Wondering if the income needed to buy a home in the top 50 metro areas is starting to decline? Hint: Not yet.

Wondering if the income needed to buy a home in the top 50 metro areas is starting to decline? Hint: Not yet.

Reverse mortgage protections for spouses and other household occupants

Keith Gumbinger

Some household members enjoy protections when a reverse mortgage borrower dies, but not all parties are covered.

Is my spouse or significant other protected if I die?

The answer is conditionally "yes." Fairly recent changes to home equity conversion mortgages (HECMs) have provided important protections for so-called "trailing spouses," even if they are not on the mortgage or deed. These "non-borrowing spouses" are protected in that if the borrower should die (or can no longer live in the home for whatever reason) they can remain in the home indefinitely without having to repay the loan.

Does this protection include common-law spouses?

Yes, if they are recognized as legal in the state where the borrower lives.

Does this include same-sex spouses?

Yes, if recognized as legal in the state where the borrower lives OR in the state where the marriage took place.

There are conditions to be met, though. The Department of Housing and Urban Development (HUD) segregates spouses into "eligible non-borrowing spouse" and "ineligible non-borrowing spouse."

Eligible, Non-Borrowing Spouse

  • Was married to the HECM borrower at the time of loan closing and has remained the borrower's spouse for the duration of his or her lifetime;
  • Was properly disclosed to the lender at origination and specifically named as a Non-Borrowing Spouse in the HECM documents; and
  • Has occupied, and continues to occupy, the property securing the HECM as the Principal Residence of the Non-Borrowing Spouse.

To be eligible, the non-borrowing spouse must have been married to the borrower when the loan was made, the borrower must have provided a statement (certification) to the lender that he or she was married and the spouse must be living in the home and plan to continue to reside there after the borrower dies or will no longer occupy the home.

However, and although the debt doesn't need to be repaid, in the event that the borrowing spouse no longer occupies the home, no additional funds from the HECM will be available for use by the remaining spouse. No payments become due when the spouse vacates the property; rather, the repayment is deferred until the non-borrowing spouse sells or otherwise exits the home. Interest and other charges on used funds continue to accrue, but no new funds are made available.

reverse mortgage protectionsIn order to secure this deferral period, the Non-Borrowing Spouse must obtain ownership of the property or other legal right to remain upon the death of the borrower. That is, if you aren't named on the deed or can't otherwise show lifetime rights to occupy the property via a will or other document (called a "life estate" or "lifetime estate") -- you'll need to get a lawyer to draw up and record appropriate paperwork to secure your right to remain in the property.

If any of these "eligible spouse" conditions should change, the loan may become due and payable.

Spousal rights are not assumable or transferable. As such, things can become complicated if the borrower is married to person A when the HECM is originated, then later marries person B. Person A will be named in the HECM documents, while person B will not be, so in the event of the borrower's death, person B will have no rights to remain in the home unless the HECM is paid off. A divorce (or death) of person A of course cancels their rights under the HECM, but person B isn't (and cannot be) added to the HECM.

Since they aren't named in the HECM documents, person B will be what HUD calls an "Ineligible Non-Borrowing spouse."

Since the process of making funds available depends upon the age of the youngest borrower, and that more funds would be able to be immediately accessed with an older borrower, it might be tempting to omit declaring the younger spouse as "eligible." However, this is prohibited; eligible non-borrowing spouses are not permitted to opt out of the calculation that determines the loan amount.

A spouse's status is a factual determination and cannot be changed or waived by any election. A non-borrowing spouse that meets the requirements for a deferral period at the time of the HECM's application is considered to be an eligible non-borrowing spouse and may not elect to be ineligible.

Since the HECM borrower is required to certify his or her marriage status, omitting the spouse would actually constitute fraud, and there can be civil or even criminal penalties for this.

Will children or other family members living in my home be protected if I die?

No. This is an important consideration of you are caring for a child living in your home or have other family members living with you.

HECMs have no provision for protection of children, other family members or other tenants, only spouses. Should you die or no longer be able to occupy the home, the loan becomes due and payable, and if this requires the sale of the home, your child and any other household residents would be displaced.

While reverse mortgage basics, finances and family implications have been discussed throughout the first three parts of this guide, the final section addresses a range of frequently asked questions about these loans.

Next: HECM & reverse mortgages: more Frequently Asked Questions

Previous: Talking with parents about reverse mortgages

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