Heirs who want to keep a house with a HECM must pay the outstanding loan balance, including accrued interest and MIP, or complete another HUD-allowed resolution. 24 CFR 206.125(a)(2)(i) is that keep-the-home rule. The 95-percent-of-value figure in 24 CFR 206.125(a)(2)(ii) is the sale floor after the loan is due, not a discount for children who want the keys. Jay Zayer, a CRMP licensed in California and Arizona, corrects that mix-up in the first call, because shopping a “95% payoff” to keep title is how families miss the real number.
The loan is due under 24 CFR 206.27(c) when the last borrower dies, unless an Eligible Non-Borrowing Spouse starts a Deferral Period under 24 CFR 206.55. This page is the keep-the-house path. The calendar is heirs timeline.
What is the keep-versus-sell split, in HUD’s actual subsections?
To keep the property, pay the outstanding balance in full (24 CFR 206.125(a)(2)(i)). Sources are cash, a new forward mortgage in the heir’s name, or other estate funds. The heir has to qualify for that new loan on their own income and credit. HUD does not underwrite the child onto the dead parent’s HECM.
To sell after due-and-payable status, the sale may close for not less than the amount the Commissioner sets, which shall not exceed 95 percent of appraised value (24 CFR 206.125(a)(2)(ii)). That path is how a family that is not keeping the house can sell even when the balance is higher than value, subject to servicer and HUD process. It is not a “keep it for 95%” coupon.
Deed in lieu under 24 CFR 206.125(f) walks away from title when that is the honest outcome. Non-recourse under 24 CFR 206.27(b)(8) limits personal liability on an allowed sale or conveyance. It does not hand the house to heirs free of the lien.
Take a homeowner who is 86 in Kingman whose daughter in Flagstaff wants the house. The outstanding HECM is $210,000. The property appraises at $340,000. Keeping it means paying $210,000 (plus per-diem), not 95% of $340,000. If the numbers were reversed — $340,000 balance, $210,000 value — keeping it still means satisfying the outstanding balance, which may not be rational. Selling through the 206.125(a)(2)(ii) path is the conversation. Do not use the origination calculator as the heir payoff; request the servicer’s quote.
What should the first thirty days after death contain if the plan is to keep the house?
Call the servicer. Identify the executor or successor trustee. Ask for a written payoff and the 24 CFR 206.125 notice. Open a conversation with a forward lender only after the payoff is real. California probate can delay authority if the house was in individual name. A living trust can let a successor trustee talk sooner. Neither court nor trust changes the dollar that 206.125(a)(2)(i) names.
Insurance and taxes must stay current while you decide. A vacant house with a lapsed policy is how a keep-plan becomes a claim. Occupancy by an heir does not continue the HECM. The heir is not the borrower.
If a surviving spouse was an Eligible Non-Borrowing Spouse, deferral may let that spouse stay without a keep-the-house payoff yet. That is a different regulation. See non-borrowing spouse. Do not mix a child’s keep plan with a spouse’s deferral.
California Proposition 19 occupancy rules for a child’s assessment are a tax issue after title moves. They do not reduce the HECM payoff. See Prop 19.
Who should not fight to keep the house, and what goes wrong when they do?
A child who cannot qualify for a forward loan and has no cash, on a house whose balance is near value. A sibling group that cannot agree who lives there, while 24 CFR 206.125(d)‘s foreclosure diligence still runs. Jay will say to sell under the allowed path rather than originate a fantasy refinance.
What can go wrong: one sibling moves in “to protect the house,” stops talking to the servicer, and treats occupancy as ownership. Another failure: the family pays 95% of a private appraisal thinking that reconveys a keep-file, and the servicer still wants the outstanding balance.
Order a current payoff, not last year’s statement. Interest and 0.50% annual MIP still accrue through the payoff date. A forward-loan pre-approval that used a stale balance will short at recording.
If several heirs inherit and only one can live there, the others still have to agree to refinance or to be bought out. HUD will not referee. A partition action during 24 CFR 206.125’s diligence window is how keep-plans become sales.
Who this does not help: a child who cannot occupy as their own principal residence under Prop 19 and also cannot pay the outstanding HECM, hoping HUD will “let them try the house.” HUD’s keep rule is the balance. The assessor is a different office. See Prop 19.
What can go wrong on the new forward loan: the heir’s DTI cannot support a payment sized to the HECM payoff. That is not a HUD exception. It is a reason to sell under 206.125(a)(2)(ii) instead of promising the family a keep that credit will not fund.
A follow-up: can several children take title as tenants in common and split a new mortgage? Only if a forward lender will make that loan and the servicer is paid in full at that closing. HUD will not design the siblings’ partnership. Get the payoff first. Then underwrite the new loan. Then record.
If the home is in a living trust, the successor trustee is often the person who requests the payoff. If it is in individual name, the executor needs court papers. Either way, 24 CFR 206.125(a)(2)(i) still names the outstanding balance as the keep price. The trust changes who can write the request. It does not change the dollar.
Life insurance owned by the parent can be the keep-the-house cash if the beneficiary is willing to use it that way. That is an estate choice. It is not a HUD product. Do not let an insurance agent tie a new policy to a new HECM as a condition of origination.