TheMReport

TH E M REP O RT | 17 FEATURE A fter living for more than 30 years in the home she and her husband built, Mary Thompson of Boise, Idaho was about to lose the home in 2011. The local paper had already published notice of a trustee's sale. "I wouldn't wish this on my worst enemy," Thompson lamented, and said that her late husband, Charles, signed a reverse mortgage as the sole borrower because he was told he could get a lot more money if he signed by himself. She said she signed as a non-borrower, not understanding the consequences of the agree- ment. "I didn't check into things as much as I probably should have," she explained. Because her husband was the sole borrower, after his death, Thompson immediately began get- ting notices demanding payment of the balance due on the loan, which totaled $147,000. An Idaho attorney who specializes in housing and elder law said that these types of contracts are usually upheld by the courts. She explained that the general rule for contracts law is that people are presumed to have read and understood everything in a contract they've signed. "I love my home, and I want to keep mowing the yard and taking care of my flowers," Thompson said. As the deadline approached, she worked with friends to try and find a way for her to stay in her home, but Thompson did lose her house, after which she moved into a rent-subsidized apartment for seniors. This type of scenario is exactly what prompted an outcry from other reverse mortgage holders and a lawsuit, the results of which influenced the Department of Housing and Urban Development (HUD) to create two new rules that became effective on August 4, 2014 to prevent this from hap- pening again. The new rulings are welcomed not only by potential buyers and present owners of re- verse mortgages, but by members of the reverse mortgage industry as well. It is believed by housing market watchers that these new regulations will prevent some of the negative aspects associated with reverse mortgages. The first new rule allows a surviving spouse not listed on a reverse mortgage or on the deed to the property to remain in the home for as long as that person can pay the property taxes and homeowners' insurance. In addition, there is a second rule going into effect on the same date that decrees that only one person of a couple living in home has to be 62 years of age to qualify for a reverse mortgage, not both as previously required. As a result, the amount of equity available may be reduced as the amount of payment of the mort- gage is based on the age of the younger person. Legal action brings changes to reverse mortgage requirements L ike Thompson, others experi- enced the loss of their homes upon the death of a spouse who was listed as the sole borrower on a reverse mortgage. This resulted in a lawsuit that forced HUD to take some affirmative action in solving this problem. In the case of "Bennett, et al v. Donovan", the U.S. District Court for the District of Columbia ruled that the HUD regulation that allows lenders to demand that surviving spouses immediately re- pay reverse mortgage loans upon the death of their spouses violates federal law. Plaintiffs in this case were sur- viving spouses of reverse mortgage borrowers who were listed on the mortgage contracts. However, the surviving spouses were not mentioned in the contract. Plaintiffs stated they were told that they would be protected from foreclosure on their homes if their spouses died. That, however, did not occur because when their spouses passed away, lenders demanded immediate repayment of the loans. In response, plaintiffs claimed that the HUD regulation violated federal law because it did not protect them as non-mortgagor spouses based on a federal statute that states "HUD may not insure a reverse mortgage unless the repayment obligation was deferred until the homeowner's death." The term "homeowner" was defined as including the spouse of a borrower. Therefore, plain- tiffs argued that they were not required to repay the loan and were protected from foreclosure. Nevertheless, HUD's guidelines for reverse mortgages allowed lenders to call the mortgage due upon the death of the mortgagor, even if there was a spouse still living in the home who was not listed on the mortgage. The outcome of the legal action resulted in the court deciding that HUD had violated the federal stat- ute when it insured reverse mort- gages of plaintiffs' spouses while permitting the loan to come due upon borrowers' deaths, although their spouses were still alive. At the conclusion of the trial, however, the court ruled that it did not have the authority to require HUD to remedy its error and sent the matter back to HUD to correct the problem. This action resulted in bipartisan efforts to amend and improve some of the HUD rules to HUD Takes Action to Improve Reverse Mortgages New guidelines protect surviving spouses and adjust age requirements By Sandra Lane

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