Regular mortgages require the borrower to be personally responsible for the note. If the borrower is in default, the bank will foreclose on the property and sell it to recoup the loan amount. If the bank sells the house for less than the amount due on the loan, the bank can file for a deficiency against the borrower for the rest of the money that is owed. It’s rare, but it does happen.
In a reverse mortgage, the lender can ONLY foreclose on the house. They may not pursue the borrower for any outstanding loan amount because a reverse mortgage is a non-recourse loan. Even if the house is worth less than the mortgage amount, the lender is unable to get any money from the borrower or the borrower’s estate.
In a situation where a homeowner has passed away leaving a reverse mortgage, heirs must either sell the house to a third person, payoff the loan and buy it themselves, or let the house go through foreclosure. If the house still has some equity, most heirs would sell the house and split the net proceeds. If there is no equity, most heirs let the house get foreclosed because it doesn’t hurt anyone’s credit and avoids the hassle of trying to sell a house. In summary, reverse mortgages actually make it easier in this case.
Situations like these are discussed at closing. Reverse mortgage lenders want a closing attorney with reverse mortgage experience to handle these closings, so that all questions can be answered on the spot.