Court: Non-Borrower Spouse Protected in Reverse Mortgage Foreclosure

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Posted on Oct 11, 2013

A U.S. District Court in the District of Columbia has ruled that a non-borrower spouse cannot be foreclosed upon by a reverse mortgage lender, after the borrower spouse passes away. Bennett v. Donovan, 2013 WL 5442154 (D.D.C. Sept. 30, 2013).

A reverse mortgage allows homeowners that are 62 years of age and older to borrow against the equity in their homes, and not have to make payments. The loan is due when the pass away, move into a nursing home or sell the house, and in certain other situations.

The most common reverse mortgage is the Home Equity Conversion Mortgage ("HECM"), insured by HUD's FHA program. For years, mortgage brokers were telling elderly couples to "quitclaim" the property from one spouse to the older spouse, because that increases the amount that can be borrowed, increasing the broker's commissions.

Many couples were falsely told that the surviving, non-borrower spouse could stay in the home if their spouses died, when this was not true, and they didn't find out that it was not true until after their spouse died.

The court ruled that the "plain meaning of 12 U.S.C. § 1715z-20(j) unambiguously forecloses" HUD's interpretation of "homeowner" as excluding non-borrowing spouses, and that this plain meaning is further supported by the context and legislative history of the HECM statute. (citation omitted)

The court stated: "HUD violated 12 U.S.C § 1715z-20(j) when it insured the reverse mortgages of plaintiffs' spouses pursuant to agency regulation, which permitted their loan obligations to come due upon their death regardless of whether their spouses (plaintiffs) were still alive." The court remanded the case to HUD, which it charged with coming up with a remedy consistent with the court's ruling.

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