Ask the Expert: Tips on reverse mortgage

If a reverse mortgage is in two names, and one of the two people dies, what happens?

If the mortgage is in both names, no payment is due until the survivor moves, dies or sells the house. But if only one is named on the loan, it's due when that person dies.

In a reverse mortgage, the lender pays you -- in a lump sum, monthly payments or a line of credit. The amount you can borrow depends partly on your age; the older you are, the larger the loan. If you stay current on your property taxes and insurance premiums, no mortgage payment is due until you move, die or sell the house. Then the lender gets back principal and accrued interest.

Reverse mortgage brokers often tell couples they'll benefit if the older spouse alone is on the loan, says Jean Constantine-Davis, senior attorney at AARP Foundation Litigation. Putting the mortgage in the older spouse's sole name means a larger loan and a bigger commission for the broker.

But few brokers will tell the couple the devastating downside: "If the spouse on the loan dies first, the survivor must pay the lender the full balance of the mortgage, or the appraised value of the property, or face foreclosure." You can't "fix" this problem after you take the loan by adding the younger spouse's name to the deed, adds Constantine-Davis.

There's a legal issue here. The Department of Housing and Urban Development, which regulates reverse mortgages, takes the position that only the homeowner who is the borrower is protected against being displaced.

AARP sued HUD earlier this year, contending that non-borrowing spouses are legally entitled to the same protection. The suit was dismissed without prejudice, meaning that AARP can submit an amended complaint against HUD, or the case can be heard again.

The bottom line
As things stand, both spouses must be named on a reverse mortgage to be protected.

Websites with more information
Click here to read about the AARP suit  at aarp.us/u0tasw

Click here to read frequently asked questions about home mortgages at irs.gov.

Send questions to Ask the Expert. Act 2, Newsday Newsroom, 235 Pinelawn Rd., Melville, NY 11747-4250, or email act2@newsday.com. Include your address and phone number. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own advisers for your specific needs.