Why would a couple decide to leave a spouse off the reverse mortgage? Peter Bell, president of CEO of the National Reverse Mortgage Loan Association, explained that there are two common reasons a spouse is left off a reverse mortgage deal:
- 1. One spouse is 62 and the other is younger than 62. In order to qualify for a reverse mortgage the younger spouse would have to quit-claim the deed over to the older spouse. All parties to a reverse mortgage must be 62 or older.
- One spouse is considerably older than the other spouse. For example one spouse is 78 and the younger spouse is 68. To get the most cash out of the house the couple decides to quit claim the deed over to the older spouse.
While a non-related third party can buy the home at market value after the person whose name on reverse mortgage and deed dies, a person related to the deceased homeowner must pay the full amount of reverse mortgage balance even if the house isn't worth that much. This change took place before the dramatic drop in house prices.
Since a reverse mortgage accrues interest from the day you take the loan until the day the owner or owners die, if a family member wants to take possession of the house, they must pay any balance due on the loan. Many reverse mortgages today were made during the boom years and more are owed on these mortgages than the house is actually worth.
As AARP claims in their case, "HUD reversed its policy so that surviving spouses (even if they home's value. So if the home loses equity and the survivor cannot repay the full loan amount when their spouse dies, they face eviction from their home."
Bell believes that "those related to the deceased borrower should have the same rights as a third party who wants to buy the house at market price." He believes when the administrative change was made in 2008, it was made before the full extent of the housing crisis was known. He added, "HUD needs to revisit this decision."
He doesn't think there are a large percentage of people impacted by this ruling, since most reverse mortgages do include both spouses on the mortgage. But he said no one really knows the statistics of how many couples decide to put just one spouse on the deed.
Linda Sands, who is a loan specialist with Luxury Mortgage, said "most reverse mortgage specialists do discourage taking a loan with only one spouse on the mortgage and the deed" for exactly this reason. She said people considering a reverse mortgage must see a third party counselor and the counselors "do a good job" of reviewing the risks of taking a reverse mortgage, especially if one spouse will not be on a loan.
In the case filed in the Federal District Court for the District of Columbia by the AARP Foundation, there was a third situation bought to light. One senior losing her home had married the owner of the home after he had already taken a reverse mortgage.
Bell explained that even if one spouse is not initially on a reverse mortgage, if there is enough equity in the home one can refinance a reverse mortgage to protect both spouses. With the current drop in real estate prices, there may not be enough equity in a home so it's a risk you shouldn't plan to take.
If you have taken a reverse mortgage with only one spouse on the mortgage and the deed, make arrangements to talk with your reverse mortgage loan officer or with a HUD reverse mortgage counselor to see what your options are.
Lita Epstein has written more than 25 books including Working After Retirement for Dummies.
For more insight on mortgages see these AOL Real Estate guides:
- Mortgage Jargon in Simple Terms
- How to Get a Low Mortgage Rate
How to Get Pre-Approved for a Mortgage
- When to Refinance