Selling a home with a HECM pays the loan off. The servicer issues a payoff. Title reconveys the mortgage when that amount is remitted at closing. Leftover sale proceeds after the HECM, other liens, and sale costs belong to you. Jay Zayer, a CRMP licensed in California and Arizona, treats a voluntary sale as a payoff file, not as a foreclosure story, as long as charges and occupancy were current.
You do not need a monthly P&I coupon to “keep the loan current” through escrow. You need a live payoff letter.
What is the actual order of a voluntary sale?
- Tell the servicer you will sell. Request a written payoff good through a closing date, with a per-diem.
- List the house. Buyers’ lenders will want the HECM reconveyed; that is normal.
- Appraisal for the buyer is not HUD’s 24 CFR 206.125 due-and-payable appraisal. It is the purchase appraisal.
- At closing, the payoff is wired. Accrued interest and 0.50% annual MIP stop as of the payoff calculation.
- You move. Occupancy ends because you sold, which is the point.
If the contract is a HECM for Purchase into the next house, the sale and the purchase are two files. See HECM for Purchase. California’s seven-day counseling wait applies to the new origination, not to selling the old house.
Get a sense of leftover equity only as a planning number. The payoff is the statement balance plus interest through funding, not last year’s principal limit.
A straightforward example: an 84-year-old in Redlands sells to move near a daughter in Tempe. The HECM has been open nine years. The sale nets more than the payoff. The leftover check is the owner’s. FHA does not keep it as a penalty for using a HECM.
What if the payoff is larger than what buyers will pay?
Request the servicer’s short-sale or non-recourse sale path in writing. 24 CFR 206.27(b)(8) is the HECM non-recourse rule: the borrower or estate is not personally liable for a deficiency on the FHA-insured loan when the property is sold through HUD’s allowed process. A side deal below value that looks like a gift to a relative is not that process. 24 CFR 206.125(a)(2)(ii)‘s 95-percent-of-value sale floor is the due-and-payable sale rule, which is a different clock than a voluntary sale while you still occupy. Ask the servicer which path you are on.
Do not price the listing as “HUD takes anything.” Buyers still negotiate. Repairs still matter. California and Arizona transfer taxes and commissions still come off the top.
See non-recourse for what personal liability does and does not attach. See heirs keep the home if the owner has died and the question is no longer a voluntary move.
Who should not list until the servicer is in the loop?
A household that is already in property-charge default and hopes a garage-sale buyer will close next week without a payoff letter. A household using a quitclaim to a child as a “sale” to dodge the HECM; that is a due-and-payable transfer, not a cure. Jay will say to get the quote first. He will not originate a new HECM on a house you already intend to sell in six months just to “clean title.” MIP on a short stay is a poor trade.
What can go wrong: the payoff expires, interest accrues another ten days, and the wire is short. Another failure: the owner moves out to “stage” an empty house for three months and occupancy questions start while the listing is stale.
Capital gains, Prop 19, and Arizona assessed-value changes belong to a CPA. The HECM payoff is a lien payoff. It is not a taxable “income” event merely because the loan was a reverse mortgage. Basis and exclusion rules are 26 U.S.C. questions.
Who this does not help: an owner who lists at a price that only works if the servicer “takes whatever is left” without asking which 24 CFR path they are on. Get the path in writing. A voluntary sale while you occupy is not automatically the 95-percent due-and-payable sale rule.
A follow-up: after you sell, can you immediately H4P the next house with the leftover check? Yes in structure: that leftover check is cash. 24 CFR 206.44 still requires the full investment on the new property. Counseling is new. Arizona and California add different origination statutes. The old HECM is gone once paid. It does not travel.
If a buyer wants a long escrow, get a payoff that covers that date or a per-diem the title company will calculate. Accrual does not pause because the lockbox is up. A short payoff wire is how closings fail on Friday afternoon.
If the buyer is an heir who already lives in the house, it is still a sale or a keep-the-home payoff, not a continuation of your HECM. Do not quitclaim and hope the servicer will re-paper the note into the child’s name.