In what can only be considered as very good news, a federal court has ruled that banks can’t foreclose on surviving spouses of reverse mortgage holders when the spouses can’t pay off the mortgage. The ruling should lead to regulatory changes that will help surviving spouses stay in their homes even if their names aren’t on the reverse mortgage.
Historically, the surviving spouse has been required to either pay for the house outright or move out if the spouse who dies is the only one named on a reverse mortgage. The most common occurrence of this would be when one spouse is under age 62 and ineligible to sign the mortgage.
But because of the housing downturn, many homes are now worth less than the balance due on the reverse mortgage, meaning that the non-signing spouse cannot repay the loan and faces eviction.
AARP sued the Department of Housing and Urban Development (HUD) on behalf of three surviving spouses who faced imminent foreclosure and eviction from their homes. The case involved the spouses of individuals who took out Home Equity Conversion Mortgage (HECM), which are the most widely available reverse mortgage and are administered by HUD. AARP charged that in not protecting spouses from foreclosure, HUD was violating federal law.
In a decision that came down in late September of last year, the U.S. District Court for the District of Columbia agreed with AARP and told HUD to find a way to shield surviving spouses from foreclosure and eviction.
It’s not clear yet how HUD will correct the problem. One possibility is that the agency may take over affected loans from the banks that hold them. But experts stress that the ruling does not mean that couples can safely take out a reverse mortgage and leave one spouse off the loan. AARP still strongly discourages taking out a reverse mortgage with only one spouse signing, and that’s good advice.