A browser Kathleen Tracy has sent the following question(s) in the ask experts blog.
Husband & Wife, both over 70-years-old, occupied principal residence in California for many, many years and have no other home. Husband had a fall in late 2016 and was discharged from the hospital to a board & care facility to recover. Husband had been at board & care facility for 4 months when husband & wife applied for a reverse mortgage in early 2017 seeking to both be borrowers on the loan. The home was Husband’s permanent place of abode, and he had no other permanent residence. At the time of applying for the reverse mortgage, title to the residence was held as “husband & wife, as community property with right of survivorship,” a customary form of joint title in California. The reverse mortgage loan closed in mid-2017 with wife as the only borrower. Husband has now died, and title cannot be changed back community property with right of survivorship (i.e. I am not looking for probate advice). Part I — Reverse mortgage company would not allow husband to be a borrower because he “did not live at home” at the time of applying for the reverse mortgage. Is this correct? Is husband really disqualified from being a borrower at loan origination because he had been recovering temporarily in a board & care for 4 months? Part II — Reverse mortgage company then referred to husband as a “non-borrowing spouse,” and required that the couple change the title to their residence to be “Husband as remainderman, subject to a life estate for the benefit of wife,” they say because HUD and FHA laws at that time (mid-2017) required that all non-borrowing spouses be removed from title.” Is this correct? Do HUD and FHA laws in mid-2017 require a non-borrowing spouse who otherwise held an equal interest in the real property to be removed from title? If so, what HUD and FHA laws? If so, is making essentially a joint tenant into a remainderman “taking the non-borrowing spouse off of title?” Is the particular form of title an HUD/FHA requirement, or in the discretion of the reverse mortgage company, or something else? Have these particular laws really changed so that it is no longer a requirement to take a non-borrowing spouse off of title? Part III — Are there any requirements that the consequences of such a change in title be explained to the couple? Part IV — I understand that the title change may be merely for the instant of the loan closing and that husband could have been put right back on title (or the prior title restored) immediately after the close of the loan. Is there any obligation on the part of the reverse mortgage company to put title back the way it was after the loan closes? Or to advise husband and wife that they could (or should) put title back to the way it was? I am new to reverse mortgages and trying to wrap my head around the requirements and process of reverse mortgages to determine if this reverse mortgage was done properly or not. Just looking for some direction as I have wasted hours and hours trying to find the answers myself, and you seem to give some good answers on this site.
You have a lot of ground to cover here so let’s jump right in. Firstly, all borrowers of a reverse mortgage must be living in the home at the time the loan is closed and not be living elsewhere such as another location as would be the case with another property or a hospital or nursing home. You are correct in that at the time the loan was originated, that would mean that if the borrowers wanted to close the loan prior to the husband returning to the home, he would have to come off of title making him a non-eligible, non-borrowing spouse (because he did not occupy the home at the time of the origination).
To answer another of your later questions, HUD did in fact change that rule when they issued their “Final Rule” later that year (September of 2017). Non-borrowing spouses and others on title no longer have to come off title to close a reverse mortgage as long as they sign the proper paperwork now. There was never a “law” regarding removing borrowers from title, HUD simply had rules regarding what they would allow for the program and then it was up to borrowers to agree to abide by the rules to accept the loan terms or they could refuse but then they would not be eligible for the loan.
Prior to September of 2017, the borrowers had a choice to wait until the husband was back in the home or remove him from title if they wished to proceed with the loan while still out of the home (or they could refuse to continue with the reverse mortgage completely). The reverse mortgage documents specifically allow for the borrower to add others to title as long as at least one original borrower also remains on title as well, and continues to live in the home.
In other words, the wife could have deeded the property back to herself and husband the day after the loan closed and would still be in compliance with the loan documents. It would have been best to advise the borrower that the reverse mortgage documents allow for the change and advise the borrowers to seek the assistance of a competent attorney to make the title change to be sure to avoid any possible tax, estate or other adverse ramifications due to filing improper paperwork, but it would be highly unlikely that a mortgage originator would be involved in a title change after the loan closed.
Escrow and/or title typically make any changes to title during the course of a loan with the consent and guidance of the borrower, their families and attorneys, not the lender. It’s a moot point now, but before HUD changed their rules, we always made it a point to inform borrowers of the benefits and the potential pitfalls of taking people off title and reminded them that if they did so and did intend to add them back or to add another family member, it is much easier to change the title while everyone was still with us rather than waiting until after someone passes and the owner is no longer here to sign paperwork. I will get back to the title and the manner to which the vesting was changed a bit later as I think that is very odd.
You inquired about any laws or requirements about changing the title. As I stated, HUD had the rules with the program as to who could get the loan and under what circumstances, they never required borrowers to change their title. In this case, the lender would only be able to let the borrowers know in what way(s) they did not meet the HUD parameters (occupancy of the co-borrower), let the borrowers know that there were ways to resolve the issue (either wait for the husband to move home or remove him from title if they did not want to wait) and then let the borrowers make the decision as to whether or not they wished to proceed.
They cannot force the borrowers to change the title and I would certainly hope that they would explain all the positives and negatives with such an action as well as the fact that title can be changed to add the husband back to title immediately after closing but also that removing a spouse brought the risks of the loan being called due and payable if something happened to the borrowing spouse while the non-borrowing spouse was still alive and living in the home later. I’m not aware of any laws though that address such a second title change at all, it’s merely a matter of borrower preference and most borrowers with whom I have dealt do desire to put the spouse back on title as quickly as possible to avoid any possibility of title issues later as can be the case with family, probate, etc., especially with second marriages.
Finally, I can’t see how the originator would be under any requirement, legal or otherwise to restore the title to something after the loan closed unless there was an agreement between the parties to such action. I must admit though that I am extremely puzzled as to the manner in which the title and vesting was changed. Every loan in which we have seen borrowers make changes for the same reasons, the title was switched to the occupying spouse, a married man or woman, as his/her sole and separate property making a second change later a very simple procedure.
If that had been done, it seems that would have made this a moot point as she would have the sole title now anyway with the passing of her spouse. I think a question you may wish to ask at this time is who determined the manner of title because this is not a typical way most originators would handle this. It seems to me that the borrowers had input from an attorney or family member to come up with a life estate idea and not just the originator because this was certainly no HUD requirement I know of no reverse mortgage companies that would give legal advice to borrowers requiring them to take title as such and if they did, you may want to determine if they were practicing law without a license. I wish I could definitively answer all your questions but I just wasn’t there at the time the loan was originated.