When a Michigan homeowner passes away, the estate often includes real property. If that property is subject to a reverse mortgage, the probate process becomes more complex. Heirs,
executors, and even creditors must navigate a unique set of rules that differ from a traditional mortgage. Below, we’ll break down how reverse mortgages work in Michigan, what happens when the borrower dies, and the steps probate courts and heirs typically face.
What is a Reverse Mortgage?
A reverse mortgage, most commonly a Home Equity Conversion Mortgage (HECM), allows
Michigan homeowners aged 62 and older to convert equity into cash. Unlike a standard
mortgage, borrowers do not make monthly payments. Instead, the loan balance grows over time
and becomes due when the borrower dies, sells the home, or permanently moves out.
Michigan homeowners can access three types of reverse mortgages.
HECMs
federally insured through HUD, the most common option.
Proprietary reverse mortgages
private lender products, typically for higher-value homes.
Single-purpose reverse mortgages
less common, offered by nonprofits or local agencies for specific expenses like taxes or home repairs.
Borrowers remain responsible for property taxes, insurance, and maintenance. Failing to keep those
current can trigger foreclosure even before death.
What Happens When the Borrower Dies?
When the last surviving borrower on a reverse mortgage dies, the loan becomes due and
payable. At that point, the estate or heirs must decide how to satisfy the balance. Here’s what
typically happens.
Notification to the Lender
The lender must be informed of the borrower’s death. They will usually request a death certificate and proof of
executorship or letters of authority from the probate court.
The Repayment Obligation
The reverse mortgage is a non-recourse loan. That means repayment is limited to the value of the home. If the loan balance exceeds the property’s worth, heirs are not personally responsible for the difference.
Heirs’ Options
●Keep the Home
Heirs can pay off the reverse mortgage balance, often by refinancing into a traditional mortgage.
● Sell the Home
The property can be sold, and proceeds are used to repay the loan. If proceeds exceed the loan balance,
heirs keep the difference.
● Deed in Lieu of Foreclosure
If heirs don’t wish to keep or sell the home, they may sign the property over to the lender to satisfy the debt.
HUD rules give heirs the option to purchase the property for 95% of its appraised value, or the
loan balance, whichever is less. This can help families retain the home even if the balance is
higher than its current market value.
Interaction with Probate in Michigan
Whether and how the property passes through probate depends on how the title was held:
Sole Ownership
If the deceased borrower owned the home alone, the property will generally pass into probate. The personal
representative must address the reverse mortgage as part of the estate’s debts before distributing any assets to
heirs.
Joint Tenancy with Rights of Survivorship
If a co-owner survives, title transfers automatically outside of probate. However, if the surviving owner was not a
co-owner on the reverse mortgage, the loan may still become due immediately.
Trust-Owned Property
If the property was titled in a living trust, probate might be avoided, but the successor trustee still must deal with the reverse mortgage balance.
Probate courts will expect the personal representative to work with the lender, arrange for sale
or repayment, and ensure debts are settled properly before distributing assets.
Deadlines and Probate Challenges
One of the most difficult aspects for heirs is timing.
● Lenders typically give heirs 30 days after notice of death to confirm intentions. Extensions may be available
if the estate is actively selling the property, but communication is critical.
● Appraisals may be required to establish fair market value, which can add delays.
● If heirs disagree on what to do with the property, a partition action may be necessary in probate court,
slowing down administration.
Since reverse mortgages increase the loan balance over time, waiting too long can leave heirs
with less equity or none at all.
Common Pitfalls in Probate with Reverse Mortgages
Failure to Communicate with the Lender
Silence can lead to foreclosure proceedings, even if heirs intend to sell.
Overestimating the Inheritance
Families sometimes assume they’ll inherit equity, only to find the loan balance has consumed most of it.
Unclear Title
If paperwork was not kept in order, resolving title issues during probate can delay resolution and frustrate heirs.
Legal and Practical Guidance for Michigan Families
Executors should act quickly.
Notify the lender, obtain appraisals, and contact probate counsel immediately.
Consider refinancing early.
If heirs want to keep the home, lining up financing before deadlines is crucial.
Document everything.
Keep records of communication with the lender, probate court, and real estate agents.
Seek legal advice.
Probate attorneys familiar with Michigan’s procedures can ensure the estate complies with both lender requirements and probate rules.
Conclusion
Reverse mortgages can provide financial relief during a homeowner’s lifetime but often create
complexities after death. In Michigan probate, these loans must be addressed promptly by
executors and heirs to protect equity, avoid foreclosure, and ensure compliance with court and
lender timelines.
If you’ve inherited a home subject to a reverse mortgage, or if you’re planning your estate and
considering one, our firm can guide you through the probate implications, help you evaluate
options, and protect your family’s interest. Schedule your consultation with Leydorf Law today at
517-388-6800.