Non-Borrowing SpouseS and HECM's
What Has Changed?
Non-Borrowing Spouse Changes
It used to be that if a borrower had a spouse who was underage (62 is the age required on all HECM's) and that borrower was not on the reverse mortgage, once the borrower passed away, the spouse would eventually have to leave the home. The death of the borrower would trigger a “maturity event” causing the loan to become due, and this meant the surviving spouse had to sell the home or pay off the reverse mortgage debt in order to keep the house. For this reason, we discouraged borrowers from taking out a reverse mortgage if their spouse was under 62 years of age.
Thankfully, there has been a change in reverse mortgage parameters by HUD so that even IF you have a spouse who is not 62 years of age, you can still apply for a reverse mortgage. By being listed on the HECM as a non-borrowing spouse, he/she will be protected and be able to remain in the home after your passing, and the reverse mortgage will not become due and payable after the reverse mortgage borrower passes away. However, if there is a HECM line of credit, it would no longer be accessible, and any monthly proceeds would end. NOTE: Non-borrowing spouses on HECM's are not approved in Texas.
What Was the Bennett Ruling?
"Represented by AARP Foundation Litigation attorneys along with attorneys at Mehri & Skalet, PLLC, three surviving spouses sued HUD challenging its policy that if a spouse passed away, the HECM loan would become due. On September 30, 2013, in the case of Bennett et al. v. Donovan, 2013 WL 5442154, the court ruled that the Housing and Urban Development (HUD) regulation allowing lenders to demand that surviving spouses immediately repay reverse mortgage loans upon the death of their spouses violated federal law. HUD Remedied the Situation and Updated Its Reverse Mortgage Rules".
Hud Policy After August 2014
"HUD policy now states that for FHA-backed reverse mortgages issued on or after August 4, 2014, the nonborrowing spouse may remain in the home after the HECM borrower dies (and the loan repayment will be deferred) so long as certain criteria are met." (Criteria is listed in the next section.)
What Happens when a hecm borrower passes away?
Protections for Non-Borrowing Spouses
According to HUD, Housing and Urban Development, Non-Borrowing Spouses may continue to live in the mortgaged property after the death of the last remaining HECM borrower provided they meet all the established requirements and the HECM is not in default for any other reason (such as failure to pay required property taxes or hazard insurance payments).
An eligible Non-Borrowing Spouses may continue to live in the mortgaged property after the death of the last surviving HECM borrower, if the following conditions are met and continue to be met:
1. The Non-Borrowing Spouse is named in the loan documents as a Non-Borrowing Spouse and lives in the property.
2. The HECM cannot be in default (eligible to be called due and payable) for any reason other than the last borrower’s death (i.e., failure to pay required property taxes or hazard insurance payments, failure to maintain property); and
3. The borrower and his or her spouse were either:
a. Legally married at the time the HECM closed and remained married until the HECM borrower’s death.
b. Engaged in a committed relationship akin to marriage but were legally prohibited from
marrying before the closing of the HECM because of the gender of the borrower and Non-Borrowing Spouse, if the spouses legally married before the death of the borrower and remained married until the death of the borrowing spouse; and
4. The Non-Borrowing Spouse lived in the property at loan closing and continues to live in the property as his or her principal residence; and 5. The Non-Borrowing Spouse has (or obtains within 90 days after the death of the last surviving borrower) “good, marketable title” to the property or some other legal right to remain in the property (e.g., executed
lease, court order, etc.) for the rest of the Non-Borrowing Spouse’s life.
NOTE: In Texas, borrowers with a non-borrowing souse will not be able to obtain a reverse mortgage.
Resource: https://www.hud.gov
Going Forward
The decision to go forward with a
reverse mortgage, consult your
attorney to obtain any necessary
documents (where applicable)
such as will, life estate, power of
attorney, guardianship, marriage
certificate as these documents
will need to be reviewed by an
underwriter at the lender as part
of your application documents.
Reverse mortgages, if properly understood, can be another
tool for managing retirement income and spending. Never
be hesitant to ask questions. We are here to help.
Questions? 888-843-9797 or 631-804-9044
Contact KATHIE ADLER 888-843-9797 or 631-804-9044
