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Reverse Mortgage, New Rules for Non-Borrowing Spouse
October 24, 2014|By Kathleen Pender

A reverse mortgage lets seniors 62 or older borrow against the equity in their primary home and not make payments on the loan. The loan generally does not become due and payable until the borrower dies or moves permanently out of the house.

Most reverse mortgages are guaranteed by the Federal Housing Admnistration; these are known as Home Equity Conversion Mortgages. The law that created this program said the mortgage is not due until the homeowners death, the sale of the home or certain other events and that "the term 'homeowner' includes the spouse of a homeowner."

However, when the Department of Housing and Urban Developmnent issued regulations implementing the law, it said the mortgage is due and payable upon the death of the last surviving borrower, the sale of the home and certain other events. This interpretation allowed lenders to force the sale of a home upon the death of the borrower, even if a non-borrowing spouse remained in the home.

Despite this rule, some lenders encouraged married borrowers to remove the younger spouse from the mortgage and the title to the home, because they could borrow more than if both spouses were on the loan. "The loan amount would be higher without the spouse," said Sarah Mancini, an attorney with the National Consumer Law Center.

Suite over foreclosures

In 2011, the AARP Foundation filed a lawsuit on behalf of two non-borrowing surviving spouses who were in danger for foreclosure, arguing that the law allowed them to remain in their homes. A district court judge agreed and remanded the case to HUD to determine what relief was appropriate, said Jean Constantine-Davis, a senior attorney with AARP Foundation. HUD decided it was not required to provide relief for the two plaintiffs "but did issue rules to fix this problem for new mortgages," she said.

HUD's new rules

In April, HUD announced new rules for reverse mortgages with case numbers starting Aug 4. The new rules allow a non-borrowing spouse to remain in the home after the death of the borrower, as long as the spouses certify that they are married when the loan closes. HUD also came up with a plan that allowed lenders to turn reverse mortgages over to the FHA if the loan meets five factors. The FHA would not foreclose on these loans as long as the surviving spouse is alive, but almost no one can meet all five factors, Constantine-Davis said.

This year, AARP filed suit asking the court to declare the five factors invalid. It also challenged HUD's regulation that presses lenders to foreclose when the borrowing spouse dies. The judge decided hat the five factors were valid, but that after the earlier decision, the mortgages were no longer due after the borrowing spouses' deaths. This meant lenders were free to hold on to the mortgages until the plaintiffs died, or to turn the mortgages over to HUD after they reach the maximum loan amount.

Judge sends case back

The judge refuled AARP's request to certify the case as a class action but did send the case back to HUD to determine why its new rule should not apply to all surviving spouses, Constantine-Davis said.

"HUD is still deciding what relief it will give, if any, to our clients, much less other surviving spouses," she added. For people who took out mortgages before August, the situation is not clear. "I am encouraging people to ask lenders for relief...and lenders to hold off on foreclosng until HUD figure this out."

Reverse Mortgage, New Rules for Non-Borrowing Spouse
October 24, 2014|By Kathleen Pender

A reverse mortgage lets seniors 62 or older borrow against the equity in their primary home and not make payments on the loan. The loan generally does not become due and payable until the borrower dies or moves permanently out of the house.

Most reverse mortgages are guaranteed by the Federal Housing Admnistration; these are known as Home Equity Conversion Mortgages. The law that created this program said the mortgage is not due until the homeowners death, the sale of the home or certain other events and that "the term 'homeowner' includes the spouse of a homeowner."

However, when the Department of Housing and Urban Developmnent issued regulations implementing the law, it said the mortgage is due and payable upon the death of the last surviving borrower, the sale of the home and certain other events. This interpretation allowed lenders to force the sale of a home upon the death of the borrower, even if a non-borrowing spouse remained in the home.

Despite this rule, some lenders encouraged married borrowers to remove the younger spouse from the mortgage and the title to the home, because they could borrow more than if both spouses were on the loan. "The loan amount would be higher without the spouse," said Sarah Mancini, an attorney with the National Consumer Law Center.

Suite over foreclosures

In 2011, the AARP Foundation filed a lawsuit on behalf of two non-borrowing surviving spouses who were in danger for foreclosure, arguing that the law allowed them to remain in their homes. A district court judge agreed and remanded the case to HUD to determine what relief was appropriate, said Jean Constantine-Davis, a senior attorney with AARP Foundation. HUD decided it was not required to provide relief for the two plaintiffs "but did issue rules to fix this problem for new mortgages," she said.

HUD's new rules

In April, HUD announced new rules for reverse mortgages with case numbers starting Aug 4. The new rules allow a non-borrowing spouse to remain in the home after the death of the borrower, as long as the spouses certify that they are married when the loan closes. HUD also came up with a plan that allowed lenders to turn reverse mortgages over to the FHA if the loan meets five factors. The FHA would not foreclose on these loans as long as the surviving spouse is alive, but almost no one can meet all five factors, Constantine-Davis said.

This year, AARP filed suit asking the court to declare the five factors invalid. It also challenged HUD's regulation that presses lenders to foreclose when the borrowing spouse dies. The judge decided hat the five factors were valid, but that after the earlier decision, the mortgages were no longer due after the borrowing spouses' deaths. This meant lenders were free to hold on to the mortgages until the plaintiffs died, or to turn the mortgages over to HUD after they reach the maximum loan amount.

Judge sends case back

The judge refuled AARP's request to certify the case as a class action but did send the case back to HUD to determine why its new rule should not apply to all surviving spouses, Constantine-Davis said.

"HUD is still deciding what relief it will give, if any, to our clients, much less other surviving spouses," she added. For people who took out mortgages before August, the situation is not clear. "I am encouraging people to ask lenders for relief...and lenders to hold off on foreclosng until HUD figure this out."

Licensed by the California Bureau of Real Estate
License number 00685309
NMLS number 338105
Equal Housing Lender
Licensed by the California Bureau of Real Estate
License number 00685309
NMLS number 338105
Equal Housing Lender