A home equity conversion mortgage, commonly known as a reverse mortgage, allows seniors to tap into the equity in their home. Unlike a traditional mortgage, the borrower does not make ongoing monthly payments to pay off the loan. Repayment is not required until the home is sold, either when the borrower moves out, such as to a nursing home or assisted living facility, or when he/she dies.
Borrowers must be at least 62 years old to qualify for a reverse mortgage. As discussed previously in this blog reverse mortgages can be helpful in the right situation but they also have potential pitfalls. One potential negative is when one spouse is over 62 and one isn’t. In that case the “over 62” spouse must be the sole owner of the home and the sole borrower. There are also other instances in which both spouses meet the age requirement but only one spouse owns the home and takes out the reverse mortgage. So, what happens if the borrower spouse dies? What rights does the non-borrower spouse have?
Under the terms of the reverse mortgage, the non-borrower spouse must refinance the loan, sell the home or risk losing it through a foreclosure action by the lender. Clearly this wasn’t the intention of the reverse mortgage program when it was created in 1989. Later changes in home mortgage regulations now permit certain non-borrower spouses to remain in the home.
If the loan originated on or after August 4, 2014 protections are now in place for what are defined as “eligible non-borrowing spouses” allowing them to defer the repayment of the reverse mortgage. To be considered eligible the non-borrowing spouse must complete reverse mortgage counseling with an approved counselor, have been married to the borrower spouse at the time the loan closed and remain married until the spouse dies and been identified in the mortgage application as an eligible non-borrowing spouse in the closing documents and sign certain mandatory disclosures. Finally, the property must remain the primary residence thru the life of the loan and at the time of the borrower spouse’s death
Meeting these requirements will allow the non-borrower spouse to stay in the home without requiring repayment of the mortgage until he/she moves out or dies. But, what about a loan that was taken before August 4, 2014? What protection does the non-borrower spouse have in that instance?
The spouse might still be able to stay in the home but that will be entirely at the election of the lender. The non-borrower spouse must also meet the requirement of being legally married and remain married throughout the life of the loan or in a committed relationship with the borrower akin to marriage but because of their gender, the laws of the state would not allow for marriage. The home must continue to be the primary residence. Finally, the non-borrower spouse must be able to obtain title to the property within 90 days of the borrower spouse’s death.