This column first appeared in the San Antonio Express News on February 5, 2018.
Dear Mr. Premack: My husband and I are considering a reverse mortgage and have done some preliminary checking about the loan terms. Title to this house is in my name only, as I inherited it from my parents, but it is our homestead. The banker said that I would be the only borrower on the loan because my husband does not own the house. I am confused because I thought that there could not be lien against a homestead unless both spouses agree and sign. Further, what happens if am the first to die? Can my husband still live here, or because I (the borrower) have died will he lose the house? – H.W.
You have identified one of the terrible problems with Reverse Mortgages. Typically, both spouses own the house and both spouses are the borrowers, so that if one dies the loan is simply continued. But sometimes one spouse owns the house and is the sole borrower. If that spouse is the first to die the other may face foreclosure and eviction when the bank demands payment of the Reverse Mortgage or force an expensive refinance (if the surviving spouse takes title to the house).
Under the Texas Constitution (as approved by the voters) a Reverse Mortgage may only be made to a home owner age 62 or older. Most liens require both spouses to agree to the lien (except for tax liens). Reverse Mortgages require consent from both spouses but does not require both spouses to be the borrower. The lender cannot require repayment until “all borrowers” have died, moved out, sold the home, or defaulted on the loan.
In your situation, you would be the only borrower. Your husband would have to consent to the loan, but he would not be a borrower. Consequently, if you die, move out, sell, or default then your husband can lose his homestead rights and be forced to leave the house.
HUD (Housing and Urban Development) oversees reverse mortgages and provides insurance to lenders. HUD refers to Reverse Mortgages as “Home Equity Conversion Mortgages” (HECMs). The issue you raise has become so troublesome that HUD has issued new protections for non-borrower spouses that apply to loans originated after August 4, 2014.
Four requirements must be met at the time of loan is signed. They are:
- Before the loan is closed, both spouses (including the non-borrower) must complete required financial counseling;
- The spouses must be married on the date of closing and must remain married until the borrower’s death date;
- The loan documentation must identify the non-borrowing spouse who has signed mandatory disclosure statements; and
- The house is the principal residence of both spouses on the date of closing and is still the principal residence when the borrowing spouse dies.
If any condition is not met, the loan becomes due-and-payable. The lender can force foreclosure and eviction or force an expensive refinance. If these conditions are met at the time of closing the loan, and are still met when the borrowing spouse dies, then the non-borrowing spouse is legally entitled to continue to defer enforcement of the loan. So, be sure that your lender is aware of the new rules and that all conditions are met before you agree to the Reverse Mortgage.
Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.TexasEstateandProbate.com or www.Premack.com.