Senior homeowners who need cash can use their home equity to take out a reverse mortgage. Reverse mortgages can create problems for borrowers’ spouses, especially those younger than 62. When the borrower sells the home or dies, the surviving spouse is then responsible for paying the loan in full or face eviction. Many seniors were unaware of this when they took out reverse mortgages.
AARP Sues HUD, Resulting in New Rule
The AARP sued the Department of Housing and Urban Development (HUD) in 2012 on behalf of surviving spouses whose deceased spouses obtained a HUD Home Equity Conversion Mortgage (HECM). The surviving spouses could not sell their homes or repay their loans because of the housing downturn. AARP won their suit, and HUD was ordered to find a way to protect surviving spouses from eviction and foreclosure.
HUD passed a new rule that became effective on August 4, 2014. The rule allowed younger spouses of qualifying borrowers of reverse mortgages to be listed as “non-borrowing” spouses. When the borrower dies, non-borrowing spouses could stay in the home provided they establish within 90 days that they have a legal right to do so (court order, lease, document of ownership). There are other requirements surviving spouses must meet.
The new law only protects spouses who were married to the borrower when the loan was written. In addition, younger spouses can no longer be left off a reverse mortgage in order to get a larger amount. Reverse mortgages written before August 4, 2014 are not covered under the new rule.
