A reverse mortgage can help older homeowners turn their home equity into income while staying in their homes. But it’s still a loan, and when a borrower fails to meet its requirements, a reverse mortgage default can occur.
A default happens when the homeowner does not meet the loan’s conditions: paying property taxes or homeowners insurance, keeping the property as their principal residence, or meeting occupancy requirements. According to the Consumer Financial Protection Bureau’s key terms guide, borrowers must understand these obligations before signing.
Your loan amount is calculated based on several factors: your age, the current interest rate, and your home’s appraised value, as well as how you qualify under HUD’s lending standards. This determines how much equity you can access, whether as monthly payments, a lump sum, or a line of credit. The most common type of reverse mortgage is the Home Equity Conversion Mortgage, or HECM, which is insured by the Department of Housing and Urban Development.
Some borrowers make a large down payment when buying their homes and assume they won’t face future costs, but property charges still apply. Others take a lump sum payment, which can be useful for immediate expenses but must be managed wisely to leave enough money for taxes and insurance later.
Unlike traditional loans that require loan payments every month, a reverse mortgage defers repayment until the homeowner moves out, sells the home, or passes away. Even though no regular monthly payments are required, lenders require borrowers to keep the property in good condition, pay all property charges on time, and live in the home as their primary residence. Ignoring these responsibilities can lead to default and, eventually, foreclosure.
The most frequent reason for default is failure to pay property taxes or homeowners insurance. While borrowers don’t make monthly mortgage payments, they must continue paying such property charges directly.
If property taxes are missed, the local taxing authority can place a lien on the home. When that happens, the lender or loan servicer may pay the bill on behalf of the borrower, adding that amount to the loan balance. If the homeowner cannot repay these funds, the servicer may begin foreclosure.
To avoid this, set aside a portion of your reverse mortgage funds or other income in a savings account for taxes and insurance. Contact your insurance company as soon as you see a premium increase so you can make adjustments before falling behind. Review your insurance coverage each year and make sure it meets lender and local requirements.
If you still have remaining funds available or access to a line of credit through your reverse mortgage, you can reserve part of it for taxes, insurance, and other costs tied to the property. Setting money aside for these expenses prevents small issues from growing into serious financial problems.
Occupancy rules are another common reason for default. Borrowers must live in their home as a primary residence for most of the year. If you move out permanently or spend too long away—such as staying in an assisted living facility or with relatives—the lender may declare that the occupancy requirement has been violated.
When that happens, the lender can call the entire loan due and payable. You or your heirs may then need to sell the home, repay the full amount owed, or risk foreclosure.
HUD allows certain temporary absences, like hospital stays or extended travel, but borrowers should always inform their loan servicer of these situations. A housing counselor can help a person facing a medical or financial transition understand the rules and avoid losing eligibility.
Some borrowers forget that homeowners association fees, condominium dues, and special assessments are also property charges. These costs may seem minor, but failure to pay them violates HUD requirements and the loan agreement.
If you fall behind, your association can file legal action to collect what’s owed. This can cause the reverse mortgage to default. To avoid that, stay in contact with your loan servicer and your association board. Many servicers will help you set up a repayment plan or connect you to local assistance programs that can help cover overdue charges.
When money gets tight, be honest with your servicer. They often prefer to work with you before the account reaches default.
Keeping your home in good condition is a key requirement of the reverse mortgage. If the property deteriorates or fails to meet basic safety standards, it can trigger default.
Examples include:
These repairs protect the property, which is the collateral for your loan. Neglecting them increases risk for both you and the lender.
The CFPB’s Rights and Responsibilities guide explains that borrowers must complete required repairs promptly and keep documentation of any work done. If you can’t afford needed repairs, ask about local programs that provide assistance for senior homeowners. Some local agencies and nonprofits even coordinate with HUD to complete emergency repairs on behalf of borrowers.
A surprisingly common cause of default is failing to communicate with your loan servicer. Many homeowners ignore letters or calls because they are anxious or confused, but not responding can make things worse.
Your servicer manages your reverse mortgage account and ensures compliance with HUD and FHA rules. They send notices if your taxes, insurance, or certifications are overdue. If you don’t respond, they may assume the property is at risk.
Always reply quickly to any notice or request for documentation. Keep copies of what you send and note the date of every call. Servicers want to avoid foreclosure just as much as you do. Maintaining a clear line of communication is one of the simplest ways to avoid problems.
The Bankrate reverse mortgage guide notes that lenders prefer cooperation over confrontation, and that most defaults can be prevented when the borrower stays in touch and acts early.
Each year, reverse mortgage borrowers receive a form asking them to confirm that they still occupy the property as their primary residence. This is known as the annual certification. Forgetting to sign or return the form can cause the loan to default.
If the servicer does not receive the form, they may assume the home is vacant and begin foreclosure proceedings. To avoid this, complete the form as soon as it arrives and keep a copy for your records.
If you are traveling or dealing with health issues, you can authorize another person to help with paperwork. Having someone assist ensures the forms are submitted correctly and on time.
While reverse mortgages are usually FHA-insured, some veterans may also be eligible for VA loans. These loans, backed by the Department of Veterans Affairs, are designed to help service members, veterans, and surviving spouses purchase or refinance homes.
Unlike a reverse mortgage, most VA loans require monthly payments, but both programs aim to help older homeowners remain in stable housing. The CFPB Key Terms guide explains that VA loans and HECMs operate under different rules, but borrowers with sufficient equity may be able to use VA benefits to refinance or pay off a reverse mortgage balance.
Veterans, especially those living on fixed incomes, should stay in close contact with their loan servicer and their VA housing counselor. These professionals can identify relief programs and verify that your Social Security number, income, and benefits are correctly documented so payments are processed without delay.
If you’re a veteran who currently holds a reverse mortgage, you can also reach out to the Department of Housing and Urban Development for clarification about overlapping program rules. Housing counselors can help veterans determine whether their loan obligations are current and whether any new benefits could help them stay housed.
Owning a home means managing property charges: costs like taxes, insurance, and fees that continue even after you take out a reverse mortgage. HUD and lenders require all borrowers to pay:
Failure to pay these expenses is one of the top causes of default. To prevent issues, it helps to set a budget that includes not only your monthly living costs but also long-term housing expenses.
Borrowers can prevent problems by:
Borrowers who took a lump sum disbursement should plan carefully to make sure enough money is left for future charges. Credit.org’s How to Use Debt Management Plans to Stay Housed explains how structured repayment plans can help cover housing-related costs and prevent delinquency.
Your loan servicer is your primary contact for questions, problems, or notices about your reverse mortgage. The servicer ensures you comply with HUD’s requirements, monitors property charges, and records occupancy certifications each year.
Borrowers should view their servicer as a partner, not an adversary. If your servicer contacts you, respond right away. If you move, change phone numbers, or need correspondence sent to a different address, update your file immediately. Keeping communication open helps avoid misunderstandings.
Here are a few quick habits that protect you and your loan:
Under HUD law, the servicer must send written notice before starting foreclosure. By communicating regularly, you can prevent the lender from needing to start foreclosure proceedings. Servicers prefer to resolve issues early and keep borrowers in their homes.
Your reverse mortgage only applies to your principal residence; the home where you live most of the year. It cannot be used for vacation or rental properties. HUD also defines this as your primary residence, which must be verified annually.
If your situation changes, such as moving in with family, staying in a care facility, or spending long periods away, inform your loan servicer immediately. HUD allows temporary absences for medical treatment or travel, but long-term non-occupancy can make the loan due.
Credit.org’s HECM Reverse Mortgages: What They Are and How They Work explains these occupancy requirements in detail and how to maintain compliance.
Lenders verify occupancy through the annual certification form, occasional property inspections, or local tax records. Failing to complete this step can lead to foreclosure even if you are still living in the home.
To stay compliant:
If you need help understanding these documents, a counselor can assist in reviewing and submitting them.
The best way to avoid a reverse mortgage default is to stay organized and act early when issues arise. A few simple steps can make all the difference:
Good money habits also help protect your credit and make it easier to access future financial products if needed. Homeowners who plan ahead for taxes, insurance, and upkeep stay on firmer ground and avoid unnecessary stress.
HUD-approved housing counseling can be one of the most effective tools for preventing default. Counselors can:
Counseling sessions are private and focused on problem-solving. They can also help you understand your rights under federal law and ensure that lenders and servicers handle your case properly. Many counselors work closely with the Department of Housing and Urban Development to help borrowers protect their homes.
Credit.org’s Reverse Mortgage Default Counseling program connects homeowners with certified experts who specialize in resolving delinquencies, negotiating with servicers, and finding alternatives to foreclosure. Even if you are not yet behind, a counselor can help you prepare for future expenses and explore ways to manage your finances safely.
A reverse mortgage can offer long-term security, but it also requires ongoing responsibility. Most defaults occur not because borrowers are careless, but because they misunderstand how the loan works or fail to communicate with their servicer in time.
By budgeting for taxes and insurance, responding promptly to all notices, and staying in touch with your servicer, you can prevent problems before they start. Borrowers who use their line of credit wisely, maintain their property, and follow occupancy rules are far less likely to face default.
Whether your loan is FHA-insured, proprietary, or connected to VA loans, the key message is the same: stay informed, stay organized, and reach out for help early. If you’ve received a notice from your servicer or are worried about missed payments, Credit.org’s Reverse Mortgage Default Counseling service can help you take control.
Our counselors can review your situation, communicate with lenders on your behalf, and create a step-by-step plan to protect your home. Contact Credit.org today to get started and regain peace of mind about your financial future.
