The Importance of Proper Estate Planning and Reverse Mortgages

By Eric P. Rothenberg, Esq. –

When a spouse dies, estate transfer is not always simple. Complications can arise for the surviving spouse. One area that can be challenging is when the first to die spouse took out a reverse mortgage on their home without putting the surviving spouse’s name on it. Often, the surviving spouse’s right to stay in their home is called into question. However, a recent ruling by a federal court will add protection for surviving spouses. Consider a brief summary of reverse mortgages and what this ruling means for those that utilize them.

What is a Reverse Mortgage?
Reverse mortgages are a type of Home Equity Conversion Loan utilized by people 62 or older. They are most often used when a couple own their home with a lot of equity but because they make little in income to support a mortgage, they cannot borrow money to live on using that home for a conventional mortgage. With a reverse mortgage, they can convert that equity into cash. There are no principal or interest payments and repayment is only required if the home is sold. Otherwise, the borrower or borrowers are allowed to remain in the home until their death. However, some have unknowingly left their spouse in a vulnerable position by not having both names on the reverse mortgage.

What Did the Federal Ruling Change?
In the past, federal rules permitted lenders to force surviving spouses from their homes if the spouse who took out the reverse mortgage died and the survivor was unable to pay off the mortgage. A federal court in Washington, DC called this practice into question recently, however. The court ruled current reverse mortgage rules contradicted other federal laws. The court ordered the Housing and Urban Development department (HUD) to revise its rules.

The exact revisions have not been announced yet. However, the court’s stand is clear. Surviving spouses need better protections. Specifically, the new rules will focus on allowing surviving spouses to remain in their homes, even when he or she is not listed as a borrower on the reverse mortgage.

The federal court’s ruling is a positive step. However, the challenges presented by the described scenario demonstrate the importance of thoughtful estate planning. Talk to an experienced Massachusetts estate planning attorney to ensure your spouse is taken care of.