Good News for Couples with Reverse Mortgages

You probably know that AARP represents the interests of older Americans. But did you know that it's actually out there in court, making sure that the rights of people 50+ are not violated?

This week, two plaintiffs represented by the AARP Foundation Litigation won their case against the Department of Housing and Urban Development. A federal trial court in Washington, D.C., ruled that HUD violated federal law when it did not protect surviving spouses of holders of reverse mortgages.

Let's back up. A reverse mortgage is a loan that allows older homeowners (those over 62) to convert a portion of the equity in their homes into cash. It's the "reverse" of a traditional mortgage, in which the borrower repays the borrowed sum on a monthly basis. Reverse mortgage borrowers receive money in exchange for their home equity.

Reverse-mortgage borrowers are not required to make monthly or other periodic payments to repay the loan. Instead, the loan balance increases over time, and the loan does not become due and payable until one of several specific events occur. In this case, the loans became due because of the death of the homeowner.

So, here's what happened. When Robert Bennett and Leila Joseph's spouses died, their spouses held reverse mortgages. The terms of the mortgages, which were written by HUD, said that the mortgages are due and payable once the borrowers die. But even though Mr. Bennett and Ms. Joseph had owned the homes with their spouses for decades, they were taken off the deeds to the homes at the time the reverse mortgages were done. Because they were not named borrowers on the reverse mortgages, the lenders demanded that they pay off the loans or face foreclosure.

AARP argued that the foreclosures were illegal because HUD's regulations and mortgage documents conflict with the law Congress passed authorizing the federal reverse mortgage program. The plaintiffs contended that the law protects both reverse-mortgage borrowers and their spouses from foreclosure until they die or sell the property.

The D.C. court agreed. It told HUD that it had to find a way to fix the problem. How exactly the agency will do that is unclear, but one thing we know: Just leaving your spouse's name off a reverse mortgage is not the quick fix it might seem.

"The court's decision is clear that the law gives our clients and others like them protection from foreclosure," says Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation. "We are hopeful that HUD will act quickly to broadly implement this protection."

All this is good news for older Americans with reverse mortgages: Should they die unexpectedly, their surviving spouses will not have to worry about losing their homes while they are still grieving.

 

Photo: 401(K) 2012 via Flickr

 

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