Reverse Mortgage for Married Couples / Non-Borrowing Spouses in California

How Federal Rules Changed Protections After 2014

The date on the loan is often the first thing a family needs to find. The HECM program itself rests on 12 U.S.C. § 1715z-20, which authorizes HUD to insure home equity conversion mortgages for older homeowners and lets HUD prescribe many of the details. HUD administers the program and publishes its current requirements.

In 2014, HUD added protections for spouses who are not on the loan. It issued them through guidance to lenders, including Mortgagee Letter 2014-07. The Consumer Financial Protection Bureau explains that the current rules apply to "HECMs with Federal Housing Administration (FHA) case numbers assigned on or after August 4, 2014" (CFPB). The case number is assigned during the loan process and appears on the loan papers.

The central protection is called the Deferral Period: a stretch of time when the loan does not have to be repaid, even though the last borrower has died. The regulation requires the mortgage to defer "due and payable status" for an Eligible Non-Borrowing Spouse until the death of the last such spouse, or until the conditions stop being met and are not cured (24 C.F.R. § 206.27).

Loans with earlier case numbers

Loans with case numbers assigned before that date are governed by different rules, and the Deferral Period described in this article is tied to the newer loans. What the article's sources say about every loan, old or new, is this:

• The CFPB notes that a non-borrowing spouse "may stay in the home if they pay off the loan."
• The CFPB also says a spouse may be able to stay without paying off the loan "depending on when the loan was taken out" and whether the spouse qualifies under HUD's rules.
• The CFPB describes the qualifying process as potentially difficult and points to help "from an attorney or a HUD-approved housing counseling agency."
• The non-recourse limit and the general rule that the loan comes due when the last borrower dies, both covered below, are not tied to the 2014 date.

For an older loan, the case number and the loan documents are the starting point for that conversation with a counselor or attorney.

Eligibility Requirements for the Deferral Period

Eligibility is fixed at closing, not at the time of a death. A spouse who did not meet the conditions when the loan was made cannot qualify later. The regulation says a spouse who was ineligible at origination "is not subsequently eligible for a Deferral Period when the borrowing spouse dies or moves out of the home" (24 C.F.R. § 206.55).

To qualify as an Eligible Non-Borrowing Spouse, the regulation lists four conditions:

1. The spouse must "have been the spouse of a HECM borrower at the time of loan closing and remained the spouse of such HECM borrower for the duration of the HECM borrower's lifetime."
2. The spouse must have been disclosed to the lender at origination and named as an Eligible Non-Borrowing Spouse in the loan documents.
3. The spouse must have lived in the home as a principal residence and continue to do so.
4. The spouse must meet any other requirements HUD prescribes by Federal Register notice.

The CFPB adds a point for same-sex couples who could not legally marry when the loan was made. Such a spouse must show the couple was legally married at the time of the borrower's death.

Meeting these conditions once is not the end of it. The same regulation sets further requirements the spouse must keep meeting, and a spouse becomes ineligible if any of the four conditions stops being met. These are conditions, not promises: the lender or servicer, under HUD's rules, decides whether they are met. The rules for married couples and non-borrowing spouses explain more about who counts.

If a spouse was not named at closing, no amount of meeting conditions afterward can change that.

What Your Family Faces When the Borrowing Spouse Dies or Moves Out

When a death happens, the family wants to know what the next letter from the servicer will mean. Under HUD's rules, the balance is generally due and payable in full when a borrower dies and the home is not the principal residence of at least one surviving borrower, unless the Deferral Period applies (24 C.F.R. § 206.27). With HUD's approval, it can also come due for other reasons, in each case only when no other borrower still lives there as a principal residence:

• the home is no longer a borrower's principal residence;
• a borrower lives away for more than 12 consecutive months because of physical or mental illness;
• property charges go unpaid; or
• a loan obligation is not performed.

The CFPB explains that after the borrower dies, or moves into a healthcare facility for more than 12 consecutive months, "your lender or servicer will determine if your non-borrowing spouse qualifies." If the spouse qualifies, the loan stays deferred while the conditions continue. During this period, the CFPB says, "An Eligible Non-Borrowing Spouse will not get any money from the reverse mortgage," and the balance keeps growing as interest and fees are added.

When the Deferral Period ends, the loan comes due. Reverse mortgage loans typically must be repaid, "usually by selling the home," according to the CFPB. The same is true for the borrower's death when no spouse is protected.

There is also a limit on what is owed. Federal law requires that the homeowner "shall not be liable for any difference" between the remaining debt and what the lender recovers from the net sale proceeds or insurance (12 U.S.C. § 1715z-20(d)). The FTC puts it simply: you, or your estate, "can't owe more than the value of your home when the loan becomes due and the home is sold" (FTC). HUD publishes current repayment guidance, and a HUD-approved counselor can walk through the options.

California-Specific Considerations for Non-Borrowing Spouses

California adds its own reverse mortgage rules on top of the federal ones. They appear in Civil Code section 1923.2, which sets requirements that every reverse mortgage loan in the state must meet.

Among them, the law allows a reverse mortgage to come due on certain events:

• the home is sold or title is otherwise transferred;
• all borrowers stop occupying the home as a principal residence, except as the absence rules provide;
• a fixed maturity date agreed to by the lender and borrower arrives; or
• an event named in the loan documents occurs that jeopardizes the lender's security.

Temporary absences of up to 60 consecutive days do not make the loan due. Longer absences of less than one year also do not, if the borrower has taken prior action to secure and protect the home in a way the lender accepts under the loan documents. The first page of the deed of trust must state: "This deed of trust secures a reverse mortgage loan." That sentence helps a spouse spot the loan among household papers.

California's community property rules can affect how a married couple holds title and what happens to the home at a death. How they interact with a particular reverse mortgage is a question for a California attorney.

Two state agencies speak to the people involved. The Department of Financial Protection and Innovation says anyone "engaged in the business of making or servicing residential mortgage loans within California" must do so under a license, with listed exemptions including banks and licensed real estate brokers (DFPI). The California Department of Real Estate warns seniors about "Reverse Mortgage Scams" with misleading terms or fees, and its alert states: "never sign a real estate... or home loan agreement that you do not understand" (DRE). The California reverse mortgage consumer protections add further detail.

California's rules sit on top of the federal ones, so both sets matter for a household here.

Counseling Requirements and Why They Matter for Non-Borrowing Spouses

Counseling is the one meeting where a spouse's questions can be raised before anything is signed. Federal law makes it a condition of HUD insurance. The borrower must have "received adequate counseling" from an independent third party with no ties to anyone originating, servicing or funding the loan, or selling annuities, investments, long-term care insurance or other financial or insurance products (12 U.S.C. § 1715z-20(d)).

The statute says what counselors must discuss, including:

• options other than a HECM, including other housing, social service, health and financial options;
• other home equity conversion options, such as property tax deferral;
• the financial implications of the loan; and
• a disclosure that a HECM "may have tax consequences, affect eligibility for assistance under Federal and State programs, and have an impact on the estate and heirs."

That session is a natural place for a spouse who will not be on the loan to raise questions about the Deferral Period, its conditions and how the spouse's age affects the amount available.

California adds safeguards under Civil Code section 1923.2. Before accepting a final application, a lender must give the borrower a list of at least 10 HUD-approved counseling agencies. A lender also may not accept a final application or charge fees until seven days have passed since counseling. California's required worksheet guide, under Civil Code section 1923.5, opens with a question meant for households: "What happens to others in your home after you die or move out?"

Counseling is education, not approval. Federal law even funds counseling "for those homeowners who elect not to take out a home equity conversion mortgage." HUD lists counselors through its HECM Counselor Roster and at (800) 569-4287. More detail is available on HUD reverse mortgage counseling.

When Leaving a Spouse Off the Loan Creates Real Risk

Leaving one spouse off a loan carries a specific risk. If that spouse does not qualify for the Deferral Period, or the loan predates the 2014 rules, the loan can come due at a hard moment, just after a death. The surviving spouse may then have to pay off the loan or sell the home.

Cash flow can change, too. A household that relies on monthly reverse mortgage payments loses them during the Deferral Period. As the balance grows, the FTC notes this "can use up much – or even all ─ of your equity." The obligations also remain: property taxes, homeowners insurance and upkeep must be kept current, and unpaid property charges are among the events that can make the loan due under HUD's rules.

A reverse mortgage is one option among several. The CFPB names alternatives, including waiting, a home equity loan or line of credit, refinancing, downsizing and lowering expenses. It notes that many localities have property tax programs and points to "your county or town tax office." Help from family is another path some households consider. Each option trades something, whether new monthly payments, a move or reliance on others.

A HUD-approved housing counselor can go through the whole picture with a household weighing a loan with a non-borrowing spouse before closing.