FindLaw KnowledgeBasePublished: 2011-08-03
More Reverse Mortgages Leading to Foreclosures
The real estate boom created unprecedented growth in the market. Millions of home equity loans were created, along with reverse mortgages; products that allowed older Americans to withdraw some of the equity from their homes. The requirements were quite simple. Borrowers must be 62 years or older, own their property and use it as their primary residence, and maintain it with necessary repairs and insurance.
Despite participating in required information counseling sessions, elderly Americans are still subject to foreclosure when one spouse dies and the home passes to the surviving spouse. This issue arises when both spouses are not on the new mortgage. For instance, where a husband owns the home outright, takes out the reverse mortgage and dies leaving a surviving wife, the reverse mortgage becomes immediately due and payable. Further complicating things, the wife is not eligible for continued payments under the reverse mortgage. If the surviving spouse cannot pay off existing the loan, the lender can foreclose on the property.
Often only one spouse’s name is on the reverse mortgage, usually the older spouse, because a larger loan or larger payments can be received if only one life is the measuring period for the loan and that life is the life of the older spouse.
The seniors’ advocacy group, AARP, brought suit against the Housing and Urban Development Department over reverse mortgages that were subject to foreclosure. The AARP claims that lenders are demanding that newly widowed spouses who are not on the mortgage that want to stay in their home must pay off the balance of their reverse mortgages -- even when their homes are underwater. They believe this is contrary to HUD’s rules, which express that a borrower (or heir) would never owe more than the loan balance or value of the property, whichever is less. This is especially important since borrowers certainly did not expect the housing bubble to burst and wipe out the value of their home.
The suit was recently dismissed when the court determined that the plaintiffs could not properly seek redress through HUD. Since the loans were ultimately secured through private banks, HUD could not be held liable for their injuries, and were not involved in the foreclosure proceedings. Since the case was dismissed without prejudice, the AARP may submit an amended complaint or try their case again under a different legal theory.
If your home is subject to foreclosure after a reverse mortgage has become due, an experienced attorney can advise you.