United States: HUD Issues New Rules About Surviving Spouses Following Death Of Reverse Mortgage Borrower

For the past year and a half, mortgagees of FHA-insured Home Equity Conversion Mortgages ("HECMs"), commonly referred to as reverse mortgages, have had to grapple with issues related to the foreclosure of homes occupied by non-mortgagors who survive their mortgagor spouses (a "Non-Borrowing Spouse"). Historically, some couples applying for reverse mortgages went to great pains to not include the younger spouse on the loan in order to increase the initial disbursement amount and related line of credit available under the loan. Under the terms of an HECM and HUD's regulations, the lifetime deferral of loan repayment obligations only applies to the borrower of the HECM and is not extended to any other persons, including a Non-Borrowing Spouse. Upon the death or move-out of the borrower, the loan becomes due and payable, meaning that a Non-Borrowing Spouse has to either pay the loan in full (or 95% of appraisal value if the loan amount is greater than the value of the home) or face foreclosure. This has long been a HUD requirement and is extensively addressed in the HUD-mandated pre-origination counseling performed by a neutral third party, independent of the HECM originator.

On September 30, 2013, the United States District Court for the District of Columbia entered an order in a case filed against HUD, Bennett v. Donovan, 4 F. Supp. 3d 5 (D.D.C. 2013). The decision upended the way HUD has long-required HECM mortgagees and servicers to proceed after the death of a mortgagor who is survived by a Non-Borrowing Spouse. The court held that a provision of the HECM statute, 12 U.S.C. § 1715z-20(j), allowed HUD to insure only HECMs that came due after the death of both the homeowner-mortgagor and the spouse of that homeowner, regardless of whether that spouse is a Non-Borrowing Spouse or a co-mortgagor. The court invalidated 24 C.F.R. § 206.27, the federal regulation that required HUD to insure only HECMs stating that the loan's balance would be due and payable in full if the mortgagor died and the property was not the principal residence of at least one surviving mortgagor. The Bennett court ordered HUD to issue new criteria consistent with the court's ruling.

On April 25, 2014, HUD published Mortgagee Letter 2014-07, which set up a new system to protect Non-Borrowing Spouses by requiring HECM documents to contain a provision deferring the loan's due and payable status until the death of the last surviving Non-Borrowing Spouse identified at the time of closing. However, because the previous due and payable clause was embedded in existing, legally binding contracts, the Mortgagee Letter's new protections were expressly limited to HECMs originated on or after August 4, 2014. Accordingly, the HECM industry was still faced with the problem of determining how to proceed against Non-Borrowing Spouses on its entire existing portfolio.

On June 25, 2014, in the wake of the order in the Bennett case and a similar order in the separate case of Plunkett v. Donovan, HUD issued FHA INFO #14-34, which granted HECM mortgagees an indefinite extension of time in which to take first legal action to commence foreclosure and to comply with the reasonable diligence time frames set forth in 24 C.F.R. § 206.125. The indefinite extension was predicated on the satisfaction of several factors, the most notable of which is that the loan amount has to effectively be "rebalanced" to the Non-Borrowing Spouse's Principal Limit Factor, the amount that would have been advanced had the surviving Non-Borrowing Spouse been an original borrower on the loan. In practice, this meant that if a surviving Non-Borrowing Spouse was younger than the original mortgagor, he or she would likely have to make a principal repayment on the loan—a payment that the surviving Non-Borrowing Spouse may not have the means to make. In addition, HUD's guidance did not address how HECM mortgagees should calculate a Non-Borrowing Spouse's Principal Limit Factor in order to qualify for an indefinite foreclosure extension, thereby creating the possibility that HUD could impose financial penalties on the mortgagees for the period of the indefinite foreclosure extension if HUD later determined that the mortgagees had improperly completed the "rebalancing" calculation.

At long last, on January 29, 2015, HUD published Mortgagee Letter 2015-03, which provides mortgagees a way to proceed after a borrower dies and is survived by a Non-Borrowing Spouse, and eliminates the indefinite foreclosure deferral period that HUD had set up in FHA INFO # 14-34. Under Mortgagee Letter 2015-03, mortgagees can assign to HUD those HECMs that are in default due to the death of a borrower, but with properties still occupied by Non-Borrowing Spouses, provided that certain conditions are met. If the mortgagee does not assign the HECM to HUD, it must proceed with foreclosure as required under 24 C.F.R. § 206.125. Although the following is not an exhaustive breakdown of each component of the new requirements, HECM mortgagees and servicers may want to take note of the following:

  • Mortgagees have until April 29, 2015, to notify HUD of what they intend to do with the HECMs which have been subject to an indefinite foreclosure deferral. For HECMs which will be assigned to HUD, mortgagees will then have 30 days (from the date they notify HUD of their intentions) to assess whether each HECM meets all of the criteria for a valid assignment pursuant to the new requirements. The assignments must be initiated within 90 days of the election to assign the HECM to HUD.
  • Mortgagee Letter 2015-03 expressly states that mortgagees are under no obligation to assign HECMs to HUD. Put differently, Non-Borrowing Spouses are not entitled to an assignment or foreclosure deferral.
  • Mortgagee Letter 2015-03 does not address one of the industry's biggest questions about FHA INFO # 14-34: how to perform the "rebalancing" calculation necessary to make a HECM eligible for assignment to HUD. The Mortgagee Letter simply states that "[a] payment may be made to reduce the unpaid principal balance in order to meet the requirements." It does not specify how to calculate this payment or whether the appreciation of the underlying property would be applied to the Non-Borrowing Spouse's Principal Limit Factor.
  • If there is any default or other defect with an HECM (e.g., the property is no longer the Non-Borrowing Spouse's principal residence, the mortgagee finds out during the assessment period that the couple had divorced, etc.) at any point before the mortgagee completes the assignment to HUD, the option to assign the HECM becomes unavailable and the mortgagee must proceed to foreclosure in accordance with 24 C.F.R. § 206.125. One caveat to this is if the HECM is called due and payable for a reason other than the death of a borrower (e.g., unpaid taxes), the Non-Borrowing Spouse has 30 days to cure the default.
  • Mortgagee Letter 2015-03 does not only apply to spouses married to the borrower at the time of the loan, but also to couples who were in a committed relationship, but could not be married under state law at the time of the loan origination, and who were subsequently married.
  • Mortgagee Letter 2015-03 provides stock language for certifications which the mortgagee and the Non-Borrowing Spouse must sign to effectuate a valid assignment, but does not provide a template for the newly required notice to the Non-Borrowing Spouse. Mortgagees will need to create this notice in order to comply with the new rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Bradley Arant Boult Cummings LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Bradley Arant Boult Cummings LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions