A federal court recently ruled in favor of a widower who was facing foreclosure in a case that will likely lead to regulatory changes within the Department of Housing and Urban Development (HUD).
The AARP Foundation assisted with the case, since the subject matter of reverse mortgages is a larger problem for seniors in the United States. In the case a man who had recently lost his wife was facing foreclosure by a bank that held a reverse mortgage on the home that his wife had taken out in her name alone. After she passed away the bank tried to force her husband to pay off the loan that she had taken out and he was unable to and so they instituted foreclosure proceedings. This was the permitted practice under HUD policy but was applied in contrast to federal laws that protect surviving spouses from their deceased loved one's debt in the case of a reverse mortgage.
Since the husband won in this case, HUD will likely have to change its policy to comply with the federal law. This will impact an unknown number of foreclosures totaling an unknown amount of money.
For families who are currently putting together an estate plan, this case provides some issues to consider about how to structure debt and other financial obligations to best suit the needs of each spouse or the children. Debt is typically a fact of life for most people, so having a plan for how to structure it and how to pay it off as a part of the estate plan can be a very practical way to manage debt.
Source: New York Times, "Surviving Spouses With Reverse Mortgages Win Case," Ann Carrns, Oct. 1, 2013.