Reverse Mortgages and Insurance Claims: The Three-Way Trap That Can Cost You Your Home

If you have a reverse mortgage and your home suffers a fire, flood, windstorm, or any other insured loss, you are about to enter one of the most complicated and dangerous situations in all of property insurance. The insurance claim that would already be stressful for any homeowner becomes exponentially harder when a Home Equity Conversion Mortgage (HECM) is involved — because the reverse mortgage servicer has its own set of requirements, its own timeline, and its own interests, and those interests do not always align with yours.

Most homeowners with forward mortgages already struggle when their lender’s name appears on the insurance check. But the reverse mortgage version of this problem is worse — significantly worse — because the HECM program layers on federal regulatory requirements that can turn a property loss into a foreclosure trigger. This article explains how it works, what can go wrong, and what a HECM borrower should do to protect themselves.

Understanding the HECM: Why Reverse Mortgages Are Different

A Home Equity Conversion Mortgage (HECM) is a federally insured reverse mortgage program administered by the U.S. Department of Housing and Urban Development (HUD) through the Federal Housing Administration (FHA). It allows homeowners aged 62 and older to convert their home equity into cash — either as a lump sum, a line of credit, or monthly payments — without making monthly mortgage payments. Instead of paying the lender each month, the loan balance grows over time and is repaid when the borrower dies, sells the home, or permanently moves out.

HECMs account for the overwhelming majority of reverse mortgages in the United States. Because the FHA insures the lender against loss, the program comes with extensive federal regulations — codified primarily in 24 CFR Part 206 — that govern everything from property maintenance to insurance requirements to occupancy rules. These federal requirements create obligations that do not exist in a conventional forward mortgage, and they give the reverse mortgage servicer powers that a conventional lender does not have.

In a forward mortgage, you owe the lender money and you are paying it down every month. The dynamic is straightforward: the lender wants to protect its collateral, and the borrower wants to protect the home. Their interests are largely aligned when a loss occurs — both want the property repaired.

In a reverse mortgage, the dynamic is fundamentally different. The loan balance is growing, not shrinking. The borrower is not making payments. The lender’s exposure increases every month. And the FHA is standing behind the lender, which means HUD has its own interest in the outcome. When a property loss occurs, three parties are now involved — the homeowner, the insurance company, and the HECM servicer (acting under HUD’s regulations) — and each one has a different priority.

HECM Insurance Requirements: What HUD Demands

HUD imposes specific insurance requirements on every HECM property. These requirements are not optional. Failure to maintain compliant insurance coverage is itself a default event that can trigger the loan being called due and payable. The key requirements are found in 24 CFR § 206.205 and the HUD Handbook 4000.1 (the “Single Family Housing Policy Handbook”).

Hazard Insurance Minimums

The HECM borrower must maintain hazard insurance (homeowner’s insurance) on the property at all times. The coverage amount must be at least equal to the lesser of:

• 100% of the insurable value of the improvements (the dwelling)
• The maximum amount of insurance available under the NFIP (for flood) or the applicable hazard insurance program
• The outstanding HECM loan balance, in some servicer interpretations

In practice, this means the dwelling coverage must be sufficient to restore the property. A policy with a Coverage A limit far below the replacement cost of the home will not satisfy the HECM requirement — and the servicer can and will force-place insurance at the borrower’s expense if the coverage lapses or is inadequate.

Flood Insurance Requirements

If the HECM property is located in a Special Flood Hazard Area (SFHA) as designated by FEMA, the borrower must maintain flood insurance through the National Flood Insurance Program (NFIP) or an equivalent private flood policy. This is a federal requirement under the National Flood Insurance Act and the Flood Disaster Protection Act, and it applies to all federally related mortgage loans — including HECMs. The required coverage amount is the lesser of the outstanding loan balance or the maximum available under the NFIP (currently $250,000 for residential dwellings).

For HECM borrowers, the flood insurance requirement is particularly important because the loan balance increases over time. A flood policy purchased at the time the HECM was originated may become inadequate as the loan balance grows. The servicer is supposed to monitor this, but borrowers should not rely on the servicer to catch the gap.

The Loss Payee Clause

Like any mortgage, the HECM requires the insurance policy to name the reverse mortgage lender (or its servicer) as the loss payee or mortgagee. This means the HECM servicer’s name will appear on any insurance check for dwelling damage. The insurance company issues a joint check payable to both the homeowner and the HECM servicer, and the homeowner cannot cash that check without the servicer’s endorsement.

This is the same mechanism that applies in forward mortgage insurance claims, but the consequences are different. With a forward mortgage, the lender’s interest is capped at the outstanding loan balance — and in many cases, the homeowner has significant equity above that balance. With a reverse mortgage, the loan balance may be close to or even exceeding the property’s value, which means the servicer may argue that allof the insurance proceeds belong to the lender’s interest.

When a Loss Occurs: The HECM Insurance Claim Process

When a HECM property suffers an insured loss, the process begins the same way as any other property claim: you report the loss to your insurance company, the insurer assigns an adjuster, and the adjuster inspects the property and prepares an estimate. But the similarities end there.

The Insurance Check Has the Servicer’s Name on It

Because the HECM servicer is named as the mortgagee on the policy, the insurance company will issue the dwelling damage check payable to both you and the servicer. You must endorse the check and send it to the servicer’s loss draft department — the same process described in our mortgage company holds article. The servicer deposits the funds into an escrow account and controls the release.

However, here is where the reverse mortgage dynamic diverges sharply. In a forward mortgage scenario, the lender’s primary concern is protecting collateral. The lender wants the house rebuilt because the rebuilt house secures the loan. In a reverse mortgage scenario, the servicer faces a different calculation: the loan balance may have grown so large relative to the property value that rebuilding may not be in the lender’s financial interest. If the cost to rebuild exceeds the remaining equity, the servicer may prefer to call the loan due, apply the insurance proceeds to the loan balance, and close out the HECM rather than fund a rebuild.

The Servicer’s Conflict of Interest

This is the core problem, and it needs to be stated plainly: the HECM servicer’s financial interests and the homeowner’s interests are not aligned after a major property loss. The homeowner wants the insurance proceeds used to repair or rebuild the home so they can continue living in it. The servicer — particularly when the loan balance is high relative to the property value — may prefer to use the insurance proceeds to pay down the loan balance rather than fund repairs.

Under HUD regulations, the servicer is supposed to allow the borrower to use insurance proceeds for repairs. HUD Handbook 4000.1, Section III.A.2(j) provides that the servicer must release insurance proceeds for repair of the property, provided the borrower is using the funds for that purpose and the property will be restored to at least its pre-loss condition. But “supposed to” and “actually does” are two different things. HECM servicers routinely impose conditions, delays, and obstacles that make it extraordinarily difficult for elderly borrowers to access their own insurance money for repairs.

The 60% Rule: When Property Damage Triggers a Due-and-Payable Event

This is one of the most dangerous provisions in the entire HECM regulatory framework, and most reverse mortgage borrowers have never heard of it.

Under HUD’s HECM regulations and servicing requirements, if the property sustains damage that exceeds a certain threshold of the property’s appraised value, the servicer may declare the HECM “due and payable.” The commonly referenced threshold is damage that reduces the property’s value by more than approximately 60%. When a property is damaged beyond this threshold and the insurance proceeds plus the borrower’s own funds are insufficient to restore the property to its pre-loss condition, the servicer can petition HUD for approval to call the loan.

“Due and payable” means exactly what it sounds like: the entire outstanding loan balance must be repaid immediately. For a HECM borrower who has been drawing on their reverse mortgage for years, the outstanding balance can be substantial — hundreds of thousands of dollars. If the borrower cannot repay, the servicer initiates foreclosure.

Think about what this means in practice: an elderly homeowner loses their home in a fire. The insurance company pays out. The HECM servicer takes the insurance proceeds, applies them to the loan balance, and then demands payment of the remaining balance. The homeowner — who is 75 or 80 years old, displaced from their home, and has no income other than Social Security — now faces foreclosure on a property they no longer even live in. The insurance money that was supposed to rebuild their home has been absorbed by the reverse mortgage debt.

Challenging the 60% Threshold Determination

The servicer’s determination that the property has been damaged beyond the threshold is not automatically correct, and it should not go unchallenged. The threshold determination depends on two variables: (1) the appraised value of the property before the loss, and (2) the extent of the damage. Both of these are subject to dispute.

The pre-loss appraised value may be based on an outdated appraisal from when the HECM was originated, which could have been years ago. In many California markets, property values have appreciated significantly since the HECM was issued. If the current pre-loss value is substantially higher than the original appraisal, the damage percentage relative to value drops accordingly. A property that was appraised at $400,000 when the HECM was originated in 2015 may be worth $800,000 today. Damage of $350,000 would exceed 60% of the original appraisal but would be well under 60% of the current value.

The extent of damage is also disputable. Insurance companies routinely underestimate repair costs in their initial estimates. If the servicer is relying on the insurer’s initial estimate to determine that damage exceeds the threshold, that estimate may be dramatically understated. Getting an independent assessment of the actual repair cost — through a Public Adjuster or a qualified contractor — can change the calculation entirely. It is also worth noting that the relevant question is whether the property canbe restored, not whether the insurer’s initial estimate is sufficient to restore it. If the insurance settlement can be negotiated upward (as it almost always can), the funds may well be sufficient to fully repair the property, which undermines the basis for a due-and-payable declaration.

The Occupancy Requirement: HECM’s Principal Residence Rule

Every HECM borrower must certify that the mortgaged property is their principal residence. This is a fundamental requirement of the HECM program, codified at 24 CFR § 206.211. The borrower must continue to occupy the property as their principal residence for the life of the loan. If the borrower ceases to occupy the property as their principal residence for more than 12 consecutive months, the HECM may be called due and payable.

This creates an obvious problem when a property loss forces the borrower out of their home. A fire or major water loss can render a home uninhabitable for months — sometimes more than a year for a full rebuild. During that time, the HECM borrower is living elsewhere, not occupying the property as their principal residence. If the displacement exceeds 12 months, the servicer has grounds to declare the loan due and payable based on the occupancy violation alone — even if the property damage itself did not trigger the 60% threshold.

HUD’s Disaster-Related Extensions

HUD has acknowledged that the 12-month occupancy requirement creates hardship in disaster situations. Through Mortgagee Letters (MLs) issued after major declared disasters, HUD has historically provided extensions and forbearance for HECM borrowers displaced by disasters. For example, after Hurricane Katrina and subsequent major disaster declarations, HUD issued guidance allowing servicers to delay due-and-payable proceedings for borrowers who were displaced due to the disaster and were making good-faith efforts to return to the property.

However, these extensions are not automatic. They depend on HUD issuing a Mortgagee Letter for the specific disaster event, and they depend on the borrower communicating with the servicer and documenting their intent to return. A HECM borrower who is displaced by a loss and does not communicate with the servicer — or who allows the servicer to conclude that the displacement is permanent — is at serious risk of a due-and-payable declaration.

After the January 2025 California wildfires, HUD issued guidance recognizing the extraordinary circumstances facing HECM borrowers in the affected areas. Borrowers displaced by the fires should contact their servicer immediately, document their intent to return, and request any available forbearance or extension of the occupancy timeline. Retain copies of all correspondence.

The Double Bind: Insurance Delays and Occupancy Violations

HECM borrowers face a cruel double bind after a property loss. The insurance company may take months to properly adjust the claim. The HECM servicer may hold the insurance proceeds and release them slowly, further delaying repairs. Contractors may be booked out for months, especially after a regional disaster. Permitting delays add more time. And through all of this, the 12-month occupancy clock is ticking.

The borrower cannot return to the property because it is uninhabitable. They cannot get it repaired quickly because the servicer is holding the insurance money. And the longer the displacement lasts, the closer they get to an occupancy violation that could trigger foreclosure. The system is not designed to protect the borrower — it is designed to protect HUD and the lender.

Getting Insurance Proceeds Released from the HECM Servicer

The process for getting insurance proceeds released from a HECM servicer is similar in structure to the forward mortgage loss draft process but typically more onerous. The servicer will deposit the insurance check into an escrow account and release funds in stages as repairs progress. However, HECM servicers tend to impose additional requirements that go beyond what a forward mortgage servicer would demand.

Common Servicer Requirements

• Detailed repair estimates:The servicer will require the insurance company’s Xactimate estimate (which they will call the “adjuster’s report”) before releasing any funds.
• Licensed contractor requirement: Many HECM servicers require that all repairs be performed by a licensed, bonded, and insured contractor. They may refuse to release funds for owner-performed repairs.
• Written repair contract: The servicer typically requires a copy of the signed contract between the homeowner and the contractor before the first draw.
• Staged inspections: The servicer will order third-party inspections at each stage of the repair to verify that work is progressing before releasing the next draw.
• Lien waivers: The servicer may require lien waivers from the contractor and subcontractors at each draw stage.
• Completion deadline: Some servicers impose deadlines for completion of repairs, often tied to the 12-month occupancy clock.

Why HECM Fund Releases Are Slower

HECM servicers tend to be more restrictive about fund releases than forward mortgage servicers for several reasons. First, HUD’s regulatory framework holds the servicer accountable for the condition of the property. If the servicer releases funds and the repairs are not completed, the servicer may face consequences from HUD. Second, the servicer knows that if the HECM ultimately becomes due and payable, the property is the primary source of repayment — so the servicer has an even stronger incentive than a forward mortgage lender to control how the insurance proceeds are spent. Third, many HECM borrowers are elderly, may not have the ability to oversee construction projects, and may not have family members who can help. The servicer may use this as justification for additional oversight — oversight that, in practice, translates to delays.

Servicer Inspections During Repairs

HECM servicers are required under HUD guidelines to conduct property inspections to verify the condition and occupancy of the property. After a loss, the frequency and intensity of these inspections increases. The servicer will typically order inspections:

• Immediately after learning of the loss, to assess the damage
• Before releasing each draw from the insurance escrow
• At various stages of construction to verify progress
• Upon claimed completion of repairs, to confirm the property is habitable

These inspections are conducted by third-party inspection companies hired by the servicer. They are typically drive-by inspections — an inspector drives to the property, takes photographs, and files a report. They are not the same as a building inspection or a code compliance inspection. They are cursory assessments designed to confirm that work is happening and the property is not being neglected.

The cost of these inspections is typically borne by the borrower, either directly or by being added to the HECM loan balance. In California, AB 493 (Civil Code Section 2954.85) now restricts fees on insurance proceeds held in loss draft accounts — any fee that reduces the effective interest below 2% is prohibited. HECM borrowers should push back on inspection fees that are being deducted from insurance proceeds or added to the loan balance without clear contractual authorization.

The Foreclosure Risk: When a Disaster Triggers HECM Default

A property loss can trigger HECM default through multiple pathways, and each one can independently lead to foreclosure:

Pathway 1: Property Damage Exceeding the Threshold

If the damage exceeds the threshold discussed above and the property cannot be restored to its pre-loss condition using insurance proceeds and the borrower’s own funds, the servicer may petition HUD for a due-and-payable determination. HUD will evaluate whether the property can be restored and, if not, may approve calling the loan.

Pathway 2: Occupancy Violation

If the borrower is displaced for more than 12 consecutive months and has not returned to the property, the servicer may declare the loan due and payable based on the occupancy requirement. The borrower’s intent to return is relevant but may not be sufficient if the displacement is prolonged.

Pathway 3: Insurance Lapse

If the borrower’s insurance lapses — which can happen if the policy is cancelled after a major loss, if the insurer non-renews, or if the borrower fails to secure replacement coverage — the insurance lapse itself is a default event. The servicer will force-place insurance and add the cost to the loan balance, further eroding equity.

Pathway 4: Property Tax Default

HECM borrowers are required to keep property taxes current. After a disaster, a displaced elderly borrower who is struggling to manage their affairs may miss property tax payments. Tax delinquency is an independent HECM default event. Even if the insurance claim is being handled properly, a property tax default can trigger due-and-payable proceedings.

Pathway 5: Failure to Maintain the Property

HECM borrowers are required to maintain the property in habitable condition. After a loss, if the damaged property is left unsecured or deteriorates further due to lack of emergency repairs, the servicer can cite the maintenance requirement as a basis for default. This creates yet another urgency: performing temporary emergency repairs is not just an insurance requirement — it is a HECM servicing requirement as well.

Forward Mortgage vs. Reverse Mortgage: Why the Claim Dynamics Are So Different

Understanding the differences between forward and reverse mortgage claim dynamics is essential for anyone advising a HECM borrower. The following comparison highlights why reverse mortgage claims require a fundamentally different approach.

The upshot: a forward mortgage claim is about getting the lender to release money so you can rebuild. A reverse mortgage claim is about preventing the lender from using the insurance proceeds to pay off the loan and foreclose on your home.

HUD Protections for HECM Borrowers After a Loss

Despite the risks described above, HUD’s regulatory framework does include some protections for HECM borrowers who suffer property losses. Understanding and invoking these protections is critical.

Right to Use Proceeds for Repairs

HUD Handbook 4000.1 provides that insurance proceeds on HECM properties should be used to repair the property, provided the repairs will restore the property to at least its pre-loss condition. The servicer is not supposed to simply apply insurance proceeds to the loan balance when the property can be repaired. If your servicer is attempting to divert insurance proceeds to the loan balance rather than releasing them for repairs, cite this HUD Handbook provision and put your objection in writing.

HUD’s Pre-Approval Requirement for Due-and-Payable

A HECM servicer cannot simply declare the loan due and payable on its own. Under 24 CFR § 206.125, the servicer must request approval from HUD before calling the loan. This means there is a process — and a window of time — during which the borrower can present their case to HUD. If the borrower can demonstrate that the property can be restored using insurance proceeds and that the borrower intends to return, HUD may deny the servicer’s request.

Non-Borrowing Spouse Protections

HUD’s regulations include protections for “eligible non-borrowing spouses” — spouses who are not named on the HECM but who live in the property. Under Mortgagee Letter 2015-15 and subsequent guidance, if the borrower dies or enters a permanent care facility, an eligible non-borrowing spouse may be able to remain in the home without the loan being called due and payable, subject to certain conditions. This protection may also apply in disaster displacement situations, though the application is less clear and should be explored with an attorney.

The HECM “Non-Recourse” Feature

One important protection that HECM borrowers often do not understand: the HECM is a non-recourse loan. This means that the borrower (or their estate) will never owe more than the home is worth at the time the loan is repaid. If the loan balance has grown to $500,000 but the property is only worth $300,000 (or is a total loss with only the land value remaining), the borrower’s maximum liability is the property value — not the full loan balance. The FHA insurance covers the difference.

This is critically important in a total loss scenario. If the home is destroyed and the insurance proceeds are not sufficient to both repay the HECM and rebuild, the borrower cannot be pursued for the deficiency. The servicer can take the property (or the insurance proceeds up to the property’s value), but the borrower does not owe anything beyond that. This protection applies under 12 USC § 1715z-20(j), which prohibits HECMs from imposing personal liability on the borrower beyond the property value.

Practical Steps for HECM Borrowers Who Suffer a Property Loss

If you have a reverse mortgage and your home has been damaged or destroyed, the following steps should be taken immediately. Time is not on your side — the occupancy clock is running, the servicer is evaluating its options, and the insurance company is not going to move faster than it has to.

Step 1: Report the Loss to Your Insurance Company and Your HECM Servicer Simultaneously

Do not wait to contact the HECM servicer. Report the loss to both the insurance company and the servicer on the same day if possible. When you contact the servicer, state clearly that you intend to repair the property and return to it. Ask for the servicer’s loss draft department and get their specific procedures for handling insurance proceeds. Get everything in writing.

Step 2: Engage a Licensed Public Adjuster Immediately

A HECM borrower facing a major property claim cannot afford to handle the insurance company alone. The stakes are too high. An underpaid claim can be the difference between having enough money to rebuild (and keep the home) and not having enough (which triggers the due-and-payable cascade). A licensed Public Adjuster works exclusively for the policyholder, documents the full scope of the loss, and negotiates the insurance settlement to its maximum value. For a HECM borrower, maximizing the insurance recovery is not just about money — it is about keeping the home.

Step 3: Engage an Attorney Who Understands Both HECM Servicing and Insurance Law

The intersection of HECM servicing regulations and insurance claim law is specialized. An attorney experienced in elder law, reverse mortgage servicing, or insurance coverage disputes can help navigate the competing demands of the insurer and the HECM servicer. If the servicer attempts to apply insurance proceeds to the loan balance rather than releasing them for repairs, an attorney can intervene, cite the applicable HUD regulations, and if necessary, escalate to HUD directly.

Step 4: Document Your Intent to Return

From the first day of displacement, document your intent to return to the property. Send a written statement to the HECM servicer stating that you consider the property your principal residence, that you are displaced due to the loss, and that you intend to return as soon as repairs are completed. Repeat this communication every 30 to 60 days. Keep copies of everything. This documentation is your defense against an occupancy-based due-and-payable determination.

Step 5: Perform Emergency Repairs Immediately

Secure the property and prevent further damage. Board up broken windows, tarp the roof, extract standing water, turn off utilities if necessary. Document everything with photographs and video. This serves multiple purposes: it satisfies your duty to mitigate under the insurance policy, it satisfies the HECM maintenance requirement, and it prevents the servicer from citing property deterioration as a basis for default. Keep all receipts for emergency repairs — these costs are reimbursable under most insurance policies. For more on this, see our article on temporary emergency repairs.

Step 6: Keep Property Taxes and Insurance Current

Do not let property taxes or insurance coverage lapse during the claim process. Both are independent HECM default triggers. If you are having difficulty maintaining payments during displacement, contact your county assessor about disaster-related property tax relief (California Revenue and Taxation Code Section 170 provides for reassessment of damaged property) and contact your insurance agent about maintaining coverage during the repair period. If the insurer non-renews you, obtain replacement coverage before the current policy expires — even if the replacement is the California FAIR Plan as a last resort.

Step 7: Push for Fast-Track Fund Release

Every day that the HECM servicer holds your insurance proceeds is a day closer to the occupancy deadline. Submit draw requests proactively. Include all required documentation in the initial submission. Follow up in writing if the servicer does not respond within their stated timeline. Cite HUD Handbook 4000.1’s requirement that insurance proceeds be used for repairs. If the servicer is unreasonably slow, file a complaint with HUD’s National Servicing Center (NSC) and the CFPB simultaneously.

Step 8: Request a HUD Extension if Displacement Will Exceed 12 Months

If it becomes apparent that repairs will take longer than 12 months — which is common in major losses, especially after regional disasters — contact the HECM servicer in writing and request an extension of the occupancy deadline. Explain the circumstances: the loss was not your fault, the insurance claim is being processed, and you are actively working toward returning to the property. Ask the servicer to request a forbearance or extension from HUD. If the disaster is a federally declared disaster, check whether HUD has issued a Mortgagee Letter providing occupancy extensions for affected borrowers.

Step 9: Understand Your Options If the Home Cannot Be Rebuilt

If the home is a total loss and the insurance proceeds are not sufficient to rebuild, the HECM will likely be called due and payable. In this situation, the borrower has several options:

• Sell the property: Even a destroyed home sits on land that has value. If the land value plus any remaining insurance proceeds exceeds the loan balance, the borrower keeps the difference. If the loan balance exceeds the property value, the non-recourse provision protects the borrower from personal liability for the deficiency.
• Deed in lieu of foreclosure:The borrower can voluntarily deed the property to the servicer, avoiding the cost and stress of formal foreclosure proceedings. The non-recourse protection still applies — the borrower owes nothing beyond the property.
• Allow foreclosure: If the borrower has no remaining equity and the property cannot be rebuilt, allowing the foreclosure to proceed may be the least stressful option. The non-recourse provision means the borrower will not face a deficiency judgment. However, foreclosure can have credit implications and should be discussed with an attorney.

Special Considerations for HECM Claims

The ALE / Loss of Use Issue

Additional Living Expense (ALE) or loss of use coverage (Coverage D) payments should nothave the HECM servicer’s name on them. ALE covers the policyholder’s increased living expenses during displacement — hotel bills, rental costs, meals, and other necessities. The HECM servicer has no interest in the policyholder’s living expenses. If your insurer puts the servicer’s name on an ALE check, demand immediate reissuance with only your name. This money is your lifeline during displacement and should not be caught up in the servicer’s loss draft process.

Personal Property Is Yours

Similarly, personal property payments (Coverage C) should not include the HECM servicer as a payee. The servicer’s mortgage interest is in the dwelling — the structure — not in your furniture, clothing, electronics, or personal belongings. If the insurer issues a personal property check with the servicer’s name on it, this is an error that must be corrected. Contact the insurer and request reissuance.

Underinsurance Is Especially Dangerous with a HECM

Being underinsured is a problem for any homeowner, but for a HECM borrower it can be fatal to homeownership. If the insurance coverage is insufficient to fully rebuild the home, the gap must be funded from somewhere. A forward mortgage borrower might take out a construction loan or use savings. A HECM borrower — who is elderly, on a fixed income, and has already converted their equity to cash — typically has no way to fund the gap. The insurance shortfall becomes the difference between keeping the home and losing it to a due-and-payable call.

This is why maximizing the insurance recovery is so critical for HECM borrowers. Every dollar of insurance underpayment increases the risk that the property cannot be restored and the loan will be called. A licensed Public Adjuster who understands this dynamic can document the full scope of the loss — including code upgrade costs, debris removal, overhead and profit, and all commonly missed items — to ensure the insurance settlement is sufficient to fund the full rebuild.

The Role of HECM Counseling Agencies

HUD requires all HECM borrowers to undergo counseling before obtaining the loan, and HUD-approved counseling agencies continue to be available after the loan closes. These agencies can provide guidance on HECM servicing issues, help communicate with the servicer, and assist borrowers who are facing due-and-payable proceedings. After a property loss, contacting a HUD-approved HECM counseling agency can provide an additional layer of support. The HUD Housing Counseling Hotline is 800-569-4287.

Applicable Law and Key Regulatory Authority

• 24 CFR Part 206— HUD regulations governing the HECM program, including property maintenance, insurance, occupancy, and due-and-payable requirements
• 24 CFR § 206.205— Property charges (insurance and taxes) that HECM borrowers must maintain
• 24 CFR § 206.211— Principal residence requirement for HECM borrowers
• 24 CFR § 206.125— Conditions for calling a HECM due and payable; HUD pre-approval requirement
• 12 USC § 1715z-20(j)— Non-recourse provision prohibiting personal liability beyond the property value
• HUD Handbook 4000.1(Single Family Housing Policy Handbook) — Detailed guidance on HECM servicing, including insurance proceeds and property repair
• Mortgagee Letter 2015-15— Protections for eligible non-borrowing spouses
• California Insurance Code Section 2071— Standard fire policy mortgage clause (why checks are jointly payable)
• California Civil Code Section 2954.85(AB 493, 2025) — 2% minimum interest on insurance proceeds held in loss draft accounts; fee restrictions
• California Civil Code Section 2924.7— 30-day release requirement upon written demand with documentation
• Schoolcraft v. Ross, 81 Cal. App. 3d 75 (1978) — Lender must release proceeds in good faith when security is not impaired
• National Flood Insurance Act / Flood Disaster Protection Act— Mandatory flood insurance for properties in SFHAs with federally related mortgages

Related Articles

• Mortgage Company Holds on Insurance Proceeds — How the loss draft process works for forward mortgages, including fund release strategies, California interest-on-proceeds law, and what to do when the lender holds more than it is owed
• The “Where You Reside” Exclusion — How the residency definition in your homeowner policy can eliminate coverage, and why this is especially relevant for elderly homeowners displaced from their homes
• Force-Placed Insurance — What happens when the lender places its own insurance on your property, the cost implications, and how to avoid it
• Temporary Emergency Repairs — Your duty to mitigate after a loss and how emergency repairs protect both your insurance claim and your HECM obligations
• Underinsured After a Wildfire — Why coverage gaps are especially dangerous for HECM borrowers

Conclusion

A reverse mortgage is marketed as a financial tool that lets seniors age in place — converting home equity to cash while continuing to live in the home they have owned for decades. That promise works as long as everything goes smoothly. When a property loss occurs, the promise breaks down, and the HECM regulatory framework reveals itself to be a system designed primarily to protect HUD and the lender, not the elderly borrower.

The three-way dynamic between the homeowner, the insurer, and the HECM servicer creates a situation where the borrower is fighting on two fronts simultaneously: fighting the insurance company for a fair settlement and fighting the HECM servicer for access to the money needed to rebuild. The occupancy clock adds urgency that does not exist in a forward mortgage claim. The due-and-payable triggers add foreclosure risk that does not exist in a forward mortgage claim. And the typical HECM borrower — elderly, on a fixed income, often without family nearby — is the person least equipped to navigate this complexity alone.

If you are a HECM borrower who has suffered a property loss, do not try to handle this alone. The insurance company will not volunteer to pay you fairly. The HECM servicer will not prioritize your interests over its own. HUD will not intervene unless you make it intervene. You need a licensed Public Adjuster to maximize the insurance recovery, an attorney to protect your rights against the HECM servicer, and a plan that addresses every potential default trigger simultaneously.

The home is more than collateral. It is where you live. Protecting it requires understanding the system you are in — and having people on your side who know how to fight within it.