Important Rule for Reverse Mortgage Undergoing Change

Reverse mortgages are becoming more popular with the uncertain economy and the flailing housing market today. Under a reverse mortgage, the borrower gets a loan based on the home’s equity. The homeowner is then paid installments for as long as they live in the home. Once the homeowner moves out or dies, the payments stop. During the time they stay in the home, they must stay current on property taxes and insurance. Reverse mortgage are also typically available only for people who are 62 years old and older.

But what happens to the surviving spouse of a reverse mortgage borrower if the deceased person’s name was the only one on the deed?

In 2008, there was a rule that was put into place for reverse mortgage borrowers. It required the surviving spouse of a reverse mortgage borrower to either move out of the home or continue to make payments beyond the value of the home once the spouse passed away. The main reason for the rule was so the lenders could avoid holding on to the reverse mortgage loans for longer than they expected. Also, due to the manner in which reverse mortgages are designed, the older of the two people living in the house would apply for the reverse mortgage because they would get more money each month as a result. This leaves the younger spouse out of the deal, which can cause problems when the older spouse dies.

But the United States Department of Housing and Urban Development is rescinding that rule due to a number of lawsuits that has been brought against the department by two widowers and a widow of reverse mortgage borrowers.

The lawsuit has been brought to federal court by these surviving spouses who were facing foreclosure. However, HUD recently notified these plaintiffs that the policy to pay the full balance of the mortgage loan in order to stay in the home. In many cases, the spouses would be required to pay the full balance even if that would result in paying more than the home is even worth.

The plaintiffs in this particular case are being represented by AARP. The organization said that changing the policy is a step in the right direction, but the lawsuit would continue. The plaintiffs also want to change some of the regulatory policies regarding reverse mortgages so the surviving spouses of those who had a reverse mortgage will be allowed to stay in the home even if they did not have their name on the deed. According to Jean Constantine-Davis, a senior attorney with the AARP litigation team, surviving spouses should not be kicked out of their reverse mortgaged home because they have a right to stay in the home after the death of their spouse.

A spokesperson for HUD stated that the department changed its policy to avoid “confusion on the issue” and to make sure the sale of the various properties are based on the market values so they will reflect the real value of the property.

If you want to avoid going through this frustration, the best way to avoid it is to make sure both names are on the reverse mortgage loan. By doing that, you ensure that you won’t risk getting kicked out of the home that you have loved and lived in with your spouse for all those years.