Seniors living on a fixed income are often in a tough spot. Costs keep rising, especially for healthcare and medication, and income does not keep pace. Many seniors are taking advantage of reverse mortgages to provide supplemental income. A reverse mortgage is attractive. It allows a homeowner to access available house equity with no repayment obligation so long as he or she resides in the home. But a married couple must take care when using a reverse mortgage. If they do not, it is possible that their home will be foreclosed upon after the death of the oldest spouse. We have run into this several times recently. Here is what can happen.
One characteristic of a reverse mortgage is that older homeowners are offered better terms. This is because the lender knows that the loan will probably have a shorter term than a loan granted to a younger person. This can lead to problems. Homeowners want the best deal possible. If one spouse is significantly older than the other, the older person will sometimes take out the reverse mortgage in his or her name alone to get the best terms. To make this work, the non-borrowing spouse will need to deed his or her interest in the home to the borrowing spouse. So far so good. Now there is a reverse mortgage on the home with good terms and the spouses have access to funds. The problem arises when the older spouse, the one who obtained the reverse mortgage, dies. Now the loan becomes all due and payable. This creates a tremendous hardship for the surviving, non-borrowing spouse who is still living in a home that he or she does not own. This spouse does not want to sell the home and probably cannot refinance. The reverse mortgage lender sees no option but to commence foreclosure.
HUD has attempted to remedy this situation so a non-borrowing spouse can remain in his or her home. HUD created a program that allows a mortgagee or mortgage servicer to assign a reverse mortgage loan to HUD provided the non-borrowing spouse can meet certain requirements. These requirements include a showing of the ability to become the legal owner of the property within 90 days of the borrowing spouse’s death.
This time limit is hard to comply with. Legal proceedings to obtain title can happen within 90 days from the borrowing spouse’s death assuming the non-borrowing spouse can act quickly. But, in most cases, the non-borrowing spouse is unaware of this requirement and the 90 day period expires. An extension of time can be requested, but there is no clear path to a solution. Foreclosures can occur.
This result can be avoided if both spouses are borrowers on any reverse mortgage. If only one spouse must be the borrower, a good practice is to identify the non-borrowing spouse in the loan documents and, after the loan is in place, transfer ownership of the home back to both spouses or to their trust.
A real estate attorney should be consulted to supervise the reverse mortgage process and make sure that title is held correctly once the reverse mortgage is in place.
Consult with experienced attorneys who have been practicing in the area of Real Estate, Probate, Trusts, Guardianship, Estate Planning, Estate Administration and Litigation for over 40 years such as the Real Estate Lawyer Phoenix AZ locals turn to.
Thanks to Authors at Platt Westby PC for their insight into Estate and Probate Law.