With people living longer, many turn to a Home Equity Conversion Mortgage, more commonly referred to as a reverse mortgage, for additional income. Reverse mortgages allow seniors to access the equity in their homes and convert same into an income stream. Before the property is sold, or upon the death of the borrower, the amount of money paid to the borrowers, plus interest and fees, must be paid back to the lending institution.
Typically, if a husband and wife both sign the loan agreement, when the first spouse passes away, the survivor can continue living in the house. However, a problem arises when only one spouse’s name is on the deed and they solely signed the loan agreement. This might happen if one spouse is under age 62 and ineligible to sign the mortgage and evidently some lenders have actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way. In that case, if the borrower predeceases his or her spouse, the mortgage companies were requiring that the spouse repay the loan and if they could not afford to do so, the mortgage companies commenced foreclosure and eviction proceedings.
Because of the dire effect on the surviving spouses of reverse mortgage holders, AARP sued the Department of Housing and Urban Development (“HUD”) on behalf of three surviving spouses who faced foreclosure and eviction from their homes. AARP alleged in its complaint that by failing to protect surviving spouses from foreclosure, HUD was violating federal law.
A federal district court judge agreed with AARP. The plaintiffs relied on a federal regulation that stated that HUD could not insure a reverse mortgage unless the terms provide that the homeowner’s obligation to satisfy the loan is deferred until the homeowner’s death or the sale of the home. The regulation further went on to define a homeowner as not only as the mortgagor himself but also the mortgagor’s spouse.
While this decision is certainly an important step toward protecting the surviving spouses of reverse mortgage holders, it remains to be seen what steps HUD will take to ensure that surviving spouses are able to live in their homes as long as they wish. In the meantime, it appears that mortgage companies should cease from commencing foreclosure actions against spouses in light of this new decision.