8195 / Can a surviving spouse remain in a home that is subject to a reverse mortgage even though the surviving spouse is not the borrower under the mortgage?

Under a relatively recently decided court ruling, a surviving spouse may remain in a home that is subject to a reverse mortgage even though the sole borrower on the mortgage is the deceased spouse.¹ Because eligibility for a reverse mortgage depends upon the borrower’s reaching age 62 (see Q Q 8183), in some cases married taxpayers have been advised that the younger spouse can sell the home to the older spouse in a quitclaim sale. The older spouse would then qualify for a reverse mortgage, but would be listed as the sole borrower on the mortgage.

U.S. Department of Housing and Urban Development (HUD) regulations governing reverse mortgages, however, allowed the lender to demand that the loan be repaid immediately upon the death of the borrower.² A group of surviving spouses who were facing foreclosure on homes that were subject to reverse mortgages challenged this rule, arguing that the HUD regulation violated a federal law because it did not protect the surviving spouse. Federal regulations provide that HUD may not issue a reverse mortgage unless it provides that the homeowner’s obligation to satisfy the loan is deferred until the homeowner’s death, the sale of the home or certain other enumerated events.³ Under those regulations, the term “homeowner” was defined to include the spouse of the homeowner.

The court agreed with the plaintiffs and ruled that since the regulations specifically referred to a spouse of a homeowner, rather than a co-mortgager or co-borrower, the law meant to protect a surviving spouse of a borrower-homeowner regardless of whether that surviving spouse was also a borrower under the reverse mortgage. As a result of this case, HUD regulations now provide that reverse mortgages issued after August 4, 2014 must allow the surviving spouse to remain in the home that is subject to the reverse mortgage after the borrower dies, so long as the following are true:

(1) the non-borrowing spouse must be married to the borrowing spouse when the reverse mortgage is closed and must remain married to the borrowing spouse until the death of the surviving spouse,

(2) the marriage must be disclosed at the time of the mortgage origination,

(3) the non-borrowing spouse must be specifically named in the loan documents,

(4) the non-borrowing spouse must establish legal ownership of the home or legal right to remain in the home within 90 days of the borrowing spouse’s death,

(5) the non-borrowing spouse must occupy the home securing the reverse mortgage as his or her principal residence, and

(6) the non-borrowing spouse must continue to satisfy all other loan obligations.⁴

If a surviving spouse fails to satisfy the criteria enumerated above, the lender may require immediate repayment of the reverse mortgage.