As far as this issues is concerned, reverse mortgages are somewhat similar to traditional mortgages when it comes to certain aspects and different when it comes to others. It is understandable that both borrowers and heirs are interested in finding out what happens once the last remaining borrower passes away.
Most people believe that families have to leave right away once that happens but that is not true. It is important to understand that banks do not own the home of a borrowers who passes away right away and as a result, the heirs will be able to have some choices on what to do once their family member has passed away.
Often, when the borrower dies, the lender may allow family up to one year to live in the home if they provide proof that they are obtaining financing to pay off the remaining balance. However, if in 1 year the heirs cannot refinance then the lender may start foreclosure proceedings.
The heirs need to communicate with the lender and 100% transparency is always recommended. As the name of this type of mortgage suggests, lenders offered the borrower money but those funds need to be paid back in one form or another. The best solution for the lender would be receiving the money back and not having to resort to foreclosures, for example. Lenders usually only see foreclosure as a last resort and it should be obvious why.
If no other options have worked (in other words, if the heirs did not manage to secure the necessary funds) then the lender will have to sell the house as a last resort. If, after selling the house, the lender will not make enough money back, the heirs will not be liable and this fact alone should make it clear why foreclosures are not exactly a popular option among lenders.
As a conclusion, the people who say that families have to leave once the last remaining borrower passes away are wrong. As previously stated, lenders do not own the homes immediately and heirs have the right to make some choices on what happens with the home and loan. Lenders will end up resorting to foreclosures if and only if heirs have not managed to obtain financing or pay them off on time within 1 year provided they have proved that they are actively refinancing. As a result, heirs need to ask how much money and time they have at their disposal to pay the lender and also to act accordingly.