Reverse Mortgages and Property Taxes: What Homeowners Need to Know

If you have a reverse mortgage (most commonly a Home Equity Conversion Mortgage, or HECM), there’s one piece of information that’s genuinely critical to understand: you are still responsible for paying your property taxes, and failing to do so can put your home at risk — even though you’re not making monthly mortgage payments. This is one of the most important things for reverse mortgage borrowers to know. For expert advice and loan quotes related to property taxes, contact American Finance and Investment Co., Inc. (AFIC).

How a Reverse Mortgage Differs From a Traditional Mortgage

With a traditional mortgage and escrow, monthly payments include amounts for property taxes, which the servicer then pays on your behalf. With a reverse mortgage, you generally don’t make monthly payments to the lender at all — but this doesn’t mean property taxes are no longer your responsibility. They are.

Property Taxes Are a ‘Loan Obligation’ Under a Reverse Mortgage

Reverse mortgage agreements generally require the borrower to continue paying property taxes and homeowners insurance, maintaining the property, and continuing to occupy it as their primary residence. These are sometimes called the borrower’s ongoing ‘loan obligations’ — and failing to meet them, including failing to pay property taxes, is generally considered a default under the loan terms.

What Happens If You Default on These Obligations?

If a reverse mortgage borrower fails to pay property taxes (or insurance, or doesn’t maintain occupancy/the property), this can potentially lead to the loan becoming due and payable — meaning the lender could require repayment of the loan balance, which, if the borrower can’t pay, could lead to foreclosure. This is one of the most common and serious risks for reverse mortgage borrowers, and it can come as a shock to homeowners who assumed a reverse mortgage meant they had no further financial obligations related to the home.

Property Tax ‘Set-Asides’: A Protective Feature

Recognizing this risk, some reverse mortgages include a Life Expectancy Set-Aside (LESA) — funds set aside from the loan proceeds specifically to cover property taxes and insurance over the borrower’s projected lifetime, with the lender paying these from the set-aside (similar in concept to escrow, though structured differently). Whether a LESA is required or available can depend on factors assessed during the loan’s financial assessment process.

Do You Have a Set-Aside?

If you have a reverse mortgage, understanding whether your loan includes a property tax/insurance set-aside — and if so, how it works and whether it’s sufficient — is important. If you’re unsure, your loan servicer can clarify your loan’s specific structure.

If You Don’t Have a Set-Aside (Or It’s Insufficient)

If your reverse mortgage doesn’t include a set-aside for property taxes (or you’re concerned it might not be sufficient over time, given that tax amounts can increase), you are responsible for paying property taxes directly — with the same deadlines and delinquency consequences that apply to any homeowner, but with the additional consequence that delinquency could also trigger default under your reverse mortgage.

The Role of HUD-Approved Housing Counseling

Reverse mortgage borrowers are generally required to complete HUD-approved housing counseling before obtaining the loan — this counseling is specifically designed to help borrowers understand their ongoing obligations, including property taxes. If you have a reverse mortgage and have questions about these obligations, revisiting this counseling resource (or seeking it out if questions arise later) can be valuable.

Connecting to Other Protections for Older Homeowners

As discussed elsewhere, over-65 exemptions and the tax ceiling, and potentially tax deferral, may be relevant for reverse mortgage borrowers (who are generally 62+). However, the deferral option’s interaction with a reverse mortgage’s requirement to keep taxes current is a complex area — this is exactly the kind of question to raise with HUD-approved counseling or an attorney familiar with both reverse mortgages and Texas property tax provisions, since these are two different sets of rules that need to work together.

What If You’re Behind on Taxes and Have a Reverse Mortgage?

If you have a reverse mortgage and have fallen behind on property taxes — whether due to insufficient set-aside funds, an unexpectedly large tax increase, or other circumstances — addressing this promptly is especially important given the default implications. Options like a property tax loan might be relevant, though the interaction with an existing reverse mortgage (which itself involves a lien) adds complexity that’s worth discussing directly with knowledgeable professionals — both your reverse mortgage servicer and a property tax specialist.

The Bottom Line

A reverse mortgage can be a valuable tool for many older homeowners, but it doesn’t eliminate property tax responsibility — if anything, understanding this responsibility becomes more important, since the consequences of missing it are tied directly to the reverse mortgage’s terms, not just the standard property tax delinquency process.

Manage Your Property Taxes with AFIC

If you have a reverse mortgage and questions about property tax obligations — including if you’re behind and concerned about default — understanding your options is an important step, and AFIC can discuss how property tax-specific solutions might fit into your overall situation.

American Finance & Investment Co., Inc. (AFIC) has helped Texas property owners understand and manage their property tax obligations for over 80 years. See if you qualify for a property tax loan.

Ernest Eisenberg, President of American Finance & Investment Co., Inc. (AFIC), brings a wealth of expertise in non-traditional financing, including property tax loans and non-bank mortgage solutions. His vision is characterized by a commitment to offering flexible financing solutions to Texas property owners.