One of the most innovative and appealing developments in the law of residential real estate in the last thirty years is the so-called “reverse mortgage.” Instead of providing money to purchase a home, a reverse mortgage allows home owners to convert a portion of their accumulated equity into cash. The amount of the mortgage amount then becomes a lien on the residence. Three recent cases in the Philadelphia area have revealed a hidden trap for couples where only one spouses is named as mortgagor. When that spouse dies, the bank that provided the cash can foreclose on the reverse mortgage and take back the house.
In one such case, the husband asked his wife to convey her 50% interest in their home to him so that he could obtain more cash from a reverse mortgage. Without consulting a lawyer, she agreed. Then her husband, who was 23 years older, died. Under the terms of the reverse mortgage, the bank commenced foreclosure proceeding on the house. The other two cases are similar – younger wives acceded to their husbands’ requests to convey their interest in the homesteads their husbands. When the husbands died, the banks commenced foreclosure proceedings.
The three foreclosure actions have now been postponed because changes in regulations issued by the U. S. Department of Housing and Urban Development allow the surviving spouse to remain in the house under certain conditions, including payment of property taxes and insurance premiums. HUD is also working with various banks to find ways to allow similarly situated spouses to remain in their houses.
Anyone facing the foreclosure of a residential mortgage is facing the complexity of real estate laws and a powerful foe in the lending bank. Under these circumstances, a consultation with an experienced real estate attorney may be useful. A knowledgeable lawyer can evaluate the circumstances and provide a summary of potential remedies.
Source: Philadelphia Inquirer, “Reverse-mortgage nightmare can start after borrower dies,” Alan J. Heavens, July 28, 2015