A Non-Borrowing Spouse Guide to Reverse Mortgage
In an evolving financial landscape, reverse mortgages have emerged as a valuable tool for many retirees seeking to enhance their post-retirement finances. However, as with any financial instrument, the specifics can be intricate, especially when considering the implications for both borrowers and their spouses. For couples, the scenario where only one party becomes the borrower can pose a multitude of questions and concerns.
Understanding the role and rights of a non-borrowing spouse in a reverse mortgage loan is crucial. It ensures that individuals are well-equipped to make informed decisions that safeguard their housing security and future financial stability. This guide delves into the comprehensive nuances of the non-borrowing spouse’s position within the realm of reverse mortgages. Whether you’re contemplating a reverse mortgage, already involved in one, or simply wish to be informed, this guide serves as an essential resource.
There are two classes of non-borrowing spouses as they relate to a HECM (Home Equity Conversion Mortgage) reverse mortgage loan. One is an eligible non-borrowing spouse and the other is an ineligible non-borrowing spouse. To be an eligible non-borrowing spouse, the spouse must be marred to the borrower at the time when the borrower applied for and closed the reverse mortgage loan.
While it is commonplace for both partners in a couple to jointly apply for a reverse mortgage, there can be instances where only one spouse meets the eligibility criteria. In such scenarios, only one spouse becomes the borrowing individual, leaving the other as a non-borrowing spouse. The wellbeing and legal safeguards for the non-borrowing spouse, in the event of the borrowing spouse encountering unforeseen circumstances, hinge on various determinants.
Legislation surrounding this matter has undergone several revisions over time. As it stands now, uniform protections are in place for all qualifying non-borrowing spouses, irrespective of when the reverse mortgage was procured.* HUD permits eligible Non-Borrowing Spouses the opportunity to continue to live in the mortgaged property after the death of the last remaining HECM borrower or when the last surviving borrower moves into a healthcare facility for more than 12 consecutive months provided they meet all the established requirements and the HECM is not in default for any other reason (such as failure to pay required property taxes or hazard insurance payments).
Who Is Considered a Non-Borrowing Spouse?
The phrase “non-borrowing spouse” refers to an individual who is married to a person who has taken out a reverse mortgage, but is not themselves a party to the loan.
The most common reason a non-borrowing spouse is not included as a co-borrower at the time of the loan application is that they are under the age requirement of 62, which is a requirement for HECM loans.
Should a non-borrowing spouse satisfy the stipulations set forth by the Department of Housing and Urban Development (HUD), they are eligible for certain rights and protections in case the borrowing spouse dies or needs to vacate the home for a prolonged duration.
To be considered eligible, a non-borrowing spouse must:
- Participate in mandatory HECM financial counseling.
- Be listed as a non-borrowing spouse on the loan.
- Be legally married to the HECM borrower when the loan closes and remain so until the loan becomes due, typically when the borrower dies.
- Live in the home as their primary residence at the time of closing and afterward.
What Happens If the Borrower Moves to a Long-Term Care Facility or Dies?
Long-Term Care Facility
If a borrower has to move to a long-term care facility for more than 12 consecutive months, the non-borrowing spouse can continue living in the home without repaying the loan, provided they adhere to the loan terms which generally include maintaining the home and staying current on property tax and homeowner’s insurance payments.
Death of the Borrower
A reverse mortgage generally becomes due and payable following the death of the last surviving borrower. However, when an eligible non-borrowing spouse is involved , the loan enters a deferral period, in which the lender will not try to collect and all proceeds will be frozen.
Upon the death of the borrower, or a borrower who has moved to a care facility for more than 12 consecutive months, eligible non-borrowing spouses can stay in the home provided the following qualifications are met:
- The non-borrowing spouse was married to the borrower at the time of the loan closing and remained married until the spouse’s death or departure from the home.
- The HECM isn’t in default for any reason.
- The individual is listed as a non-borrowing spouse in HECM documents.
- The non-borrowing spouse plans to continue to live in the home as the primary residence.
- The non-borrowing spouse continues to pay maintenance, property taxes, and home insurance.
What Protections Are Available to Non-Borrowing Spouses?
Thanks to recent regulatory enhancements, eligible non-borrowing spouses are afforded several protections to help maintain their residency in the home, provided they adhere to the terms of the mortgage agreement. These protections include:
- Deferral Period: In the event of the borrowing spouse’s death, a deferral period can be requested wherein the non-borrowing spouse is permitted to remain in the home.
- HECM Documentations: Ensuring the non-borrowing spouse is listed as such in the HECM documents, offering them protection and rights to reside in the home post the borrowing spouse’s demise.
- HUD Counseling: Non-borrowing spouses must be present during HUD-mandated counseling sessions, allowing them a detailed understanding of the implications and obligations of a reverse mortgage.
Prior to the Mortgagee Letters released by HUD in 2014 and 2021, the non-borrowing spouses, not being co-borrowers in a HECM agreement, were at risk of losing their homes unless they managed to settle the loan that had been left behind by their deceased partners. These revised directives now grant non-borrowing spouses the breathing space to mourn without the immediate threat of having to vacate their residences amidst the death or severe illness of the borrowing spouse.
The particulars of the 2021 Mortgagee Letter delineate the safeguards in place for qualified non-borrowing spouses, which are:
- There is no obligation for non-borrowing spouses to present paperwork affirming they hold a marketable title or the legal entitlement to continue residing in the property.
- They are shielded in circumstances of the borrowing spouse passing away or having to stay in a long-term care facility for a duration surpassing 12 months.
- Individuals from same-sex relationships can be recognized as eligible non-borrowing spouses provided they were in a devoted relationship with the borrowing spouse but were legally restricted from marrying due to their gender at the time the HECM loan was established. The precondition for this is that they must have formalized their marriage before the borrowing spouse’s death and maintained this marital status until the time of the borrower’s death.
Despite these provisions offering substantial protections to non-borrowing spouses, it remains prudent to seek guidance from professionals such as estate lawyers, financial advisors, or insurance representatives to fortify your security and that of your family.
Ineligibility and Situations Which Lead to a Loss of Eligibility
A non-borrowing spouse can lose eligibility to remain in the home under various circumstances including:
- Remarrying: If the non-borrowing spouse remarries after the borrowing spouse’s death, they may lose the right to continue living in the home.
- Moving Out: If the non-borrowing spouse moves out of the home or fails to establish it as their primary residence, they risk losing eligibility.
- Default on Property Charges: Falling behind on property taxes, insurance payments, or failing to maintain the home according to the agreement stipulations can lead to a loss of eligibility.
- Legal Separation or Divorce: In the case of a legal separation or divorce, the non-borrowing spouse may lose rights to continue residing in the home.
Understanding the complexities surrounding non-borrowing spouses and reverse mortgages is crucial. It is always recommended to consult with a reverse mortgage professional to navigate your specific circumstances effectively. Ensure that you stay informed and up-to-date to make the best decisions for your financial future.
*Pre August 4, 2014 Non-Borrowing Spouses
Although non-borrowing spouses prior to August 4, 2014 had few options other than paying off the reverse mortgage or moving out after the borrower had passed, lenders can now assign these pre-Aug. 4, 2014 loans to HUD. This “Mortgagee Optional Election Assignment” (MOE Assignment) benefits both the non-borrowing spouse and the lender. The non-borrowing spouse gets to remain in the home, again providing they continue to pay property taxes and homeowner’s insurance, maintain the home, and otherwise comply with the loan terms.
And the lender is made whole by HUD without having to carry out a foreclosure.