Real estate secured by a reverse mortgage is an asset. The equity in that real estate asset is determined the same way as any other asset. Determine what the fair market value of the property is through appraisals or market evaluations, deduct the amount of the secured loan and factor in the cost of sale. Whatever amount is remaining is the equity or ownership amount of the real estate.
A trustee in a Chapter 7 bankruptcy case can liquidate real estate secured by a reverse mortgage if there is available equity above and beyond what a debtor can protect as exempt.
The trustee may have to pay the holder of the reverse mortgage a pre-payment penalty if one is provided for in the mortgage documents. In the case of real estate with significant equity, the pre-payment penalty will not deter a trustee from liquidating the property.
In conclusion, consider real estate property secured by a reverse mortgage to be an asset, subject to liquidation in a Chapter 7 bankruptcy case, just like any other case involving real estate.
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