Here is a Reverse Mortgage Case Scenario. Let’s figure it out.

Reverse Mortgage Question:

Dear Retirement Adviser,
Our home has had a reverse mortgage since 2008 when my husband turned 62 years old. We are retired and I’m now 62. I feel like I need to be added to the deed.

The mortgage lender says that it is not possible because they do not initiate these anymore and that we should refinance with another company. We talked with one company and were told it is not possible because our current interest rate is too low. Also, we would need to come up with an extra $15,000 at closing. We are both disabled and live on our Social Security checks. We have trouble paying the electricity bill.

It appears that if my husband dies I could become homeless. We are worried and don’t know what to do. Can you help?

Thank you,
— Maria

Answer:

Dear Maria,
Your situation highlights a common problem with reverse mortgages, particularly for retired couples. At the time your husband got his mortgage, the youngest person on the mortgage had to be at least 62.

A federal court has ruled in the past that a surviving spouse can’t be evicted from the home when there’s a reverse mortgage in place. That’s even if they are not listed on the mortgage.

In this court situation, AARP Foundation attorneys, acting for two surviving spouses, sued the Department of Housing and Urban Development over the issue. Since HUD regulates reverse mortgage loans, AARP held that HUD was in violation of federal law when it required surviving spouses not named on the mortgage to either pay off the loan or face foreclosure when their spouse died.

So, you don’t need to refinance your mortgage to protect your ability to live in the home, should your husband die first.

HUD is expected to release information in the near future that will spell out the implications of this court case. I hate to tell a person struggling to pay the electric bill that he or she should consult with a real estate attorney on the matter. But if you did, it could give you some peace of mind. It also would be a lot cheaper than getting a new reverse mortgage at a higher interest rate and paying $15,000 to close.

These regulations were revised in 2013 under the Reverse Mortgage Stabilization Act. Later reverse mortgage loans issued since the law was implemented will include the spouse on the loan, thus formally protecting surviving spouses. Unfortunately, the changes are also expected to reduce the amount of money available to seniors from a reverse mortgage.

By Dr. Don Taylor, Ph.D., CFA, CFP, CASL