Though both people in a couple usually take out a reverse mortgage together, there are situations in which both are not eligible. In these cases, one spouse is named on the loan, and one is not. Should something happen to the borrowing spouse, the non-borrowing spouse may be afforded legal protections dependent on multiple factors.
Over the years, there have been many changes to the legal guidelines for this situation. Currently, all eligible non-borrowing spouses have the same protections regardless of the date of the reverse mortgage.
Who Is Considered a Non-Borrowing Spouse?
As the term suggests, a non-borrowing spouse is married to a reverse mortgage borrower but not included on the loan.
Most commonly, a non-borrowing spouse isn’t listed as a co-borrower because they don’t meet the age requirement (62 years or older) for the HECM loan when the loan is taken.
If a non-borrowing spouse on a HECM loan meets the Housing and Urban Development (HUD) qualifications, they can be eligible for certain rights and protections in the event the borrowing spouse passes away or is required to leave the house for an extended period.
To be considered eligible, a non-borrowing spouse must:
- Participate in mandatory HECM financial counseling.
- Be listed as a non-borrowing spouse on the loan.
- Be legally married to the HECM borrower when the loan closes and remain so until the loan becomes due, typically when the borrower dies.
- Live in the home as their primary residence at the time of closing and afterward.
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What Happens If the Borrower Moves to a Long-Term Care Facility or Dies?
When a borrowing spouse moves out of the primary home and into a long-term care facility for more than 12 consecutive months, the eligible non-borrowing spouse can remain in the home provided the loan terms are met.
Usually, a reverse mortgage becomes due immediately after the borrower’s death. When an eligible non-borrowing spouse is involved, the loan enters a deferral period when the lender will not try to collect, and the proceeds are frozen.
In cases where the borrowing spouse dies or moves to a long-term facility for longer than 12 months, an eligible non-borrowing spouse can stay in the home provided the following qualifications are met:
- The non-borrowing spouse was married to the borrower at the time of the loan closing and remained married until the spouse’s death or departure from the home.
- The HECM isn’t in default for any reason.
- The individual is listed as a non-borrowing spouse in HECM documents.
- The non-borrowing spouse plans to continue to live in the home as the primary residence.
- The non-borrowing spouse continues to pay maintenance, property taxes, and home insurance.
What Protections Are Available to Non-Borrowing Spouses?
Recent HUD guidelines and recommendations have expanded protections for non-borrowing spouses that many current reverse mortgage borrowers may not know about.
Until HUD issued Mortgagee Letters in 2014 and 2021, a spouse who wasn’t a co-borrower on a HECM loan could face eviction if they didn’t pay off the loan secured by the deceased spouse. The expanded guidelines in the letter allow non-borrowing spouses to adequately grieve without being forced to relocate during the death or illness of the co-borrower.
The 2021 Mortgagee Letter afforded eligible non-borrowing spouses the following protections.
- Non-borrowing spouses are not required to provide documents showing they have a marketable title or a legal right to remain in the home.
- The non-borrowing spouse is protected upon the borrower’s death or if the borrower is in a long-term care facility for more than 12 months.
- A member of a same-sex couple can be an eligible non-borrowing spouse if they were in a committed relationship with the borrower but were prohibited, at the time of the HECM loan’s origination, from legally marrying based on the gender of both the borrower and non-borrowing spouse. To qualify, they must have legally married prior to the death of the borrower and remained married until the borrower’s death.
Though the letters afford non-borrowing spouses several safeguards, consulting with an estate attorney, financial planner, or insurance agent is advisable to ensure protections are in place for you and your loved ones.
Ineligibility and Situations Which Lead to a Loss of Eligibility
If a borrower has an existing reverse mortgage and remarries, the new spouse will not be considered an eligible non-borrowing spouse. The borrower would have to apply for a new HECM loan for the new spouse to qualify for non-borrowing spousal protections.
Because the protections afforded to eligible non-borrowing spouses are meant to protect married people living together, there are several ways in which a non-borrowing spouse can lose eligibility status.
- The non-borrowing spouse moves out of the home during the period that a reverse mortgage is in place.
- The borrower divorces the non-borrowing spouse after the reverse mortgage loan closes.
- A non-borrowing spouse doesn’t meet the HUD requirements — for instance, a married couple who doesn’t cohabitate in the primary residence. Or a non-borrowing spouse not listed as such on the reverse mortgage.
Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
