Last week the New York Times posted an article on a really sad new legal issue facing surviving spouses of homeowners who took out reverse mortgages on the home. Here is the article. The AARP just filed suit against the United States Department of Housing and Urban Development alleging that rule changes made by HUD in 2008 require “surviving spouses who are not named on the mortgage must pay the full loan balance to keep the home, even if the property is worth less.”
Here is the AARP press release. As soon as I obtain a copy of the lawsuit, I will post it online here.
The HUD rules prior to the Bush Administration’s changes in 2008 stated that a borrower and his or her heirs would never own more than the home was worth at the time of repayment. In 2008, HUD changed the policy to mandate that an heir, and a surviving spouse who was not named on the original reverse mortgage, must pay the full mortgage balance to keep the home, even that full balance exceeds the value of the property. This change violates prior HUD rules, it violates existing contracts between reverse mortgage borrowers and lenders, and it negates a key purpose for which borrowers had been paying insurance premiums.
Here is the beginning of the article –
Reverse mortgages, which pay older homeowners a regular sum against the equity in their house, are supposed to shield borrowers from economic upheaval. But the popular loans have become tangled up in the real estate collapse.
AARP, the seniors’ organization, filed suit Tuesday against the Department of Housing and Urban Development, which regulates reverse mortgages. The suit asserts that policy changes by HUD are pushing older homeowners into foreclosure.
The case was filed in Federal District Court for the District of Columbia by the AARP Foundation, the organization’s charitable arm, and the law firm of Mehri & Skalet on behalf of the surviving spouses of three homeowners who had bought reverse mortgages. All three are facing eviction, the suit says.
If you or your parents or other seniors in your life have participated in reverse mortgages, be aware of this issue and seek advice from your lender, your financial planner or your lawyer regarding the legal obligations and rights in light of the 2008 rule changes.