Court Rules in Favor of Surviving Spouses not on Reverse Mortgages

Reverse MortgagesA federal court has ruled that banks can’t foreclose on surviving spouses of reverse mortgage holders when they are not able to pay off the mortgage upon their spouse’s passing.  The ruling should lead to regulatory changes that will help surviving spouses stay in their homes even if they are not included on the reverse mortgage paperwork.

Previously, if only one spouse’s name was on a reverse mortgage and that spouse died, the surviving spouse has been required to either pay for the house outright or move out. This might happen if one spouse is under age 62 and ineligible to sign the mortgage, while some lenders actually encouraged couples to put only the older spouse on the mortgage because the couple could borrow more money that way.

With the housing downturn, however, many homes are worth less than the balance due on the reverse mortgage, meaning that the non-signing spouse cannot repay the loan and faces eviction.

AARP sued the Department of Housing and Urban Development (“HUD”) on behalf of three surviving spouses who faced imminent foreclosure and eviction from their homes. AARP charged that in not protecting spouses from foreclosure, HUD was violating federal law.  In a decision issued September 30, 2013, the U.S. District Court for the District of Columbia agreed with AARP and told HUD to find a way to shield surviving spouses from foreclosure and eviction.

“The decision marks a turning point for surviving spouses such as our clients and ensures that they will receive the protections guaranteed by the law: that they will be able to remain in their homes, despite the loss of their husband or wife,” said Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation.

It’s not clear yet how HUD will correct the problem, however. So, in the meantime, AARP still discourages aging couples from doing a reverse mortgage that leaves one spouse off of the paperwork, at least until it is clear what HUD will do to fix the problem.

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