To many older Americans, a reverse mortgage seems like an attractive financial product to help them afford increased living and heath costs while staying in their family home. These loans, sometimes called a home equity conversion mortgage or HECM, provide that seniors 62 years old and older who borrow against the equity in their home do not need to repay the loan during their life. However, seniors who take out these loans can still lose their homes to foreclosure during their lifetime, and widowed spouses of reverse mortgage borrowers find themselves at an even higher risk of foreclosure. While U.S. Housing and Urban Development (HUD) has recently announced encouraging changes to protect widowed seniors, the risk remains for this vulnerable population.

Because reverse mortgage loans are only available to those 62 years of age and older, and because seniors get better rates on these loans the older they are, couples are often counseled by reverse mortgage companies to remove the younger spouse's name from the deed so that the older spouse is the only "borrower" on the mortgage. Unfortunately, although reverse mortgage borrowers are required to undergo HUD-certified counseling prior to taking out these loans, seniors often do not understand the legal implications of having only the older spouse on the deed and the mortgage. Many older seniors report that reverse mortgage lenders assure them that removing one spouse from the deed is just a legal technicality and will have no impact on either spouse's ability to remain in their family home for life.

The federal Housing and Community Development Act of 1987 under Section 417 first directed the creation of a program for HUD-insured reverse mortgages for the explicit purpose to assist "elderly homeowners" facing increased health and living costs while on limited income "through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity" into financial loaned payments for elderly homeowners. This federal law also explicitly defined that an obligation to satisfy a reverse mortgage be deferred until the death of both the borrowing homeowner and their spouse or another termination event like the sale of the home. Theses protections also existed in the subsequent HUD reverse mortgage program codified in 12 USC Section 1715z-20. In 1996, HUD changed its regulations to require a reverse mortgage become due upon the death of a borrower specifically. (Office of the Assistant Secretary for Housing-Federal Housing Commissioner; home Equity Conversion Mortgage Insurance Demonstration: Additional Streamlining, 61 Fed. Reg. 49, 030 (Sept. 17, 1996)). This regulation left many nonborrowing widowed spouses with no option but to sell their home right after the borrowing spouses' death in order to pay the debt from the reverse mortgages.

HUD did not attempt to alter its regulations to protect nonborrowing widowed spouses until the U.S. District Court for the District of Columbia found the regulations to be in conflict with USC Section 1715z-20(j) in Bennett v. Donovan, 4 F.Supp. 3d 5, 2013 U.S. Dist. LEXIS 140440 (Sept. 30, 2013). In response to the Bennett court's remand of the case, the HUD mortgagee letter 2014-07 resulted. This letter required that all reverse mortgages as of Aug. 4, 2014. must have a provision that defers the due and payable date until the death of the last surviving nonborrowing spouse or another event to trigger the end of the reverse mortgage such as sale of the home.

HUD did not take any action to further protect nonborrowing spouses until Plunkett v. Castro, 2014 U.S. Dist. LEXIS 119805 (Aug. 28, 2014). The Plunkett plaintiffs, who were nonborrowing spouses on pre-2014 reverse mortgages, claimed that in light of the Bennett decision, HUD failed to act appropriately to protect the rights of all widowed nonborrowing spouses. Ultimately, in response to this dispute, HUD issued mortgagee letter 2015-15, creating the "mortgagee optional election" (MOE). The MOE allows reverse mortgagees to assign mortgages to HUD instead of foreclosing when a qualifying nonborrowing widowed spouse remains in a home subject to a pre-2014 mortgage.

While the MOE was a welcome change to the reverse mortgage landscape, nonborrowing spouses still faced significant barriers to remaining in their family homes after the death of their borrowing spouse. Grieving widowed spouses were expected to take the initiative to reach out to their spouse's reverse mortgage servicer almost immediately after their spouse's death and arrange for the MOE process to begin.

These seniors' challenges were outlined in a USA TODAY article and video published June 11, titled, "Seniors were sold a risk-free retirement with reverse mortgages. Now they face foreclosure" by Nick Penzenstadler and Jeff Kelly Lowenstein. The article highlighted how reverse mortgages led to nearly 100,000 foreclosures nationwide in urban predominantly African American neighbors such as those in North Philadelphia. One senior who told her story in the article, Patricia Blair, was a SeniorLAW Center client, who was assisted in her foreclosure case by Beth Shay, director of Homeownership Rights. Blair explained how, despite her efforts to qualify as an MOE, she struggled to get onto the deed of her home in time to avoid foreclosure, and lost her home. Stories like Blair's are alarmingly common. The video is a haunting and emotional testimonial to the challenges communities face, particularly low-income African American families in Philadelphia, as a result of taking out a reverse mortgage.

On Sept. 23, HUD issued mortgagee letter 2019-15, which provides welcome and significant relief from the previously difficult and complicated MOE process. Nonborrowing spouses no longer need to obtain "good and marketable title" to their homes. The previously strict deadlines for the HUD assignment have been abandoned in favor of a 180-day "reasonable diligence" timeframe for mortgage lenders to initiate the assignment. Widows also have a much more reasonable timeline to pay off any tax and insurance advances made by the lender. Already, SeniorLAW Center has seen that these changes have given widowed seniors a better and fairer chance to remain in their family homes.

While mortgagee letter 2019-15 certainly signifies a positive step toward protecting nonborrowing spouses, advocates are concerned that widowed spouses are still at a high risk of losing their family homes. It remains critically important that spouses with these kinds of loans plan carefully and prepare to take prompt action if the borrowing spouse dies first.

While good and marketable title is no longer a barrier to the MOE, the nonborrowing spouse still must face the challenges of living in a "tangled title" property, where they live in the home and consider it theirs but are not on the deed. The widowed spouse often finds himself kicked out of property tax discount or rebate programs, at a time when paying property taxes is critically important for avoiding reverse mortgage foreclosure. Those widowed spouses are also routinely denied for home repair grants and loans due to lack of title; as reverse mortgages generally contain requirements for borrowers to keep the property in good repair. In Philadelphia, where over 70% of homes were built before 1970, these denials often mean a foreclosure is not far behind.

Second, there is still no loss mitigation at all for nonborrowing spouses. When a reverse mortgage borrower fails to pay property taxes or homeowners' insurance and faces foreclosure, HUD mortgagee letter 2015-11 outlines two loss mitigation options. First, borrowers can enter into an income-based repayment plan to reimburse the servicer over time for property charge advances and remain in their home. Second, borrowers who are at least 80 years old and who have "critical circumstances" (such as a terminal illness) can avoid foreclosure by submitting medical documentation to support their "at-risk" status; this status allows the reverse mortgage servicer to delay the foreclosure proceedings until the borrower dies.

These options, however, are not available to nonborrowing spouses. Seniors whose spouses were previously in repayment plans still have limited timeframes to pay off hundreds or thousands of dollars' worth of advances. For a low-income senior whose household income has likely just decreased as a result of their spouse's death, this is often not financially possible.

SeniorLAW Center and other advocates do commend HUD for issuing the most recent mortgagee letter; these new guidelines suggest that HUD is seeing how widowed seniors are impacted by the harsh rules that go along with reverse mortgage loans. We are hopeful that HUD will continue to hear these seniors' stories and think critically about how to protect and help them.

Beth Shay is the director of homeownership rights at SeniorLAW Center.

Kate Dugan is a staff attorney at the center, where she focuses on homeownership-related issues, including reverse mortgages. Prior to joining the center, she worked in the Court of Common Pleas as the court administrator for the mortgage foreclosure diversion program and sat as a Master in the property tax rule returnable program, which she helped to design.

Kate DiVasto is an extern at the center. She is a Toll Public Interest Fellow and a 2021 J.D. candidate at the University of Pennsylvania Law School.