But reverse mortgages can also be dangerous. If, for example, one spouse dies, and the surviving spouse is not listed as a borrower on the reverse mortgage, the surviving spouse could face the possibility of losing the home to foreclosure. This bizarre loophole, however, recently changed, thanks to a ruling last week in the United States District Court for the District of Columbia.
Decision Helps Reverse Mortgagors Prevent Home Foreclosure
The case that triggered the recent decision started in 2008, when Robert Bennett’s wife died, leaving him alone in his house in Annapolis, Maryland. Bennett’s wife, however, was the sole borrower listed on their reverse mortgage, which was taken out on the couple’s home shortly before her death.
Thanks to an obscure rule previously administered by the U.S. Department of Housing and Urban Development (H.U.D.), Bennett’s lender was allowed to foreclosure on the property in the event that Bennett couldn’t repay the loan. Bennett was unable to pay the loan, so in order to prevent home foreclosure, he filed a lawsuit against H.U.D.
And last week, the court ruled that H.U.D.’s punitive rules regarding reverse mortgages contradict the very purpose of reverse mortgages: That is, to allow surviving spouses to stay in their homes. The court told the federal agency it must correct the problem, although some uncertainty remains over how the agency will cure the loophole.
Home Foreclosure Decision Will Help Senior Homeowners
Despite the uncertainty over how the law might change, Bennett’s home foreclosure attorney remains optimistic. The decision “marks a turning point for surviving spouses” and ensures that “they will be able to remain in their homes, despite the loss of their husband or wife,” said Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation.
And while the decision could help seniors who leave their spouse off a reverse mortgage, Constantine-Davis recommends that elderly couples should try to avoid this tactic. “I would at this point still be very discouraging from doing a reverse mortgage that leaves the spouse off,” said the home mortgage lawyer.