California Real Estate Lawyers Blog
Reverse Mortgages, or Home Equity Conversion Mortgages, Are now subject to a policy in which, if the surviving spouse is not on the loan and title documents, they are required to pay off the full balance of loan in order to stay in the house. Otherwise, they face foreclosure.
Reverse Mortgages allow owners aged 62 or older with a large amount of equity to pull cash from their home. The loan does not need to be repaid until they no longer use the property as their principal residence, such as after death, or sale of the house. There is a requirement that the borrower be advised by a HUD approved counselor, though there are doubts as to their independence, and consulting an elder law or real estate attorney is advisable. If the owner or their estate sells the property for less then the balance due, the owner does not owe the balance-it is a non-recourse loan.
The policy change, which HUD claims is only a filed suit against HUD, claiming the agency changed the rules without following federal law. But it is not clear that they changed the rules. Non-recourse protection only applies to the borrower, because only the borrower could be liable for the loan. The presumption is that on the death of the borrower, the estate will sell the house. If the sale price does not cover the loan balance, FHA insurance kicks in. If it sells for more than the balance, the estate keeps the difference for the heirs. But the surviving spouse is not a buyer in this case. The real problem is in the poor counseling of the borrower before closing, and the unfortunate truth that many borrowers did not understand the ramifications of the reverse mortgage. There is a requirement that the borrower be advised by a HUD approved counselor, though there are doubts as to their independence, and consulting an elder law or real estate lawyer is advisable.