A new federal rule has taken effect aimed at protecting certain spouses of reverse mortgage holders from being forced out of their homes when the mortgage holder dies. A reverse mortgage allows homeowners to use the equity in their home to take out a loan, but borrowers must be 62 years or older to qualify for this type of mortgage. Up till now, if one spouse was under age 62, the younger spouse had to be left off the loan in order for the couple to qualify for a reverse mortgage. Some lenders have actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way.
What sounds too good to be true, just might be. A recent Elder Law Answers article, titled "Feds Move to Protect Some Surviving Spouses of Reverse Mortgage Holders," notes that if only one spouse's name is on the mortgage and that spouse died, the surviving spouse would have to repay the loan in full or face eviction.
AARP sued the Department of Housing and Urban Development (HUD) on behalf of the surviving spouses of individuals who took out what is called a Home Equity Conversion Mortgage (HECM). These mortgages are the most common reverse mortgages and are overseen by HUD. These spouses were unable to sell and repay their loans because their homes were worth less than the balance due on the reverse mortgage due to the downturn in the economy.
In a 2013 decision, the U.S. District Court for the District of Columbia found in favor of AARP and ordered HUD to create a technique to protect these surviving spouses from foreclosure and eviction. To that end, HUD developed a new rule effective in August of this year that is more protective for some surviving spouses. The rule states that if a couple has one spouse under age 62 who wants to take out a reverse mortgage, they may list the underage spouse as a “non-borrowing spouse.” So, if the older spouse dies, the non-borrowing spouse is permitted to stay in the home—as long as he or she establishes within 90 days their legal right to remain in the home. The surviving spouse still has to satisfy the other requirements of a reverse mortgage holder, e.g., paying property taxes and insurance. The non-borrowing surviving spouse cannot access the remaining loan balance.
Further, the new rule only protects spouses who were married to the borrowing spouse when the loan was made. Also, the new rule does not allow a spouse to leave the younger spouse off the mortgage to get a greater loan amount, meaning loans will be less for these couples. Loans are based on the younger spouse’s age, and the rule impacts only loans written after the August 4, 2014, effective date.
Talk to your estate planning and elder law attorney to learn more.
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