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Reverse Mortgage Non-Borrowers Now Protected With New Ruling

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Photo credit: Dan Foy cc

No Distinction Between Borrower and Non-Borrower

Back in June, the primary U.S. reverse mortgage product Home Equity Conversion Mortgages (HECM) was strengthened with a FHA guidance banning deceptive marketing. HECM has been strengthened yet again. As of August 4th, non-borrowing spouses (NBS), are protected from foreclosure and displacement in the event the borrowing spouse dies. The need to protect surviving spouses in this situation was given some teeth with a recent District of Columbia federal court ruling.

When HECM was created in 1988, non-borrowing spouses were conferred this protection by being defined as a homeowner. Congress’ intention was not to make a distinction between a borrowing and non-borrowing homeowner.

In Section 255 (J) of HECM law, Safeguard to Prevent Displacement of Homeowner, Congress says: “The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term homeowner includes the spouse of a homeowner.

HUD, which insures and administers HECM, did not confer protection to the non-borrowing spouse because their definition of homeowner was different from that of Congress. The Federal Regulation states:

The mortgage shall state that the mortgage balance will be due and payable in full if a mortgagor dies and the property is not the principal residence of at least one surviving mortgagor, or a mortgagor conveys all of his or her title in the property and no other mortgagor retains title to the property. 24 C.F.R. § 206.27 (c) (1)

After the court ruling, HUD updated the rules for reverse mortgages. All FHA backed reverse mortgages issued on or after August 4, 2014 must allow the non-borrowing spouse to remain in the home after the borrower dies. The loan payment will be deferred as long as the following conditions are met:

  • 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
  • The borrower and non-borrower’s marriage is disclosed at the time of the closing
  • The non-borrowing spouse is named in the mortgage documents
  • Legal ownership or an ongoing legal right to remain in the home is established by the non-borrowing spouse within 90 days of the death     of the borrower
  • The non-borrowing spouse meets all of the obligations described in the mortgage documents (See HUD Mortgagee Letter 2014-07)

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    Resources:
     
    National Mortgage Professional. “HECM Protects Non-Borrowing Spouses (Part I)” 12 August 2014. http://nationalmortgageprofessional.com/blog/hecm-protects-non-borrowing-spouses-part-i

    National Mortgage Professional. “HECM Protects Non-Borrowing Spouses (Part 2)” 12 August 2014. http://nationalmortgageprofessional.com/blog/hecm-protects-non-borrowing-spouses-part-ii

    NOLO Law for All. “New Rule: Spouses Not Named on Reverse Mortgages Are Protected From Foreclosure” 12 August 2014. http://www.nolo.com/legal-encyclopedia/new-rule-spouses-not-named-reverse-mortgages-are-protected-from-foreclosure.html
     
     
     

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