A reverse mortgage can be helpful for older homeowners, allowing them to tap into the equity in their home as they need it. The balance does not have to be paid back until they no longer live there. However, for whatever reason, sometimes only one spouse owns the home. If that spouse dies, the terms of the reverse mortgage typically state that the entire mortgage balance must be paid immediately. This is the case even if the surviving spouse becomes the owner of the house.
Understanding that this result would force the surviving “non-borrowing spouse” to either attempt to refinance the mortgage, sell the home or lose the home through a foreclosure, the U.S. Department of Housing and Urban Development (HUD) has enacted a series of regulatory changes regarding reverse mortgages that it insures, known as “Home Equity Conversion Mortgages” (HECM).
There are two methods by which the surviving non-borrowing spouse might be protected, depending upon when the mortgage began. For those mortgages dated on or after August 4, 2014, repayment is deferred until the non-borrowing spouse no longer lives in the home, provided that all of the following conditions are met:
(1) The non-borrowing spouse had completed reverse mortgage counseling with an approved counselor prior to the HECM closing; and
(2) The non-borrowing spouse was married to the borrowing spouse at the time of the closing and they remained married during the borrowing spouse’s lifetime; and
(3) The non-borrowing spouse was identified in the HECM application and closing paperwork as an “eligible non-borrowing spouse” and signed certain disclosures; and
(4) The home was the non-borrowing spouse’s principal residence at the time of the closing and continually until the present time.
The original requirements of the borrower remain in effect, that is, all real estate taxes, homeowner’s insurance, associated fees, utilities, maintenance and repairs must continue to be paid.
If all of the conditions are met, the widow or widower is permitted to remain in the home for as long as he or she likes without having to pay back the balance of the HECM. Of course, once the widow or widower no longer lives in the home, the entire balance must be paid.
If the HECM is dated prior to August 4, 2014, the “surviving non-borrowing spouse” is not guaranteed the protection stated above. In that case, it is up to the lender, in its discretion, to determine whether the spouse will be permitted to continue to live in the house after the borrowing spouse’s death without paying off the mortgage.
If the lender does agree to such an arrangement, it will only be if the surviving spouse is found “eligible” by satisfying the following criteria:
(1) The spouses were either legally married at the time of the closing and remained married until the borrower’s death or were “engaged in a committed relationship” akin to marriage at the time of the closing but were prohibited at that time from legally marrying, but became legally married prior to the death of the borrowing spouse; and
(2) The house was the principal residence of the surviving spouse at the time of the closing and remained so the entire time thereafter; and
(3) Within ninety days after the death of the borrowing spouse, the surviving spouse obtained legal ownership to the house.
It remains to be seen whether lenders who hold HECM mortgages dated before August 4, 2014 will agree to allow the non-borrowing surviving spouse to apply for the protection permitted by the regulations.
Surviving spouses who were not owners of the home when a HECM mortgage was applied for should be aware of the possibility of the protection afforded by the regulations if their spouse dies and they receive notification from the lender requiring payment of the mortgage balance.
Copyright 2017 Joseph A. Bollhofer, Esq.
Joseph A. Bollhofer is the principal of Joseph A. Bollhofer, P.C., located in St. James, NY, and has been practicing law since 1985 in the areas of elder law, Medicaid, estate and business planning and administration, and real estate. He is also the president of Downstate Title Agency, Inc. His legal advice has appeared several times in Newsday’s “Ask the Expert” column, a weekly feature dedicated to elder law and estate planning issues. He is a member of the National Academy of Elder Law Attorneys, and of the Elder Law and Surrogate’s Court Committees of the Suffolk County Bar Association, currently serves as chair of the SCBA’s Real Property Law Committee, and is a member of the Elder Law, Trusts & Estates Law and Real Property Law Sections of the New York State Bar Association. He can be reached at firstname.lastname@example.org or 631-584-0100.