April 7 (Bloomberg) -- The U.S. Department of Housing and Urban Development has rescinded a 2008 rule that forced some surviving spouses of reverse-mortgage borrowers to choose between losing their homes or paying more than the properties were worth to stay in them.
The agency, which is being sued in federal court by a widow and two widowers of reverse-mortgage borrowers facing foreclosure, notified the plaintiffs this week that they were ending a policy that required surviving spouses to pay the full mortgage balance to keep their homes even if the amount exceeded the value of the property. The agency said it would issue more guidance on the matter in the future.
The AARP, which is representing the plaintiffs, praised the policy change but said the lawsuit would continue on other grounds.
“This is definitely going in the right direction,” said Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation.
Davis said the plaintiffs are still seeking regulatory changes to ensure that surviving spouses of reverse-mortgage borrowers have a right to stay in their homes even if their names were not on the deed.
Reverse mortgages are available only to homeowners aged 62 or older. In some cases, when one spouse is younger than 62, only the older spouse’s name will appear on the reverse-mortgage documents.
Right to Stay
“We think the surviving spouses shouldn’t be displaced,” Constantine-Davis said. “They have the right to stay there.”
Brian Sullivan, a spokesman for HUD, said the policy change was unrelated to the lawsuit.
“We recognized there was some confusion on the issue, and we wanted to make sure that the ultimate sale of the property is market-based and reflects the property’s real value,” he said.
Reverse-mortgage loans pay out a home’s equity to the homeowner, often in installments, and are usually repaid when the borrower dies or moves out of the house. Borrowers are considered in arrears if they don’t keep current on their property taxes and insurance.
Prior to December 2008, HUD rules stated that a borrower or heir would never owe more than the home was worth at the time of repayment, according to the lawsuit.
The plaintiffs, who aren’t on the deeds of their homes, are Robert Bennett, 69, of Annapolis, Maryland; Leila Joseph, 77, of Brooklyn, New York; and Delores Moore, 79, of Covington, Indiana.
The case is Bennett v. Donovan, 11-cv-00498, U.S. District Court, District of Columbia (Washington).
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