Changes in Reverse Mortgage Rules Saves Homes for the Surviving Spouses

HUD has again changed its policy regarding the rights of surviving spouses in regards to Reverse Mortgages. Now loan servicers can assign a reverse mortgage loan, in which there is a surviving spouse, back to HUD. The lender can then make a claim for money owed against the FHA insurance fund.

Nation’s Housing

Following the passing of Gerald Marciano in March of 2014, his widow, Alva, got bad news. Her mortgage company informed her that if she didn’t come up with $118,000 –— the amount of principal, loan fees and accrued interest that had built up by the reverse mortgage on the home that she and her husband had owed for the past 22 years — they would foreclose on the home.

Alva didn’t have the money and there were no family members from whom she could borrow the cash so she got ready for eviction.

What happened? Alva’s situation is similar to that of an estimated 12,000 widows and widowers around the country. As a “surviving spouse” whose name does not appear on the reverse-mortgage contract, she had no rights to stay in the house once her husband, the sole signer on the HECM loan, had passed away. Alva and Gerald had been assured, multiple times that, in the event of her husband’s passing she would be able to live in the home indefinitely. In reality however Alva had no protection once the sole signee on the contact was no longer living in the house. .

Alva remembers that the mortgage company was sympathetic but unwavering. “They expressed their sympathies and said that they were sorry about my husband’s passing but the letter that they sent gave me no leeway. They demanded that I pay up what’s owed or they will foreclose. They noted that this is what is required under federal reverse-mortgage rules.”

If this had happened two years ago, Alva would have been out of luck. However, her husband passed away at a time in which the courts have taken an interest in this aspect of the HECM loan and have ruled that the FHA must do more to prevent these types of foreclosures.

Reverse Mortgages were created as a way to allow seniors 62 and older to withdraw funds against the equity that they have in their home. They do not have to pay back the debt until they die, move or sell the property.

For many years HUD enforced the section of the loan agreement that stipulated that the loan would be closed when the borrower died or left the house. But there have been lawsuits over the controversial rules regarding partners whose names were not included on the reverse-mortgage documents but who live in the home.

Some loan brokers promised a higher payout if only the older spouse was listed on the note. In other cases one spouse had not yet reached the required borrower threshold age of 62. Many of these individuals believed that they could have their name added to the contract when they reached 62 but either didn’t follow through on it or didn’t want to pay the resulting fees which could reach thousands of dollars.

Now, non-borrowing surviving spouses are covered under the new HUD policy. The lender can assign the loan back to HUD and make a claim for money owed from the agency’s FHA insurance fund.

It looks like Alma will be able to stay in her house after all.