Hi Val,

This is a nuanced situation, and the response you may have gotten elsewhere is probably oversimplified.  Let me work through the actual HUD rules for ADUs.

Your current situation

You have a reverse mortgage on a duplex - a 2-unit property - and you occupy one unit as your principal residence.  That is a standard eligible HECM property type.  HECMs are available for 1-4-unit properties where the borrower occupies one unit.  Nothing about your current setup is a problem.

What adding a unit actually means under HUD.

HUD 4000.1 is specific about ADUs.  A 1-unit property with a single ADU remains classified as a one-unit property.  But for properties that already have two or more units, any additional separate dwelling unit is counted as an additional unit - not an ADU in the traditional sense.  So if you add a fully separate unit to your duplex, HUD would likely treat it as a three-unit property.

The good news is that a three-unit property is still eligible for a HECM as long as you continue to occupy one unit as your principal residence.  So the change in unit count alone does not necessarily disqualify you.

The more important question

The issue is not really about ADUs on multifamily properties as a category.  The real question is what kind of space you are creating and for whom.

If the caregiver space is a separate permitted dwelling unit with its own kitchen and bathroom - which is what you described - HUD will treat it as a separate unit.  That pushes the property to three units.  Still potentially eligible, but your lender and appraiser will need to evaluate it as a 3-unit property in the future, which may affect value and underwriting.

If the caregiver is part of your household rather than a separate tenant, the analysis is different.  A live-in caregiver who shares your dwelling and is not paying market rent as a separate tenant may not trigger the same unit classification issues.  That conversation is worth having with your lender and possibly a HUD-approved housing counselor before you pull permits.

On the tenant situation

You mentioned you cannot legally evict the tenant in the other unit to accommodate the caregiver.  That is a California landlord-tenant issue separate from HUD eligibility.  From HUD's perspective, renting one unit of a 1-4 unit property while occupying another unit is permitted.   The tenant situation does not affect your HECM eligibility.

Practical next steps

Talk to your servicer before you pull any permits.  Any structural change that alters the unit count of a property with an existing HECM is something your servicer needs to know about.  You may also want to consult a California real estate attorney familiar with ADU law and a HUD-approved housing counselor who can help you think through your options without jeopardizing your existing loan.

A proprietary jumbo reverse mortgage is worth exploring as well.  Some proprietary programs have more flexibility on property configurations than HUD's HECM program.  Since you have equity in the property, a jumbo product might be a cleaner path depending on your loan balance and home value.

Reference: HUD Handbook 4000.1, Section II.B.2.iii(B)(4) - Accessory Dwelling Units and Section II.B.2.iii(B)(3) - 3-4 Unit Properties (PDF pages 585-586).