain or loss when property is sold. Under 26 U.S.C. § 1014(a), the basis of property acquired from a decedent is generally its fair market value at the date of death, with exceptions for certain elections and an exclusion listed in that section.
For a family, this usually means the years of growth in value during the parent's lifetime are not what gets measured. If the house sells for close to its date-of-death value, the gain may be small, though the result depends on the facts of the estate and the sale. Basis is set by the property's value, not by what is owed on it, so the reverse mortgage balance does not change the figure. A date-of-death valuation matters for this reason, and so does understanding capital gains on inherited homes.
This is general information, not tax advice. A CPA, an enrolled agent or a tax attorney reviews basis and any gain or loss on a particular sale.
The Garn–St. Germain Act and Why the Due-on-Sale Clause Does Not Apply
Heirs sometimes hear that a federal law stops lenders from calling a loan due because of an inheritance. That law is the Garn–St. Germain Depository Institutions Act, and the relevant part is 12 U.S.C. § 1701j-3(d).
A due-on-sale clause is a loan term letting a lender demand full payment if the property is sold or transferred without its consent. For a loan on residential property with fewer than five dwelling units, 12 U.S.C. § 1701j-3(d) bars a lender from using that clause on certain transfers, including a transfer on the death of a joint tenant, a transfer to a relative resulting from the borrower's death, and a transfer where the borrower's spouse or children become owners. That is why a family that inherits a house with an ordinary mortgage can often keep paying it, as explained for an inherited house with a mortgage.
A reverse mortgage works differently. It becomes due under its own terms when the last borrower dies or stops living in the home, as the CFPB and Civil Code section 1923.2 describe. The federal protection addresses due-on-sale clauses; it does not undo that separate maturity event.
Where to Get Help and What Kind of Professional Fits
Several kinds of help fit different parts of this problem, and a family rarely needs all of them at once.
- HUD-approved housing counselor. The CFPB suggests heirs consult a HUD-approved housing counseling agency or an attorney, and HUD's HECM page points to its HECM Counselor Roster and a phone line at (800) 569-4287.
- Probate or trust attorney. This attorney answers who has authority over the house and whether probate or a simplified procedure is needed.
- CPA, enrolled agent or tax attorney. These professionals review basis and any gain on a sale.
- County assessor's office. The assessor handles reassessment and Proposition 19 exclusion claims.
- Real estate agent or broker. A licensed agent or broker handles listing and sale, and the California Department of Real Estate licenses them.
Silver Lining Estate is an educational resource and does not provide any of these services. Where heirs disagree about the house, or suspect misconduct by a trustee or executor, that is a contested matter for an attorney who litigates trust and probate cases.
