My spouse is the only borrower on our reverse mortgage. If he dies, will I lose the home?

Question

I have a reverse mortgage with my spouse, but I am not on the loan documents. If my spouse dies, will I lose the home?

Answer

In the past, the answer would be – probably. But because of a new court decision, that may be changing.

Foreclosure of Reverse Mortgages When Borrower-Spouse Dies

It is not uncommon for only one spouse to be a signatory on a reverse mortgage. Brokers sometimes advise couples to leave the younger spouse off the reverse mortgage so that they couple can borrow more money. Often, the broker tells the couple that structuring the documents this way won’t affect the non-borrower spouse’s right to live in the home. But in the past, this was often not true. Many times, when the spouse on the mortgage died, the holder of the reverse mortgage would demand full payment of the reverse mortgage — and if the spouse could not repay the entire loan (which was often the case), he or she would then face foreclose.  (Learn more about foreclosure of reverse mortgages.)

Bennett v. Donovan

In Bennett et al. v. Donovan, 2013 WL 5442154 (D.D.C. Sept. 30, 2013), the United States District Court for the District of Columbia ruled that a Housing and Urban Department (HUD) regulation that allows lenders to demand that surviving spouses immediately repay reverse mortgage loans upon the death of their spouses violates federal law. The court remanded the case to HUD to fix the problem in accordance with the court’s decision. It remains to be seen exactly how HUD will fix the problem, but it may led to regulatory changes.

To learn more about this case, including the factual background and the reasoning behind the decision, see Nolo’s article New Rule: Spouses Not Named on Reverse Mortgages Are Protected From Foreclosure.