Update on Reverse Mortgages: Spouses Now Have More Rights
Eileen St. Pierre, The Everyday Financial Planner
It was a common story. To generate reverse mortgage applications, many brokers told potential applicants (age 62 and older) that if something happened to them, their spouses would be able to stay in their homes for the rest of their lives. So many borrowers did not include their spouses as a co-borrowers. However, when the borrower died, the spouse was surprised to find out the loan would have to be paid back immediately or the home would be forced into foreclosure because he/she was not included as a co-borrower on the loan.
Spouses now have more rights.
Because of the September 2013 court case Bennett v. Donovan and a new policy from the Federal Housing Authority issued on June 12, 2015, spouses can now stay in their homes after the last surviving borrower dies regardless of when the reverse mortgage was made as long as the following conditions are met:
- They need to be married at the time of the loan closing and disclose their spousal status.
- The non-borrowing spouse needs to be named in the loan documents.
- The non-borrowing spouse has occupied, and continues to occupy, the property securing the reverse mortgage.
- The non-borrowing spouse establishes legal ownership of the property within 90 days of the death of the last surviving borrower.
- The non-borrowing spouse meets all obligations in the loan documents. This includes (1) making timely property tax and insurance payments and (2) maintaining the property according to the loan agreement.
If any of these conditions are not met, the loan becomes due and payable.
Why wouldn’t you want to include your spouse on a reverse mortgage?
In determining the proceeds of a reverse mortgage, older borrowers receive more. If your spouse is significantly younger than you, then you have a financial incentive to leave him/her off the application.
In some relationships, one spouse may handle the financial affairs. The other may not want to be involved for whatever reason. This is not something I recommend because the surviving spouse will eventually have to deal with it.
Need additional information on reverse mortgages?
My column R is for a Review of Reverse Mortgages discusses the basics and explains the different types of costs you have to pay. As the result of research done by the Consumer Financial Protection Bureau, protections were added to protect borrowers from the risk of default due to non-payment of taxes and insurance.