Houston Home Owners: Make Note of New Reverse Mortgage Rules

Sold signIn a decision issued September 30, 2013, the U.S. District Court for the District of Columbia agreed with AARP and told HUD to find a way to shield surviving spouses from foreclosure and eviction.

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 a reverse 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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Reference:  Elder Law Answers (September 5, 2014) "Feds Move to Protect Some Surviving Spouses of Reverse Mortgage Holders"


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