Reverse Mortgages and the Rights of a Surviving Spouse Who Is Not the Named Owner

By Fredrick P. Niemann, Esq. of Hanlon Niemann Wright, a Freehold, NJ Elder Law Attorney

A recent significant regulatory change addresses a long-standing concern regarding the issue of removing a spouse from a title as part of a reverse mortgage transaction (or lending to only the spouse whose name is listed on the title as owner). The “non-titled” or “divested” spouse is called the “non-borrowing spouse” (NBS). Though this practice is not the norm in a reverse mortgage transaction, it is not entirely uncommon either.

Because all titleholders on any home encumbered by a reverse mortgage must be at least 62 years old, removing a spouse from title is usually done when that spouse is younger than 62. If the couple has other significant assets, life insurance on the borrower spouse, or a second home, the NBS can continue to live comfortably in the home if the reverse borrower spouse predeceases him or her.

For new reverse mortgages commencing after August 4, 2014, there are no safeguards in place that allow the NBS to remain in the home without having to repay the HECM debt if the borrower spouse predeceases him or her. The NBS must continue to fulfill the on-going mortgage requirements, which include paying real estate taxes, homeowners insurance, property upkeep, and maintaining the home as his or her primary residence. Under the new rule, the HECM does not have to be repaid until the NBS no longer resides in the subject property.

For reverse mortgages involving a NBS, the principal limit (initial borrowing capacity) is based on the younger NBS’s age, thus decreasing the borrower’s principal limit. The new NBS protection applies only to couples recognized as legally joined in marriage or civil union, and is not extended to other relationships, familial or otherwise. Additionally, the couple must have been married at the time that the loan was consummated, they must remain married, and the NBS must reside in the subject property at his or her primary residence and attend the same HUD counseling session that HECM borrowers are required to attend.

To discuss your NJ Elder Law matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

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