Reverse Mortgages and Surviving Spouses
Before 2014, if a Reverse Mortgage borrower did not name his or her spouse on the loan documents, that spouse was at risk of losing their home due to the loan going into foreclosure. Now, thanks to a new rule, non-borrowing spouses on Reverse Mortgages are protected from facing that risk.
HUD Updated Reverse Loan Rules
The U.S. Department of Housing and Urban Development (HUD) amended its Home Equity Conversion Mortgage (HECM) – aka Reverse Mortgage – program. The amendment states that non-borrowing spouses may remain in the home after the HECM borrower dies (and the loan repayment will be deferred) as long as:
- the non-borrowing spouse is married to the borrower at the time of the loan closing (and remains married to the borrower for the duration of the borrower’s lifetime)
- their spousal status is disclosed at the time of the closing
- the non-borrowing spouse is named in the loan documents
- the non-borrowing spouse has occupied, and continues to occupy, the property securing the HECM as his/her principal residence
- the non-borrowing spouse establishes legal ownership (or another ongoing legal right to remain in the home) within 90 days of the death of the last surviving borrower, and
- the non-borrowing spouse meets all of the obligations described in the loan documents (see HUD Mortgagee Letter 2014-07)
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If the non-borrowing spouse fails to meet any of the requirements, the loan becomes due and payable.
Because HUD is very strict on these requirements, it is in each Reverse Mortgage borrower’s and his or her spouse’s best interest to make sure they can meet the requirements before committing to the loan. Take special note of the third bullet point: the non-borrowing spouse is named on the loan documents. Even if your spouse is not considered a borrower on the loan, it is critical that they be named as a non-borrowing applicant in the documents. This seemingly minor yet very important part of the Reverse Mortgage process could easily be overlooked if borrowers do not understand the risks involved.