Options When a Spouse Dies with a Reverse Mortgage

Under the old reverse mortgage rules, non-borrowing spouses of reverse mortgage borrowers did not have the same rights borrowers did.

In fact, in some cases where both spouses were living in the house but only one was named on the home title, those non-borrowing spouses were left without many options after the borrower spouse died. These cases have been covered by mainstream media and often made headlines due to the unfortunate situation they presented.

But all that has changed. The federal government has implemented new rules to protect non-borrowing spouses of reverse mortgage borrowers. These changes, made by the Department of Housing and Urban Development, apply both to new non-borrowing spouses, and also to loans that were closed before the rule changes.

Here’s what you need to know if your spouse has passed 

For existing non-borrowing spouses:

If you took out a reverse mortgage loan before August 4, 2014, and you were married at the time to someone not named on the reverse mortgage, that spouse may be able to remain in the home even after the borrower dies, depending on circumstances. For these older loans this isn’t automatic: the lender chooses whether to offer it (HUD calls this the Mortgagee Optional Election), and the spouse must meet HUD’s requirements.

A few criteria must be met in order for this to happen:

• The marriage must have taken place before the loan was originated
• The couple must remain married until the borrower’s death
• The surviving spouse must maintain their home as his or her principal residence
• HUD no longer requires a surviving spouse to prove ownership or a legal right to stay in the home (Mortgagee Letter 2019-15). The lender, however, chooses whether to offer this protection on these older loans.

There are some special circumstances for civil unions as well as same-sex marriages that were not permitted under state law at the time the loan was closed.

In addition, the surviving spouse must adhere to the loan terms and requirements. These include ongoing payment of property tax and insurance, property maintenance to Federal Housing Administration Standard and keeping a current homeowners insurance policy.

However, if the borrowing spouse was receiving tenure or term payments, or was accessing the loan proceeds as a line of credit, the non-borrowing spouse does not have the ability to receive these proceeds.

For new non-borrowing spouses: As of August 4, 2014, all new reverse mortgage borrowers with non-borrowing spouses were offered new protections under a rule from HUD.

For loans with an FHA case number assigned on or after August 4, 2014, a non-borrowing spouse who meets HUD’s requirements can stay in the home after the borrower dies. Repayment is put off (HUD calls this a Deferral Period) for as long as they keep meeting those requirements.

Again, certain requirements apply.

• The non-borrowing spouse must be married to the borrower when the loan closes and stay married for the rest of the borrower’s life.
• The spouse must be disclosed to the lender when you apply and named as an eligible non-borrowing spouse in the loan documents.
• The spouse must live in the home as their main residence before and after the borrower dies.
• Every year, the borrower certifies that the spouse still qualifies. After the borrower dies, the spouse certifies each year that the home is still their main residence.
• After the borrower dies, the spouse must keep living in the home as their main residence and keep up with the loan’s obligations, such as property taxes, homeowners insurance and upkeep. HUD no longer requires the spouse to prove ownership or a legal right to stay in the home.

But there’s another change, as well. In new loans where there’s a non-borrowing spouse, that spouse’s age is considered in determination of how much the couple can qualify to borrow. If a non-borrowing spouse is much younger than the borrower, the impact could be substantial.

Refinancing to add protection

The greatest level of protection is offered to non-borrowing spouses on the new loans being completed today. If you are a borrower with a non-borrowing spouse, you may be able to qualify to refinance your reverse mortgage into a new reverse mortgage in order to include the non-borrowing spouse under the loan agreement.

If the non-borrowing spouse is 62 or older, you may also be able to add that spouse as a borrower, giving him or her the same rights that the borrower enjoys, including access to the loan proceeds even if the first borrower passes away.

ARLO recommends these helpful resources: 

• Ask the Experts Series/ Reverse Mortgage Spouse Q & A 
• AARP: Good News for Couples with Reverse Mortgages