Court Rules Banks Cannot Foreclose on Surviving Spouses of Reverse Mortgage Holders

9:38 pm Retirement Planning

gavel 2 e1319495176879 Court Rules Banks Cannot Foreclose on Surviving Spouses of Reverse Mortgage HoldersA federal court has ruled that surviving spouses of reverse mortgage holders cannot lose their homes if they are unable to pay off the mortgage.

Prior to this ruling by the U.S. District Court for the District of Columbia in Robert Bennett, et al v. Shaun Donovan, Secretary, HUD, a surviving spouse whose name was not on a reverse mortgage had to pay off the mortgage or move out.  The AARP Foundation filed the suit on behalf of three surviving spouses who faced foreclosure and eviction from their homes in 2011.

The Court ruled that HUD had violated federal law by failing to protect the plaintiffs from foreclosure as a result of the death of a spouse named on the mortgage loan.  The suit had claimed that surviving spouses were homeowners entitled by the Home Equity Conversion Mortgage law to be protected from foreclosure.  The Court ordered HUD to establish new guidelines for dealing with surviving spouses in this situation.

“The decision marks a turning point for surviving spouses such as our clients and ensures that they will receive the protections guaranteed by the law:  that they will be able to remain in their homes, despite the loss of their husband or wife,” said Jean Constantine-Davis, senior attorney with AARP Foundation Litigation.

New rules that will make it more difficult to obtain a reverse mortgage went into effect on Sept. 30, 2013.  Under these new rules:

  • There is a limit on the amount of money that can be withdrawn in the first year.  It is 60 percent of the total loan.
  • Prospective borrowers will have access to about 15 percent less home equity on average
  • A portion of the mortgage’s cost will now be based on the amount withdrawn
  • Lenders are required to ensure borrowers will be able to make the necessary tax and insurance payments over the life of the loan.  If not, borrowers will be required to set aside a reserve to make these payments

Reverse mortgages are often used to fund retirement, but they are not for everyone.  For solid retirement planning strategies for your individual circumstances, contact our Orange County law firm.

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