Three older homeowners facing foreclosure have been granted a reprieve after the government rescinded a policy that effectively penalized surviving spouses not listed on reverse mortgages.
See also: Paying back reverse mortgages.
The action comes less than a month after AARP Foundation Litigation and the Washington law firm Mehri & Skalet filed suit against the Department of Housing and Urban Development for abandoning long-standing federal rules that applied to reverse mortgages insured by the Federal Housing Administration. The rules have been in place since 1994.
The case against HUD carries broad implications because it affects whether spouses would be able to stay in homes that are now under water.
"Rather than protecting borrowers, HUD retroactively changed the terms of the loans to make these elderly borrowers' spouses and heirs pay more to keep their home than an unrelated purchaser would have to pay to purchase the property," says attorney Steven A. Skalet.
He adds that HUD agreed not to proceed in the eviction and foreclosure of those three spouses named in the suit pending a final resolution of the case.
The HUD rules in 1994 stated that reverse mortgage borrowers or heirs would "never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt."
But at the end of 2008, HUD "turned existing reverse mortgage policies upside down" by deciding that an heir — including a surviving spouse who was not named on the mortgage — must pay off the mortgage balance to keep the home, even it if exceeded the property's value, says Constantine-Davis.
“Spouses not named on deeds are still defined as ‘homeowners,’ under the reverse mortgage law,” Constantine-Davis says. "Many people are in this situation, where one spouse is not listed on the reverse mortgage or deed. Many people are in jeopardy over this."
Carole Fleck is a senior editor at the AARP Bulletin.