What Happens When a Borrower Passes Away in a Reverse Mortgage in Dallas

Understanding Life Rights in a Texas HECM Loan

One of the most misunderstood parts of a home equity conversion mortgage is life rights.
Life rights mean the borrower has the legal right to live in the home for the rest of their life as long as it remains their primary residence. The bank does not own the home, the homeowner does. The lender simply holds a lien, similar to a traditional mortgage.

The key requirement is occupancy. The borrower must live in the property full-time and keep property taxes, homeowners insurance, and general maintenance up to date.
If those conditions are met, the borrower can stay in the home indefinitely. But when the property is no longer occupied as a primary residence, the loan must be repaid, refinanced, or satisfied through the estate.

When a Borrower Moves Out of Their Dallas Home

Sometimes a homeowner decides to move out voluntarily. They might want to live closer to family, downsize, or relocate for personal reasons.

If a borrower with a HECM loan chooses to move and no longer occupies the property as their primary residence, the HECM can no longer remain in place. The loan becomes due and payable because the borrower has given up occupancy.
At that point, the family or estate must decide how to handle the balance. The most common options include:

• Selling the property and paying off the loan from the sale proceeds
• Refinancing into a new traditional mortgage
• Paying off the loan with cash or other assets

What cannot happen is keeping the HECM active while the borrower lives elsewhere or renting out the property. Once the home is no longer owner-occupied, it no longer meets HECM eligibility rules.

When a Borrower Must Leave for Medical Reasons

A homeowner may also lose occupancy for reasons beyond their control. If a doctor determines that the borrower can no longer live safely at home and requires full-time care in a nursing facility or assisted living, the same rule applies.
Once a borrower moves out for medical reasons and no longer occupies the property, the home is no longer considered a primary residence. The loan must be addressed.

In this case, the family typically has three options:

• Sell the home and pay off the balance
• Refinance out of the HECM into another loan
• Pay off the balance in cash

Even when the decision to move is medically necessary, occupancy ends the moment the homeowner no longer lives in the property full-time.
This rule exists to ensure HECMs are used only for primary residences, not investment or secondary homes.

When the Borrower Passes Away in a Reverse Mortgage in Dallas

The most common question about reverse mortgages in Texas comes after the borrower passes away. Families often worry that they’ll lose the home or owe more than the property is worth.
Fortunately, the rules are much more flexible (and far more protective) than many people realize.

When the borrower passes away, the reverse mortgage becomes due. However, the estate and the family have several options for resolving the loan.

Sell the home. The property can be sold, and the proceeds are used to pay off the loan. If the sale price is less than the balance, mortgage insurance covers the difference so the estate is not responsible for any shortage.

Keep the home. A family member can refinance the property into their own name and keep it in the family.

Walk away. If no one wants to keep the property, the family can simply allow the lender to handle the sale. No one owes more than what the home is worth.

The key protection is that heirs can refinance the property for up to 95% of its current appraised value, regardless of how large the loan balance has become. That 95% loan-to-value limit is what allows a family to keep the home without paying off the full HECM balance.