The Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) issued new rules they claim will protect spouses in reverse mortgages.
Before these new rules, if you weren’t listed as a borrower on a reverse mortgage and the spouse died, you would be subject to imminent foreclosure. In a landmark District of Columbia federal court ruling, the non-borrowing spouse was recognized and, the need to protect that spouse [Bennett et al. v Donovan]. In the Bennett v Donovan case, the court ruled HUD would violate federal law demanding the surviving spouse immediately repay the reverse mortgage loan.
The reverse mortgage lets older homeowners draw upon the equity they’ve built in their homes, providing another source of income in their later years. Instead of paying the bank, the bank pays the homeowner in either a lump sum, monthly payments or a line of credit.
When reverse mortgages were new and most popular, mortgage brokers were the advisors. When there was an age difference in the couple, brokers advised only the older spouse sign in order to receive more money. The brokers would have the younger spouse quit claim the property to the older spouse leaving the younger spouse off the mortgage to increase the amount of the loan. The younger spouses were “misguided” when brokers assured them they could remain in the home when the older spouse died. One might say mortgage brokers used “predatory practices” to get borrowers to sign.
According to HUD, the non-borrowing, surviving spouse can remain in the home if they meet all the terms and conditions of the original mortgage contract and if; the lender agrees, the reverse mortgage has an FHA case number before August 4, 2014, the taxes and insurance payments are current, the property is maintained, the spouse was legally married (or in a committed same sex relationship if living in a state where same-sex marriage is not recognized), the property is the principal residence and the can secure a marketable title to the property within 90 days of the spouse’s death
Although the court determined HUD violated the statute, the court also found it didn’t have the authority to require HUD to take any particular action to remedy its error and sent the matter to HUD to correct. The bottom line is the lender has to agree, - putting the lives of these surviving spouses - back in the lender’s hands.
If you need help wih your reverse mortgage, contact our real estate and foreclosure defense attorneys at 303-618-2122. Gantenbein Law Firm's denver attorneys also practice business law, tax law, and credit dispute. For more information on your best options, visit our website at www.gantenbeinlaw.com.