Reverse Mortgage: What the AARP Suit Means for You

Seniors who took reverse mortgages are being pushed into foreclosure by HUD, according to a lawsuit filed by the AARP. Are all seniors who took a reverse mortgage at risk? No, only those who decided to put only one spouse on the reverse mortgage.

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. 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.
  2. 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.
When a couple does this, the younger spouse will have no rights to the house when the older spouse dies unless they decide to pay off the existing reverse mortgage in full. HUD made the rules for payoff more difficult in 2008 as part of an administrative change, Peter Bell said.


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 Search Homes for Sale See photos of homes for sale in your area and across the country on AOL Real Estate are not on the loan) must pay the full loan balance to keep the home, regardless of the 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:

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harolddundee

Henry Winkler is a paid liar for these scam artist. What a pathetic excuse for a man he turned out to be.Anything for a buck.

March 15 2011 at 8:09 PM Report abuse rate up rate down Reply
aspangler12

No Comment

March 15 2011 at 7:53 PM Report abuse +1 rate up rate down Reply
allenbravehearts

I SIGN UP FOR A REVERSE MORTGAGE MY HOME WAS PAID FOR I AM SEPARTED FROM MY HUSBAND OVER 20 YEARS SO I AM THE ONLY ONE ON THE DEED. I DID NOT KNOW I WILL BE PAYING MORE THEN I PAID FOR THE HOUSE SO IT LOOKS LIKE I WILL LOOSE EVERY THING IS THERE ANYWAY I CAN GET OUT OF THIS MESS OR ANY INFO THAT CAN HELP. THANK YOU.

March 15 2011 at 7:19 PM Report abuse +1 rate up rate down Reply
joelcheryljake

OK, so you took wifey's name off so you as a couple could get more money. You got the money. You spent the money. Hubby died. Now wife (who is no longer on the deed) wants to have enjoyed the benefit of that money , doesn't feel that she should repay it AND wants to keep the house (that is not hers).

As to the woman who married her husband AFTER he had obtained his reverse mortgage... Well, why should the house be hers after he dies when it wasn't even his when she married him? At that point, he had already basically sold it to the bank (they were just allowing him to continue to live there for the rest of HIS life).

A little sick of

March 15 2011 at 7:17 PM Report abuse -1 rate up rate down Reply
Antonio Gumbotz

Wake Up People..
Reverse Mortgages are SCAMS !!!

March 15 2011 at 7:12 PM Report abuse +5 rate up rate down Reply
cmax383666

its interesting you never heard that from one the famous actors on the tele.

March 15 2011 at 5:45 PM Report abuse +6 rate up rate down Reply
Tim Ryder

Reverse Mortgages, now that's a racket!!! My parents had some sales guy try to sell them a reverse mortgage and he wanted $15,000 up front! Thank God they didn't do it. they would be $200,000 underwater right now. If the government weren't such a bunch of crooks themselves, they should ban these money grabbing bank schemes that prey on the elderly.

March 15 2011 at 5:41 PM Report abuse +5 rate up rate down Reply
bronko519

I have done reverse mortgages for my clients and if done right this doesnt happen. We always sell insurance protection in case the price of the property goes below market value. it is required by HUD in order to do a Reverse Mortgage. The only way it goes bad is if they try to make it do somethimng that it wasnt intended to do. If there are 2 people residing in the home and are both owners they should be on the mortgage. If a person is there who is a relative that is being cared for because of being mentally or physically challenged they cannot reposse the home unless they are in another circumstance like not paying the taxes or insurance.

March 15 2011 at 5:20 PM Report abuse -4 rate up rate down Reply
griffin3462

only people who tried to cheat/beat the rules are having trouble. soo tired of the something for nothing crowd
messing with real estate. they ask you twenty times who will be in the house before approving the loan. in the paperwork, from your loan officer, the independant counseler, etc

March 15 2011 at 5:18 PM Report abuse +7 rate up rate down Reply
grandpafour123

GO AFTER ROBERT WAGNER AND THE FONZE LYING SONS OFF BITCHES .HOW COULD THIS PEOPLE GO ON T.V KNOWING THIS REVERSE MORTGAGES IS NOT GOING TO WORK .

March 15 2011 at 5:09 PM Report abuse +5 rate up rate down Reply