What is a short sale on a reverse mortgage?
A reverse mortgage short sale is when the amount owed on the property is higher than the value of the home, and the homeowner must seek permission from the lender to sell the property for an amount less than the amount owed on loan with the lender still accepting the sale proceeds as payment in full for the debt.  Not often does it make sense to approach a lender and request permission to accept terms for a short sale on a reverse mortgaged home.  If the borrowers have passed, there is no recourse on a reverse mortgage. There are no proceeds to be received from the sale for heirs, so it is probably best to contact the lender and discuss letting the lender take the property via a Deed in Lieu of Foreclosure rather than going to the expense and time to market the home when there are no sale proceeds afterward anyway.  Suppose the individual who wishes to keep the home is the borrowers’ heir. In that case, there is a provision in the loan that allows the heir to repay the loan at 95% of the outstanding loan balance or 95% of the current market value, and that would not be considered a short sale anyway.  It is not a sale if the heir obtains title through an inheritance. Every so often, borrowers find that they can’t live in a home any longer (i.e., medical reasons, etc.), and they decide to sell the house, not knowing its actual value.  Only after they put the home on the market did they find that their pattern of cash extraction, the lack of appreciation in their market, and interest accrual after a long time when they have been living payment free has allowed them to live comfortably but also allowed the loan to rise above the value of the property.  When that happens, they can request that the servicer approve a specific sale transaction to pay the loan off at less than the full amount owed.  The lender would need to review the terms, determine if it is a bona fide sale between unrelated parties, and appraise the property.  Next, HUD would probably need to approve the terms as this would create a claim to the MIP fund for the loss on the payoff amount.  If HUD determines that the circumstances are such that the sale is within acceptable parameters and will result in no more loss than they would experience if they took the property back and sold it themselves, they would probably approve the short-sale offer. Still, the original borrower would not be eligible for other HUD/FHA-insured financing until that loss was repaid.