Quick Answer
Owing back property taxes does not automatically prevent a reverse mortgage — the taxes can be cured at closing from the reverse mortgage proceeds — but a pattern of property tax delinquency is the most significant negative factor in the financial assessment and may require a Life Expectancy Set-Aside to mitigate.
- Outstanding property taxes can be paid at closing from the reverse mortgage proceeds.
- The financial assessment reviews 24-month property tax payment history — delinquency is the primary concern.
- A pattern of late or missed taxes may require a fully-funded LESA to address the risk.
- IRS federal tax liens recorded against the property must be resolved before closing.
- California property tax delinquency that is cured at closing does not prevent the HECM.
- Acting quickly is important — extended tax delinquency can lead to tax sale.
Key Facts
| Topic | Key Fact |
|---|---|
| Property tax delinquency | Can be cured at closing — but pattern triggers LESA requirement |
| LESA requirement | Likely required if 24-month history shows tax payment issues |
| IRS tax lien | Must be resolved before HECM can close in first lien position |
| State tax lien | Must also be resolved if recorded against property |
| California tax delinquency process | 10% penalty after April 10; 5-year default leads to tax sale |
| Tax sale risk | Extended delinquency can lead to county tax sale — act quickly |
| LESA benefit | Automates future tax payments — eliminates ongoing default risk |
| Tax default notification | Contact servicer and Jay immediately upon receiving any default notice |
Detailed Explanation
Property tax delinquency is simultaneously the most common reverse mortgage default trigger and one of the conditions a reverse mortgage is best positioned to cure. Outstanding property taxes create a lien that has priority over all other liens — including the future HECM — and must be brought current before or at the HECM closing. The reverse mortgage proceeds can fund this payoff at closing, the same way they fund an existing mortgage payoff.
The more consequential issue is the pattern of property tax non-payment rather than the outstanding balance. HUD's financial assessment specifically reviews the 24-month history of property tax payments. A history showing two years of late or missed payments indicates a pattern of risk that the HECM program is designed to identify and mitigate. For borrowers with this payment history, a fully-funded Life Expectancy Set-Aside (LESA) will almost certainly be required.
A LESA in this context is not a punishment — it is the mechanism that solves the problem permanently. With a LESA in place, the borrower's property taxes are paid automatically by the servicer from the escrow account funded at closing. The borrower no longer manages property tax payments directly. The risk that drove the financial assessment concern is eliminated. The trade-off is that the LESA amount reduces the net cash proceeds available at closing.
An IRS federal income tax lien recorded against the property is a different and more complex problem than property tax delinquency. Federal tax liens have super-priority and must be formally resolved — not just paid — through specific IRS release procedures. The HECM cannot close with an unresolved federal tax lien having priority over the HECM first lien position. Jay identifies IRS lien situations in the first consultation by asking about any outstanding federal tax obligations.
Jay Zayer, CRMP — 18 Years Experience
The property tax delinquency call that I respond to most urgently is the one where the homeowner has received a notice of intent to sell for tax default. That is a countdown that cannot be paused by the HECM application process — the tax sale will proceed on its timeline regardless of where we are in the closing process. I immediately pull the property's tax status with the county, identify the specific deadline, and assess whether a 45-to-60-day HECM closing can get there in time. Sometimes it can. Sometimes I have to tell the homeowner that the timeline does not allow it and we need to explore a bridge loan or other immediate action to stop the tax sale before starting the HECM.
Who This Is Right For
This may be a good fit if:
- You are behind on property taxes and want to use the reverse mortgage to cure the delinquency and eliminate future risk through a LESA
- You have a consistent tax payment history but one or two recent late payments and want to understand the impact
This may NOT be the right fit if:
- Your property tax delinquency has progressed to tax sale status with an imminent deadline — the HECM closing timeline of 45 to 60 days may not allow enough time
Common Misconception
Myth: Back property taxes disqualify you from a reverse mortgage.
Fact: Outstanding property taxes can be cured at closing from the reverse mortgage proceeds. The delinquency history may require a LESA, but it does not automatically prevent a HECM.
Source: HUD HECM program guidelines; California property tax delinquency rules
Authoritative Sources
People Also Ask
Can the reverse mortgage pay my overdue property taxes?
Yes — outstanding property tax delinquency is paid at closing from the reverse mortgage proceeds. The HECM must be in first lien position, so all property tax liens are paid at closing.
What if I receive a notice of property tax sale?
Contact Jay at 760-271-8646 immediately. The tax sale timeline may require emergency action before or alongside the reverse mortgage process. The HECM closing timeline of 45 to 60 days may not reach the sale date.
Will my property tax history affect my reverse mortgage terms?
A pattern of property tax delinquency will likely require a Life Expectancy Set-Aside (LESA) — which pays taxes automatically from the loan proceeds but reduces the net cash available at closing. It does not affect the interest rate.