Reverse Mortgage and Property Taxes: State Deferral Programs vs the HECM Obligation

A reverse mortgage does not pay your property taxes; the borrower remains fully responsible for them, and unpaid property taxes are the single most common cause of HECM default and foreclosure (24 CFR §206.205). Keeping current on property taxes, homeowners insurance, and any HOA dues is a core condition of the loan. Separately, many states and counties run property-tax deferral programs that let qualifying older homeowners postpone paying property taxes, with a lien repaid when the home is sold or the owner dies. These state programs and a HECM are different tools that both tap home equity to handle housing costs, and a borrower sometimes has to choose between them. A reverse mortgage is a loan, not a government benefit, and the property-tax obligation under it is real and enforceable.

Last reviewed 2026-06-01

This guide explains the property-tax obligation under a HECM, the Life Expectancy Set-Aside that can cover it, how state deferral programs work, and how the two interact. The broader list of HECM requirements is in the reverse mortgage requirements guide; the default mechanics are in the due and payable guide.

Do you still owe property taxes on a HECM?

A reverse mortgage replaces the requirement to make monthly mortgage payments, but it does not touch property taxes. The borrower must keep paying property taxes, homeowners insurance, and any HOA or condo dues out of their own funds, including reverse-mortgage proceeds if they choose. Failure to keep these property charges current is a default that can lead the loan to become due and payable (24 CFR §206.205), and ultimately to foreclosure. This is the most common way a HECM ends badly, and it is entirely preventable.

The reason it happens is that borrowers sometimes treat the absence of a mortgage payment as the absence of all housing costs. It is not. Taxes and insurance continue, and on a fixed retirement income they can be a strain. The foreclosure timeline guide covers what happens if property charges go unpaid.

What is the Life Expectancy Set-Aside (LESA)?

To prevent property-charge default, HUD's financial assessment (ML 2014-22) can require a Life Expectancy Set-Aside: part of the principal limit is held back at closing and used to pay property taxes and insurance automatically over the borrower's expected lifespan. A fully-funded LESA means the loan itself covers the property charges, removing the risk that the borrower forgets or cannot afford them.

The trade is that a LESA reduces the cash otherwise available to the borrower, sometimes substantially, because it reserves enough to cover years of taxes and insurance. For a borrower whose financial assessment raises concern about paying property charges, the LESA is not optional, it is how HUD lets the loan proceed safely. For a borrower who passes the assessment cleanly, a voluntary LESA is still available as a self-imposed safeguard.

How do state and county property-tax deferral programs work?

Separate from the HECM, many states and counties run property-tax deferral programs for older or lower-income homeowners. The structure varies by state, but the common form is: a qualifying homeowner postpones paying some or all of their annual property tax, the state records a lien for the deferred amount plus modest interest, and the lien is repaid when the home is sold, refinanced, or the owner dies. Oregon, Colorado, Washington, California, and several other states operate versions; eligibility usually turns on age (often 62 or 65), income, and home equity.

These programs are a low-cost way to handle property taxes without taking on a full reverse mortgage. They carry no origination fee, no mortgage insurance premium, and typically a low, state-set interest rate, often well below market. For a homeowner whose only pressure is the annual property-tax bill, a state deferral program is frequently the cheaper tool, and HUD-approved counselors are required to screen for these programs during the mandatory counseling session.

How do a deferral program and a HECM interact?

The two can conflict, and the order matters. A state property-tax deferral lien is a lien against the property, and a HECM generally requires a first-lien position. If a borrower already has a state tax-deferral lien, the lender will typically require it be resolved or subordinated before the HECM closes, because the FHA insurance depends on the HECM holding first position. Conversely, a borrower who takes a HECM may lose eligibility for some state deferral programs, since those programs often require the home to be free of other significant liens or cap the total borrowing against equity.

The practical guidance: a borrower whose only need is help with property taxes should look at the state deferral program first, because it is cheaper and narrower. A borrower with a broader need, supplementing income, paying off a forward mortgage, funding a line of credit, may find the HECM the better fit, but should resolve any existing deferral lien as part of the process. A HUD-approved counselor walks through which tool fits, and the counseling session is required to cover exactly this comparison.

Which tool fits which need?

If the only pressure is the property-tax bill and the home is otherwise affordable, a state deferral program is usually the lower-cost answer. If the borrower needs broader cash flow, the HECM is the larger tool, and a LESA inside it can cover property taxes the way a deferral program would, without a separate application. The two are not stackable in the simple sense, because of the lien-position conflict, but they solve overlapping problems, and the right one depends on how narrow or broad the borrower's need is.

The alternatives to a reverse mortgage guide covers state deferral programs alongside other options. To see how a LESA affects available proceeds for a specific situation, run the reverse mortgage calculator.

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