AARP: HUD Should Repay Reverse Mortgages for Non-Borrowing Spouses

AARP is renewing its challenge against the Department of Housing and Urban Development (HUD) for failing to protect surviving spouses who are not named on a reverse mortgage loan, supporting an appeals court’s suggestion that HUD should take the loss on those loans. 

A recent AARP Bulletin features Robert Bennett, now 71, who is at risk of foreclosure following the unexpected death of his wife, Ophelia, a month after she took out a reverse mortgage in 2008. Bennett was not listed as a borrower, and when Ophelia passed away after a stroke, the reverse mortgage lender told Bennett he had to repay the outstanding loan balance or else lose his home.

“It feels terrible to work so hard to keep up a home and know that the lender wants to take it away from me,” Bennett, 71, told AARP.  “I just want to own this home, take care of it and live here feeling safe.”

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Reverse mortgage lenders have the ability, under HUD regulations, to foreclose on loans after the borrower dies or leaves the home. This applies to cases where a surviving spouse wants to remain in the home but is not listed on the reverse mortgage. 

In 2008—the same year Bennett’s wife died—HUD issued a rule requiring surviving spouses not named on the reverse mortgage to pay the full balance of the loan when purchasing the property in question.

A non-related buyer, on the other hand, could buy the property for the lesser of the reverse mortgage balance, or 95% of the home’s current value. 

In response, three surviving spouses of deceased reverse mortgage borrowers sued HUD, represented by AARP Foundation Litigation attorneys and another law firm.

While HUD withdrew the rule prohibiting spouses from purchasing at 95% of the property’s current value, the plaintiff’s other claim—that federal law protects surviving spouses from displacement following the death of a borrowing spouse—was dismissed by the District Court for the District of Columbia in 2011. 

The court said that even if plaintiffs were able to make a case that HUD’s regulations violated federal law, they were directing their claim against the wrong party, as the decision to foreclosure on the plaintiffs’ homes was not up to HUD but rather the lenders holding the reverse mortgage.

The plaintiffs appealed, and in January 2013 an appeals court reversed the lower court’s decision. This reversal allows Bennett to pursue his claim that HUD’s regulation violates federal reverse mortgage law, according to the AARP bulletin, which protects surviving spouses from foreclosure. 

“The appeals court also suggested that, even if the lenders have the right to foreclosure, HUD has the authority to take on the loans of deceased homeowners, pay off the balance to the lenders, and allow the surviving spouses to remain in their homes until death,” says the AARP Bulletin on why both spouses should be named on a reverse mortgage. 

The case is now returning to the lower court, says AARP, which will decide whether HUD’s regulation violates the federal reverse mortgage law. 

“We are concerned that there are many surviving spouses like Mr. Bennett who are being forced out of their homes,” said Jean Constantine-Davis, senior attorney for AARP Foundation Litigation. “Something needs to be done quickly to resolve this problem.”

Written by Alyssa Gerace

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  • Unfortunately Emily allowed her emotional appeal to cloud the underlying issue. Her point per the end of the article was as to married couples, when looking at how to originate HECMs, “both spouses should be named on the mortgage.”

    Emily is absolutely wrong. There are many cases where only one spouse should be named. For example, in many blended families, who owns what has been worked out long ago. Then there is the issue of pre-nup agreements. Some families live in family homes where after children are grown, occupancy of the house transfers as soon as the spouse from that family passes, and on and on.

    COMING OFF OF TITLE is a very different matter and should rarely be recommended or considered.

    Emily also misses the very crucial point of remarriage after the most recent HECM has been funded. While Emily may be a good writer in the eyes of some of her readers, she lacks mastery of the subject matter.

  • Anybody besides me asking some pretty obvious questions? The loan was only open for a month- unless it was a full or substantial draw, how much could the balance be? And if it was a ful draw, where’s the money?

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