Foreclosure Protection for Reverse Mortgages

The National Consumer Law Center (NCLC) has released some guidance regarding reverse mortgages and new foreclosure protections that will have a positive impact on borrowers.

As with other mortgages, foreclosures for reverse mortgages have been put on hold until after June 30, 2021. However, as that date approaches, it is important to understand what protections exist for reverse mortgage borrowers.

Here are some key takeaways regarding foreclosure protections for reverse mortgage borrowers:

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.

If two borrowers are listed on a reverse mortgage and one of them passes away or no longer resides in the home, the remaining borrower has rights under the reverse mortgage to remain in the home. Problems arise, however, where only one borrower is listed on the reverse mortgage and that person’s spouse is also living in the home. Under the prior policy, if the spouse listed on the mortgage spends more than a year in a long-term care or other health facility, the loan comes due and the non-borrowing spouse can be forced to leave the home.

The new HUD policy allows for a non-borrowing spouse to remain in the home as long as the non-borrowing spouse continues to occupy the home as a principal residence, is still married, and was married at the time of the issuance of the reverse mortgage to the spouse listed on the reverse mortgage.

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.

READ MORE from NCLC on reverse mortgages and protections available for borrowers after June 30th>

Photo by Scott Webb on Unsplash

For more on consumer protection issues, follow Andy Spears

Writer and policy advocate living in Nashville, TN

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