Reverse Mortgages: Protection for a Surviving non-owner spouse

Reverse Mortgages or home equity conversion mortgages are a type of loan which enables a homeowner to convert the equity in their home to cash that can be used for expenses.  For frail elderly people or individuals with disabilities who are running out of funds and need to pay for an array of services that are needed so they can remain in their house (such as home health aides), tapping into their home equity can make all the difference. The loan doesn’t have to be repaid until the homeowner/borrower dies, vacates or sells.

These loans are often federally-insured, in which case, their terms are controlled by federal statutes and regulations through HUD. Until now, though, if the borrower died, survived by a spouse who was not on the Deed and not on the Loan, some lenders sought to foreclose, creating great problems for these surviving spouses.

On 9-30-13, in Bennett et al v. Donovan Secretary of Housing and Urban Development (civil action no. 11-0498 ESH), the U.S. District Court for the District of Columbia ruled that the governing statute which protects the borrowers against foreclosure,  12 U.S.C. § 1715z–20(j), means what it says — “…the term “homeowner” includes the spouse of the homeowner.”  The HUD regulation had limited the protection against foreclosure to a “homeowner spouse” of the borrower. The Court ruled that this regulation was inconsistent with the statute and with the legislative history. According to the Court, the Senate Report of the Committee on Banking, Housing and Urban Affairs where subsection (j) is discussed (S.Rep. No. 100–21, at 28 (1987)) explicitly states that subsection (j) intended to “defer[ ] any repayment obligation until death of the homeowner and the homeowner’s spouse …”

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