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New rule protects widows and widowers from foreclosure

Brokers in the past, advised couples seeking reverse mortgages to remove the younger spouse from a title to obtain higher payouts. This worked because the age of the individual determines the amount of a reverse mortgage.

Once an older spouse dies, the survivor often faced foreclosure if he or she couldn’t pay off the loan. The new rule that went into effect on August 4, 2014 changes this and offers greater protection to surviving spouses. Following the change, a widow or widower can stay in a home as long as they pay taxes and insurance premiums.

Reverse mortgages allow those over the age of 62 to borrow against the equity they have built in their home. A borrower can take the loan as a fixed monthly payment, lump sum or line of credit. Reverse mortgages provide cash flow in retirement as costs increase, but income stays flat. Money borrowed accrues interest, but the balance does not become due until the last borrower sells a home or passes away.

The rule change was prompted by a class action lawsuit brought by the AARP Foundation against the U.S. Department of Housing and Urban Development. It alleged that HUD did nothing to protect widows who were losing their homes.

Some couples will now receive less on their reverse mortgage loans, because the age of the younger spouse will factor into the amount received. 

These loans may also cause problems for children who may count on staying in a parent’s home. Because once the owners of the mortgage pass away, a family member would need to buy the home back from the lender. A lender can sell the home, if the debt is not paid.

Unfortunately, the rule is not retroactive. When faced with foreclosure, seek the advice of a foreclosure defense attorney who can explain available options, including bankruptcy, which may keep you in your home.

Source: Pittsburgh Post-Gazette, "AARP lawsuit against HUD helps younger survivors keep their homes," Tim Grant, August 12, 2014.

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