Island Gazette

The Survivor’s Guide: XIX- Reverse Mortgages

A married couple obtains a reverse mortgage with the intention of cashing in on the equity in their marital home. The Wife dies and the Husband remarries. Husband now dies; however, the property and reverse mortgage is titled only in the Husband’s name. Why does the new wife have no standing to remain in the house? The Department of Housing and Urban Development (HUD) in 2008 clarified its ruling on reverse mortgages that had previously allowed spouses who were not named on the deed to continue reverse mortgages when their spouses died. The Department indicated in their clarification that when a spouse died, the surviving spouse who was not on the real property deed would have to pay the amount owed on the reverse mortgage or the difference between the outstanding reverse mortgage amount and the initial value of the home at the time the mortgage was received. The property taxes and insurance remain the responsibility of the homeowner. If payments are not made for taxes and insurance the provisions of the loan will not be in compliance and the loan may be considered delinquent. A lawsuit against HUD by AARP has commenced regarding the impact the clarification has on the elderly. Traditionally, senior citizens benefited by being able to cash out the equity of their home upon receipt of a reverse mortgage. However, the bank retains ownership of the home upon its sale or death of the senior named spouse. Banks are facing the same dilemma as today’s homeowners due to the difficulties and depressed values in the housing market. The value of the property the bank owns may not be equal to or more than the purchase price paid by the named spouse. Banks and HUD may owe more than can be reasonably recovered as the market value of the property continues to fall. What about the couple that took out a reverse mortgage with the intention of leaving their home to their child after they died? The deed and mortgage is not titled in their child’s name only in the couple’s names or perhaps in only one of the couples’ name.  The child may not be capable of creating an income and therefore decides to move back into the parent’s home to help care for their father and/or mother.  The house when the reverse mortgage was initiated was valued at $350,000 and the parents owed $175,000 on the reverse mortgage at the time of their demise. The child is not able to pay the amount owed on the reverse mortgage as they do not have an income of their own. 
The result is the family’s wishes in their Wills may not be honored as the property may be surrendered. 
The family may have had some options, but did not investigate the situation prior to signing the contract for the reverse mortgage and preparing for disposition of their assets which included the responsibilities of the reverse mortgage after their demise. A qualified attorney can assist in determining which option is best for you.  From the office of: Sharon A. Hatton Law Office P.C., 321 N. Front Street, Wilmington, NC  28401 Tel: 910-772-9455.  http://Wills UCanTrust.com, Send questions to IslandGazette@ aol.com.

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