Selling a Home With a Reverse Mortgage in Portland

What happens when you inherit a Portland or Vancouver home with a reverse mortgage?

When the last borrower on a reverse mortgage dies, the loan becomes due and payable. The estate or heirs then have three choices: pay off the balance, sell the home, or give the lender a deed in lieu of foreclosure. If you sell, federal rules generally require the lender to receive the lesser of the loan balance or 95% of the home's appraised value. FHA insurance covers any shortfall, not the heirs. The servicer must begin the foreclosure process within six months of the death, although heirs who are actively marketing the home may be able to extend that window to twelve months.

By Rick Sadle | September 24, 2026

I get some version of this call all the time: a son or daughter in Beaverton or Hazel Dell has lost a parent, and a letter from the loan servicer shows up a few months later with the words due and payable and a deadline.

They usually assume they're already too late. Most of the time, they aren't. But the clock is running, and it started before that letter arrived.

Most reverse mortgages in our market are HECMs, or FHA-insured Home Equity Conversion Mortgages. That matters because HECMs follow federal rules that give heirs some protection, but also impose firm deadlines. Here's what you need to know.

The clock starts before you hear from anyone

This is where a lot of families get caught off guard.

The loan becomes due and payable when the last surviving borrower dies and the home is no longer their principal residence. The notice, however, follows a slower schedule:

• The servicer has up to 60 days to notify HUD that the loan became due and payable.
• The servicer then has 30 days after notifying HUD to send the Due and Payable Notice to the estate or heirs.
• That notice gives you 30 days to state which option you're choosing.

So the letter may not reach you until roughly three months after the funeral. That timing changed in 2022. The notice used to be tied to 30 days from the date of death; HUD later tied it to the date the servicer notifies HUD. A lot of information online still reflects the old rule.

The deadline that matters most is the servicer's. It must take the first legal step toward foreclosure within six months of the death.

That doesn't necessarily mean you only have six months to finish a sale. If you can show that the home is actively being marketed, with a listing, a realistic price and showings, the servicer can ask HUD for up to two 90-day extensions. That's how the six-month window can become twelve months.

Those extensions aren't automatic. The servicer needs evidence that you're actually trying to sell the home. A property listed in month two is in a much better position than one that hasn't been touched by month five.

The 95% rule is often misunderstood

You'll often read that heirs “can buy the home for 95% of its value.” That's an oversimplification, and it can be misleading.

The regulation says that when the loan is due and payable, the property may be sold for no less than an amount set by the FHA Commissioner, which cannot exceed 95% of appraised value. In practice, the lender must receive at least the lesser of the loan balance or 95% of the appraised value.

In other words, it's a minimum sale amount, not an automatic 5% discount. Here are two examples.

Scenario A: a typical Portland or Vancouver sale. The home appraises at $525,000 and the HECM payoff is $430,000. Because the balance is lower than 95% of the value ($498,750), the required amount is the $430,000 loan balance. You sell the home, pay off the loan, and the remaining $95,000 in equity belongs to the estate. This is a common outcome here because many homeowners who took out reverse mortgages years ago have seen their property values rise.

Scenario B: the home is underwater. The home appraises at $480,000 and the loan balance has grown to $560,000. Ninety-five percent of the appraised value is $456,000, which is the lower number. The home can be sold for $456,000 and the loan is satisfied. The $104,000 shortfall is covered by FHA insurance. A HECM is non-recourse, so the estate and heirs are not personally responsible for the difference, and the lender can't pursue other assets.

One detail to watch is the appraisal. The servicer orders the appraisal that sets the 95% figure. If that value comes in high, the minimum acceptable amount may be more than buyers are willing to pay. Having solid comparable sales ready before the appraiser visits can make a real difference. It's the same reason a Zestimate and an actual market analysis can produce very different answers.

Two other details can save the estate money. FHA limits the closing costs that can come out of this type of sale to the greater of 11% of the sales price or a fixed amount set by HUD. And once the loan is due and payable, the servicer pays for the appraisal, not the estate.

If the borrower is still living, the rules are different

Everything above applies after the loan becomes due and payable. If the borrower is living and simply wants to move, whether that's downsizing from a two-story home in Laurelhurst or moving closer to family, they can sell at any time. The standard is the lesser of the outstanding balance or the appraised value. There is no 95% floor. The borrower isn't trapped in the home and doesn't need the lender's permission to list it.

What to do in Portland or Vancouver

If we were sitting at your parents' kitchen table, here's where I'd tell you to start.

Call the servicer in the first week, even if you don't have a plan yet. Ask for a written payoff figure and make sure the servicer has your name as the contact for the estate. You'll need the loan number. HUD allows servicers to accept verbal notice of a death so the process can get started. Families who wait four months to make contact are the ones most likely to run short on time.

Confirm who has legal authority to sign. A listing agreement signed by the wrong person can cost you weeks. Oregon and Washington handle this differently, and Washington's nonintervention powers can often move faster than a standard Oregon probate. I cover those differences in selling an inherited house in Oregon vs. Washington.

Don't wait to empty the house. You can get an appraisal and list the home while it's still furnished. When a foreclosure deadline is running, getting the steps in the right order matters more than having every room cleared and staged first.

Talk with a CPA about the tax side. Heirs generally receive a stepped-up basis, which is separate from the reverse mortgage payoff and can make a big difference in the tax outcome. I explain more in capital gains tax on home sales in Portland vs. Vancouver, but your CPA should advise you on your specific situation.

The main thing to remember is that a reverse mortgage doesn't automatically take the house away from the family. Most situations are manageable when someone starts early. Problems come up when the letter goes unopened, the six-month mark passes without a listing, and there's no evidence of active marketing to support an extension.

Frequently Asked Questions

Can I sell a house with a reverse mortgage on it?

Yes. The reverse mortgage is paid off from the sale proceeds at closing, just like another mortgage. If the borrower is living and the loan isn't due and payable, the sale price must cover the lesser of the balance or the appraised value. Once the loan is due and payable, the minimum is the lesser of the balance or 95% of the appraised value.

What if the reverse mortgage balance is more than the house is worth?

You won't owe the difference. HECMs are non-recourse loans, and FHA insurance covers the shortfall when the home sells for at least the required amount. The estate won't receive sale proceeds, but the heirs aren't personally liable for the remaining balance.

How long do heirs really have?

The servicer must begin foreclosure within six months of the borrower's death. Heirs who are actively marketing the property can generally receive up to two additional 90-day extensions through the servicer, making the practical window about twelve months. You'll need documentation showing that the home is actively being sold.

Can I keep the house instead of selling it?

Yes. You can pay off the loan or refinance it into your own name. If the balance is higher than the home's value, you can typically keep the property by paying the lesser of the balance or 95% of the appraised value. That's where the commonly repeated “95% rule” comes from.

Does the estate have to go through probate first?

Not always, and the answer is different in Oregon and Washington. The key is establishing who has legal authority to transfer title, because both the servicer and the buyer's escrow company will require it. Sorting that out early is often the biggest factor in the timeline.

Where to go from here

If you have a due and payable letter in hand, the next useful step is to get a payoff figure and a realistic opinion of the home's value. From there, you can see whether a sale would leave equity for the family and how quickly you need to move.

If you're dealing with this now, I'm happy to sit down with you and work through the numbers. Reach out anytime.

Sources

• 24 CFR § 206.125 — Acquisition and sale of the property (sale floor, 95% cap, closing-cost cap, appraisal, deed in lieu, foreclosure initiation)
• HUD Mortgagee Letter 2015-10 — HECM Due and Payable Policies (60-day HUD notice, six-month foreclosure deadline, two 90-day extensions, claim payment standard)
• HUD Mortgagee Letter 2022-15 — Update to HECM Notice of Due and Payable Status (2022 change to the 30-day heir notice trigger)

A note on scope: I'm a real estate broker, not a CPA or an attorney. The rules above are federal HECM requirements published by HUD, and they can change. Your loan servicer, a tax professional and, when probate is involved, an estate attorney should confirm how these rules apply to your loan and estate.

About Rick Sadle
Rick Sadle is the Principal Broker and CEO of The Sadle Home Selling Team at Keller Williams Realty Professionals, serving the Portland, Oregon and Vancouver, Washington real estate markets. With more than 20 years of real estate experience, over 3,500 homes sold and more than $1 billion in team sales volume, Rick is one of the Portland area's most experienced real estate professionals. He is also a weekly real estate expert on KXL 101 FM, where he discusses the Portland and Vancouver housing markets, mortgage rates, housing trends and the economy. Rick is an Oregon-licensed Principal Broker and Washington-licensed Broker.