Options When a Spouse Dies with a Reverse Mortgage

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Options When a Spouse Dies with a Reverse Mortgage

Reverse mortgages allow homeowners who are 62 years of age or older to access their equity without having to sell their property or make regular payments. Your home equity is advanced by a lender, who may pay you with a lump amount, regular payments, or a line of credit. Your debt grows, your home equity declines, and interest and fees accumulate throughout the course of the loan.

The loan doesn’t become due until you sell the house, vacate, fall behind on property taxes, or pass away, in contrast to a conventional (or forward) mortgage. Your next actions if your spouse has a reverse mortgage depend on whether you are a co-borrower on the loan, an eligible or ineligible non-borrowing spouse, or a co-borrower on the loan.

Key Takeaways

  • For homeowners 62 and older who wish to access their home equity without selling the property or making regular payments, a reverse mortgage is an option.
  • When you sell the house, vacate the property, become behind on property taxes, or die away, the loan and interest become due.
  • After the borrower passes away, eligible non-borrowing spouses may stay in the house with them, but they won’t get any more loan money.
  • Anyone who meets the requirements may sign on as a co-borrower on a reverse mortgage, including your spouse, partner, or roommate.
  • Depending on whether the surviving spouse is a co-borrower, an eligible or ineligible non-borrowing spouse, or both, different things happen if a spouse dies with a reverse mortgage.

Home equity conversion mortgages (HECMs), which are almost exclusively issued by lenders with FHA backing and guaranteed by the Federal Housing Administration (FHA), are reverse mortgages. If you have a different sort of loan than what is stated here, then these safeguards may not be applicable. Review your reverse mortgage document, and if you have any questions or concerns, speak with an experienced lawyer.

How Your Age Affects a Reverse Mortgage

An introduction to reverse mortgages is first necessary. To qualify for a HECM, you must be at least 62 years old (some proprietary reverse mortgage lenders accept borrowers as young as 55).However, the amount you may get from a reverse mortgage depends on your age as well as the age of your spouse or any co-borrowers on the loan. Due to the fact that the loan debt grows over time, the longer a borrower or non-borrowing spouse occupies the property, the more likely it is that the loan balance will be higher than the property’s worth. Since you can never owe more on a property than it is worth, the FHA seeks to prevent that from happening.

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The entire amount you may borrow on a reverse mortgage before paying off any outstanding debts, fees, and property levies is known as the net principal limit.

Principal limitations are often larger for loans with older borrowers, more expensive properties, and lower interest rates, and vice versa. The youngest borrower’s age, or the age of an eligible non-borrowing spouse, determines the maximum principal amount.

If Your Spouse or Partner Is a Co-Borrower

Any co-borrower on the loan continues to profit from the reverse mortgage after a borrower passes away, including receiving loan payments. Co-borrowers may also occupy the property for whatever period of time they want, providing they continue to make their payments on time. To benefit from these safeguards, a spouse or partner who satisfies the borrowing criteria should often be identified as a co-borrower on a reverse mortgage.

You are required to keep up with your continuing property obligations under the conditions of the reverse mortgage loan, including your property taxes, homeowners insurance, flood insurance premiums, homeowners association (HOA) fees, and any special assessments.

If Your Spouse or Partner Isn’t a Co-Borrower

Provided a spouse or partner of a dead reverse mortgage holder isn’t named as a co-borrower on the loan documentation, they are still allowed to reside in the property if they repay the debt, although they usually do so by selling the house and moving to a different location. However, depending on whether they are an eligible or ineligible non-borrowing spouse and when the loan started, a surviving spouse could be permitted to live in the house without paying the debt. Here is a summary.

A spouse who is not a borrower under a reverse mortgage arrangement is known as a non-borrowing spouse. While there are several reasons a spouse wouldn’t borrow, age is the most frequent one: To qualify as a borrower or co-borrower of a HECM, you must be at least 62 years old.

Reverse Mortgages Originated Before Aug. 4, 2014

For reverse mortgage loans that were created before to August 4, 2014, non-borrowing spouses have less safeguards. If the borrower enters a hospital or passes away, the lender or loan servicer may:

  • foreclosure (a non-borrowing spouse who is actively attempting to sell the property or pay off the debt may ask for a 180-day postponement in the foreclosure), or
  • Enter the “Mortgagee Optional Election (MOE) Assignment” procedure, which enables a non-borrowing spouse who qualifies to stay in the home.
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Reverse Mortgages Originated on or After Aug. 4, 2014

A borrower’s lender (or loan servicer) will decide whether or not their spouse, who is not a co-borrower, is an eligible or ineligible non-borrowing spouse in the event that the borrower passes away or enters a healthcare facility. For reverse mortgages that were started on or after August 4, 2014, a spouse who meets the requirements of the U.S. Department of Housing and Urban Development (HUD) as an eligible non-borrowing spouse is granted a number of significant safeguards. The non-borrowing spouses who are qualified under HUD program updates:

  • may continue to live in the house after their spouse passes away or enters a nursing facility without having to pay the remaining loan sum. The deferral period continues as long as the surviving spouse occupies, maintains, and pays the property taxes on the residence.
  • Making it simpler for non-borrowing spouses to prove deferral eligibility is the elimination of the need to create a marketable title or to show that they have the legal right to live in the house after their spouse’s passing.

Non-borrowing spouses do not get any residual loan cash, but they do continue to have access to the loan’s safeguards. When the borrower spouse dies, the payments cease and any open credit lines are closed.

Eligible Non-Borrowing Spouses

An eligible non-borrowing spouse must meet the following requirements:

  • have been wed to you at the time you signed the loan paperwork and remained so until your death.
  • have been designated as a non-borrowing spouse in the loan paperwork.
  • even after you leave or pass away, have continued to remain there as their primary abode.
  • Observe the continuing loan conditions.

If they are married before the borrower passes away or enters a healthcare facility for more than a year, same-sex couples who were legally barred from getting married when they applied for a reverse mortgage are eligible for non-borrowing spouse protections.

Ineligible Non-Borrowing Spouses

A non-borrowing spouse who does not satisfy the aforementioned eligibility conditions is an ineligible non-borrowing spouse. If the borrowing spouse passes away or vacates the property permanently to attend a healthcare institution, the disqualified non-borrowing spouse has no safeguards enabling them to stay in the house.

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If you believe that your spouse should be included on your reverse mortgage loan, you should get legal counsel, advises the Consumer Financial Protection Bureau (CFPB). Consult a lawyer regarding passing the property to your spouse after your death if your spouse isn’t a borrower on the loan.

Can you outlive a reverse mortgage?

No, the loan is not due until the last borrower on the reverse mortgage loan agreement sells the property, vacates the property, ceases making insurance and tax payments, neglects the property, or passes away. So long as you keep up with those payments and the necessary upkeep, you are free to occupy the home as long as you choose without having to pay back the loan.

What happens if my reverse mortgage lender goes out of business?

Your terms won’t alter if you have a home equity conversion mortgage (HECM), which is the most typical reverse mortgage. This is so that government insurance would cover the debt. As long as you meet your loan commitments, you will continue to receive your pre-agreed payments.

Can I change my mind after closing on a reverse mortgage loan?

The Bottom Line

Prior to 2014, non-borrowing spouses had to choose between paying off or refinancing the loan—or forfeiting the house—before HUD announced improvements to its HECM program. However, qualified non-borrowing spouses may live in the home for as long as they choose as long as they pay their mortgage responsibilities for loans that were generated on or after August 4, 2014.

The CFPB advises the following if you’re encountering issues with a reverse mortgage:

  • Speak with a housing counselor who is HUD-approved.
  • Consult a lawyer (you may qualify for free legal services; visit lsc.gov to find a legal aid office).
  • To learn about federal, state, and local assistance programs that may be able to help you pay for property taxes and home repairs, get in touch with Area Agencies on Aging (AAA).
  • If you’re experiencing troubles with your lender or servicer, file a complaint with the CFPB.

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