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It is a jarring situation: your spouse dies and you end up facing the possibility of losing your home through foreclosure just because you are not listed as a borrower on the reverse mortgage application on your home.
The U.S. Department of Housing and Urban Development (HUD), which insures reverse mortgages placed by the banks under the popular Home -Equity Conversion Program (HECM), currently has a regulation which requires reverse mortgage loans to be fully payable upon the death of the borrower, unless survived by a joint-borrower, which is on the loan. When a husband and wife both sign the loan documents, they would be considered joint borrowers; the loan would only be due and payable upon the death of both husband and wife.
The problem arises that sometimes couples are advised by lenders to take out a reverse mortgage only in the name of the older spouse, to qualify for a bigger loan. This is because the size of the available loan is based, in part, upon the age of the borrower; the older the borrower, the more money he or she can access under the reverse mortgage. In that case, the younger spouse would not be on the loan, and would therefore not qualify as a surviving joint borrower.
Upon the death of the older spouse, the lender would then demand full payment of the loan. If the survivor were unable to pay off the full loan balance, the lender could then begin foreclosure process to force a sale of the home and evict the surviving spouse.
A court of appeals last month ruled in favor of two people in a lawsuit filed more than two years ago by the surviving spouse of a reverse mortgage borrower. The ruling places HUD as responsible for providing a remedy for the plaintiffs, who first sued the agency in March 2011 over the right to remain in their homes, protected as homeowners.
The lawsuit claimed that HUD violated federal law in foreclosing on the homes they had shared with their late spouses-reverse mortgage borrowers-for which they were not on the home titles. The court issued a ruling finding that HUD’s regulation violated federal law, declaring that it was Congress’ intent to protect surviving spouses even if they were not on the loan. The Court ordered HUD to create an appropriate fix to the problem to protect surviving spouses in these situation. The case is Robert Bennett et al. v. Shaun Donovan, case number 1:11-cv-00498, in the U.S. District Court for the District of Columbia.
It is not clear yet how HUD will correct the problem, and some legal experts believe that the court ruling does not mean that couples can now safely take out reverse mortgages and leave one spouse off the loan. Therefore, until HUD issues new regulation, it will be wise to include both spouses on the loan.
Likewise, if you currently have a reverse mortgage with only one spouse on the loan you should discuss with the lender the possibility of modifying the loan to add the excluded spouse as a joint borrower, to protect the surviving spouse from the risk of foreclosure.
Published: Nov. 14, 2013 – Volume 12 – Issue 31