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Reverse mortgages: revised rules likely after court ruling

When a husband or wife dies, the surviving spouse is not only faced with a difficult emotional loss. There are also typically various estate administration issues to be taken care of.

For some surviving spouses, those issues can include the right to remain in the home. More specifically, in this post, we'll look at the issue of what happens when a home was covered by a reverse mortgage taken out by the spouse who died.

Federal rules have allowed lenders to force surviving spouses whose names were not listed as borrowers in reverse mortgage transactions to pay off those mortgages upon the death of their spouse -- or face foreclosure if they do not. A recent court ruling, however, has called these rules into question.

The ruling was issued by a federal court in the District of Columbia. The court held that reverse mortgage rules used by the Housing and Urban Development department (HUD) allowing foreclosure on a surviving spouse are at odds with other federal laws.

The court has directed HUD to revise its rules. Though it remains unclear how the agency will do so, it is possible that HUD will take over the reverse-mortgage loans from the lenders that currently hold them.

For surviving spouses, however, the upshot of the court ruling is clear. They will have more protections concerning staying in their house after the death of a husband or wife. This will be the case even if the surviving spouse was not listed as a borrower on the reverse mortgage.

Reverse mortgages are a way for older people to tap into housing equity in order to pay for such things as medical expenses. But, as we have seen in this post, they must be handled with care so that surviving spouses are not left in the lurch.

Source: The New York Times, "Surviving Spouses With Reverse Mortgages Win Case," Ann Carrns, Oct. 1, 2013

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