Non-Borrowing Spouses on Reverse Mortgages May Be Able to Stay in Home After Borrowing Spouse Dies

FHA Mandate Allows Non-Borrowing Spouses to Remain in Their Home

When seniors are tight on money, they often turn to a reverse mortgage to help ease their finances. In cases where only one spouse is 62 or older, lenders will often still do the reverse mortgage and the non-borrowing spouse usually has to sign the loan document acknowledging the mortgage is being taken out. What many borrowers and non-borrowers don’t realize is that this will leave the non-borrowing spouse without a place to live once their spouse who got the loan dies! In my opinion, this should NEVER have been allowed to be the case. People in distress are turning to Reverse Mortgages for help only to have one of the spouses, the younger one, set-up to become homeless should the older spouse die first. I would argue that people who sign these loans are doing so under duress because they need financial relief and the lender is telling them that the only way they can get the loan is to get it without the younger spouse since that person is too young to qualify.

The good news is that FHA appears to have realized this terrible situation and it has tried to alleviate it with a mandate they put out in 2015 which states that Non-Borrowing Spouses on Reverse Mortgage May Be Able to Stay in Home After Borrowing Spouse Dies! Mortgagee Letter 2015-15 is the document that may help keep eligible non-borrowing spouses from being foreclosed on.

According to the Reverse Mortgage Daily, this change came about from many years of litigation of non-borrowing spouse plaintiffs.

As One Reverse Mortgage summed it up, “Certain eligible non-borrowing spouses may avoid foreclosure thanks to the new guidelines released by the FHA on Friday, June 12. According to the new guidelines, as released in Mortgagee Letter 2015-15, when a borrower passes away, a lender may choose to foreclose the home or use a Mortgagee Optional Election Assignment (MOE). The MOE further defers the repayment of the reverse mortgage for the non-borrowing spouse. In other words, non-borrowing spouses may have the opportunity to stay in their homes after their loved one’s passing.”

Of course, there  are criteria that have to be met for the Mortgagee Optional Election Assignment for Home Equity Conversion Mortgages (HECMs) with an FHA Case Number assigned prior to August 4, 2014

For cases that involve an Eligible Non-Borrowing Spouse and the FHA Case Number was assigned on or after August 4, 2014, there are additional eligibility criteria.

I am not going to kid you, the process is not as simple as just filling out a form. You may have to speak with a lender or someone else to help you make sense of all the terminology in the letter and to help you compile the packet you will need to submit, but don’t let that keep you from doing what needs to be done so you can keep your home. Think of it as compiling the information you would need to get a loan for your house because that is what it is. The task may seem daunting, but just take it step by step and you will get through it and hopefully come out with the mortgage assigned to you when you get to the end of the process.

Here is a link to an article by National Mortgage Professional Magazine to tell you more about it.

Hopefully in the future, they will allow currently “too young” spouses to be part of the Reverse Mortgage from the beginning so we don’t have people in these terrible situations.

 

Robin Watson-Bird, Ph.D. is a seasoned California Real Estate Broker and REALTOR based in Livermore CA who serves most of the Greater Bay Area and parts of the Central Valley.