Reverse Mortgage Protection for Borrowers’ Spouses
Senior advocates, the legal community, the Reverse Mortgage industry, the government and retirees have been carefully monitoring a recent court case that set the AARP against the United States Department of Housing and Urban Development.
According to the Reverse Mortgage regulations a Reverse Mortgage can be taken out on the name of one homeowner, even if the borrower’s spouse or partner is also signed onto the deed. Once that homeowner dies or leaves the home however, the homeowner who did not sign onto the deed must also leave the house so that the home can revert back to the ownership of the lending institution and be sold.
This loophole created a situation in which a couple would take out a Reverse Mortgage on their home in the name of one of the partners who was eligible. When that person died or left to live in an extended care facility, the surviving spouse was left with the debt. If s/he couldn’t pay the debt the lending institution could foreclose on the spouse, leaving the elderly individual homeless.
In 2009 HUD instituted a new regulation that required that all signees to a home’s deed attend a counseling session with a HUD-approved counselor before applying for a HECM loan. At this counseling session the counselor would explain the borrower’s loan rights and responsibilities, including the caution regarding the surviving spouse.
The counseling sessions, however, did not cover all eventualities.
In 2012 the AARP filed suit in D.C. District Court on behalf of two non-borrowing reverse mortgage spouses. The plaintiffs in the case had taken their names off their house deeds so that their spouses could obtain the reverse mortgage. This left them with the option to pay the loan’s debt or face foreclosure when the spouses died.
The AARP argued that these forecloses were illegal. HUD’s regulations and mortgage documents, they said, conflicted with a law that Congress had passed authorizing the federal reverse mortgage program and protecting the rights of senior homeowners.
Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation said “the court’s decision is clear that the law gives our clients and others like them protection from foreclosure. We are hopeful that HUD will act quickly to broadly implement this protection.”
The court ruled that HUD violated federal law when it did not protect surviving spouses of holders of HECM loans. The court directed HUD to find a way to fix the problem though it is not clear how the agency will do that. In the meantime, non-borrowing spouses of Reverse Mortgage borrowers will be able to remain in their homes, even after the borrowing spouse has died or left the home.