Even though a reverse mortgage may be an appealing choice for homeowners in financial difficulty who want to stay in their homes throughout their lifetimes, this objective is frequently unsuccessful. Homeowners can lose ownership of a home even with a reverse mortgage for a variety of reasons:
These foreclosures disproportionately affect people of color. Communities of color had foreclosure rates six times higher than neighborhoods with a majority of white people, according to a July 2019 USA Today article. Due to the pandemic, reverse mortgage foreclosure has been postponed until June 30, 2021, just like with other mortgages. As the deadline draws near, this article outlines new safeguards against that foreclosure, discusses the risks of foreclosure in general for reverse mortgages, and lists additional rights to prevent reverse mortgage foreclosure.
The Home Equity Conversion Mortgage (HECM) program is the largest reverse mortgage program in the country, and it is run by HUD. Although HECM reverse mortgages are issued by private lenders, they are subject to HUD regulations. But thanks to two recent HUD initiatives, homeowners and surviving spouses who use the HECM program are significantly less likely to experience a subsequent foreclosure.
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Even though a reverse mortgage may be an appealing choice for homeowners in financial difficulty who want to stay in their homes throughout their lifetimes, this objective is frequently unsuccessful. Homeowners can lose ownership of a home even with a reverse mortgage for a variety of reasons:
These foreclosures disproportionately affect people of color. A July 2019 USA Today article showed that communities of color had foreclosure rates six times as high as majority white neighborhoods. As with other mortgages, foreclosure on reverse mortgages have been put on hold due to the pandemic until June 30, 2021. With the deadline approaching, this article provides information on the risks of foreclosure even for reverse mortgages, sets out new protections from that foreclosure, and also summarizes other rights to avoid foreclosure on a reverse mortgage.
The Home Equity Conversion Mortgage (HECM) program is the largest reverse mortgage program in the country, and it is run by HUD. Although HECM reverse mortgages are issued by private lenders, they are subject to HUD regulations. But thanks to two recent HUD initiatives, homeowners and surviving spouses who use the HECM program are significantly less likely to experience a subsequent foreclosure.
New Protection Where One Spouse Moves into a Long-Term Care Facility
HUD’s May 6th Mortgagee Letter 2021-11 allows non-borrowing spouses of reverse mortgage borrowers to remain in their home after the borrower moves into a long term care or other healthcare facility. The new policy applies to all HECM loans that comprise a valid first lien security interest in the home, and lenders can comply effective May 6th, but must comply by September 3, 2021.
The remaining borrower has the right under the reverse mortgage to stay in the house if there are two borrowers listed on it and one of them dies or moves out. However, issues can arise if there is only one borrower listed on the reverse mortgage and that borrower’s spouse also resides in the property. Prior policy allowed for the non-borrowing spouse to be evicted from the home if the spouse listed on the mortgage spent more than a year in a long-term care facility or another type of medical facility.
The new HUD policy permits a non-borrowing spouse to stay in the house as long as they continue to live there as their primary residence, are still married, and were wed when the reverse mortgage was issued to the spouse named on the reverse mortgage. The loan that is not due and payable for other reasons is also included. After the death of the borrowing spouse, the non-borrowing spouse is no longer required to have or be able to obtain good and marketable title to the property or a legal right to live there for the rest of their lives.
Prior to August 4, 2014, for HECM mortgages, the non-borrowing party also had to be married to the borrowing spouse at the time of the mortgage and continue to be so while the borrowing spouse is not present in the healthcare facility. However, an exception is made for couples who were unable to be legally wed due to state laws prohibiting same-sex marriages at the time the reverse mortgage was originated. The couple had to be married at the time the borrowing spouse is in the healthcare facility and they had to be in a committed relationship at the time for the exception to apply. Please refer to NCLCs Home Foreclosures 14 for a general discussion of foreclosure based on non-occupancy. 3. 3. 2.
Expanded Protections for Non-Borrowing Spouse Upon Borrowing Spouse’s Death
HUD’s May 6th Mortgagee Letter 2021-11, effective May 6, 2021, but with a mandatory compliance date of September 3, 2021, also removes the largest remaining roadblock to non-borrowing spouses keeping their home after the borrower dies. As with the long-term care situation, where only one spouse is listed as a borrower on a HECM mortgage, issues arise where that spouse passes away and the non-borrowing spouse wishes to remain in the home. HECM reverse mortgage loans generally must be paid off when the last borrower dies, sells, or permanently relocates from the home.
Since August 4, 2014, the HECM loan agreements explicitly permit a non-borrowing spouse to live in the house after the borrower passes away, at least until that spouse passes away or vacates, whichever comes first. The main remaining barrier to non-borrowing spouses remaining in their home after the borrower passes away is eliminated by Mortgagee Letter 2021-11. The requirement that non-borrowing spouses demonstrate “good and marketable title or a legal right to remain in the home,” which frequently required an expensive probate filing and had forced many spouses into foreclosure, will no longer be in place.
Process for HECM Mortgages Entered into Prior to August 4, 2014
Prior to August 4, 2014, HECMs were not protected for non-borrowing spouses residing in the house after the borrower’s passing. Earlier this year, HUD approved the Mortgagee Optional Election (MOE), which allows such surviving non-borrowing spouses to stay in the house if their loan servicer makes the offer. The MOE offering is discretionary with the lender. The lender must begin foreclosure proceedings or assign the loan to HUD through the MOE process within 180 days of the borrower’s passing in order to avoid financial penalties from HUD.
HUD issued revised guidelines on September 23, 2019, announced in Mortgagee Letter 2019-15, requiring servicers to notify borrowers about the existence of the MOE option and to request the names of any non-borrowing spouse living in the home who may potentially qualify for the option. The letter also indicated that there is no hard deadline for servicers to elect to offer a MOE, although lenders after March 21, 2020, may face interest curtailment due to their delay. Lenders may choose to make the MOE election available even after starting the foreclosure process.
Non-borrowing spouses are no longer required to demonstrate marketable title or a legal right to reside in the home in order to be qualified for the MOE program, as is the case for HECMs issued after August 4, 2014. With the exception of states where same-sex marriage is prohibited by state law, the surviving non-borrowing spouse must still be living in the primary residence, have been married at the time the mortgage was issued, and have remained so. For additional reasons, the loan cannot become due and payable.
If the non-borrowing spouse is approved for the MOE, the loan’s due and payable status will be postponed, and it won’t be subject to foreclosure until either spouse vacates the property, passes away, or fails to comply with the loan’s terms and conditions, which include paying the property taxes. Even though the partner must fulfill the loan’s financial obligations (i e. They won’t get any proceeds from the HECM (e.g., ongoing property fees, home upkeep). Each year, the non-borrowing spouse must attest that the prerequisites for the deferral are still met. See generally NCLCs Home Foreclosures 14 for a discussion of foreclosure based on the demise of one borrower. 3. 3. 3.
Avoiding Foreclosure for Unpaid Property Taxes, Other Property Charges
For failure to maintain the property properly or carry out necessary home repairs, as well as for failure to pay property charges like unpaid property taxes, homeowner’s insurance, homeowner association dues, and the like, a reverse mortgage is subject to foreclosure. One way to prevent such a foreclosure is for the lender to reserve money at the time the mortgage is issued from the available reverse mortgage’s principal limit to cover these costs throughout the homeowner’s anticipated loan term.
Foreclosures may occur if the homeowner continues to fall behind on these property charges. Homeowners have certain protections in the event of property charge defaults for HECM mortgages. In most cases, the lender chooses to pay off outstanding property charges instead of going into delinquency by deducting funds from monthly payments or charging them to a line of credit. This solution functions as long as there are loan funds available for withdrawal.
When the available credit on the reverse mortgage is insufficient to cover the outstanding property charges, HUD generally requires lenders to advance their own funds, known as “loan advances” or “corporate advances,” to pay the property charges. Once there are no longer sufficient funds in the available credit, the loan is then in “default” and servicers will submit a due-and-payable request to HUD, for its approval, which will lead to acceleration of the debt and foreclosure, unless the servicer requests an extension of the foreclosure timeline for loss mitigation as outlined in Mortgagee Letter 2015-11 and Mortgagee Letter 2016-07.
The servicer will notify the borrower of the property charge delinquency once they miss a payment. This letter should detail any loss mitigation measures the lender may provide, as well as any funds advanced to cover the property charge. The servicer must send a due and payable notice if the loan is called due and the borrower fails to cure the default. The thirty-day response period, list of loss mitigation options, and choice to sell the house or sign a deed in lieu of foreclosure are all included in the due and payable notice. Prior to starting a foreclosure, lenders must also refer borrowers to a housing counseling organization that is approved by HUD.
The lender may ask for a postponement of the foreclosure date in order to pursue loss mitigation. In order to address outstanding property charge defaults, HUD has provided lenders with a number of loss mitigation options. These include: (1) creating a workable repayment schedule for delinquent property charges; (2) directing borrowers to HUD-approved housing counselors or other local resources; and (3) refinancing the HECM with a new HECM if there is enough equity to pay off the existing mortgage. According to HUD’s regulations, the lender may choose to use loss mitigation options at their discretion; they are not required to do so.
Even after foreclosure has been started, borrowers still have the option to cure the default and reinstate the loan, provided three conditions are met: (1) the loan has not been reinstated within the previous two years; (2) the reinstatement will not prevent the loan from becoming due and payable at a later date; and (3) the reinstatement will not negatively impact the lien’s priority.
Similar to how it does in the foreclosure of forward mortgages, a servicer’s failure to adhere to these HUD guidelines may result in a defense to the foreclosure. Despite the fact that homeowners lack a private right of action to enforce the HUD guidelines, numerous courts have ruled that the servicer’s disregard for these rules constitutes a defense to a foreclosure.
See NCLC’s Home Foreclosures 14 for more information on defenses to a property charge foreclosure, along with references to pertinent laws. 3. 1, 14. 3. 2. Additionally covered in those sections are solutions based on refinancing the reverse mortgage into a larger reverse mortgage, neighborhood assistance initiatives, payment schedules, mortgagee-funded remedies, and at-risk extensions.
A helpful handout for clients is NCLC’s Fact Sheet: Are You a Reverse Mortgage Non-Borrowing Spouse? Tips to Help You Remain in Your Home, February 2020.
Since July of 1999, Odette Williamson has worked as a staff attorney at NCLC. She worked as the Massachusetts Office of the Attorney General’s Assistant Attorney General prior to this, where she focused on civil enforcement actions against people and businesses for breaking consumer protection and other laws. She participated in the Elder Law Advocates Strike Force as an AAG to stop unfair and deceptive practices against senior citizens. She went to Boston College Law School and Tufts University. While there, she worked as a staff writer and editor for the Uniform Commercial Code Reporter-Digest. She is also admitted to the Massachusetts bar.
She is co-author of NCLC’s Foreclosures and Mortgage Servicing.
Staff attorney Sarah Bolling Mancini concentrates on issues relating to credit reporting, mortgage lending, and foreclosures. Sarah has experience representing homeowners in court cases in state, federal district, and bankruptcy courts; she previously worked for Atlanta Legal Aid’s Home Defense Program. She also clerked for the Honorable Amy Totenberg, U. S. District Court for the Northern District of Georgia. Sarah is a member of the Georgia Bar. She received her B. A. in public policy from Princeton University and her J. D. from Harvard Law School.
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FAQ
Can HUD foreclose on a reverse mortgage?
If you do not pay your property taxes or homeowners insurance premiums on time, you could face a reverse mortgage loan foreclosure, according to official HUD guidelines. To avoid a foreclosure, you should have the necessary insurance and make all required payments.
Can you be foreclosed on with a reverse mortgage?
Yes, a reverse mortgage can end in foreclosure. However, the circumstances that trigger a reverse mortgage foreclosure typically differ greatly from those that trigger regular mortgage foreclosures. It’s also important to remember that there are other options besides foreclosure for paying back the loan when it’s due.
How long does it take for a reverse mortgage to foreclose?
The question “how long does a reverse mortgage foreclosure take?” may be the first thing on your mind. The hard answer is, not more than 13 months and not less than 6 or however long it takes to pay off the loan.
What Does HUD have to do with a reverse mortgage?
Home Equity Conversion Mortgages (HECMs), which are federally insured by the U S. Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD),