By Christopher Maag
Under pressure from a powerful senior citizens’ group, the Department of Housing and Urban Development announced recently that widows and widowers won’t be forced to pay off reverse mortgage debt exceeding their home’s value—a policy that had previously left some seniors facing foreclosure.
The decision will help three seniors who’d filed suit against HUD to stay in their homes, and it could affect thousands more. But the American Association of Retired Persons, which is representing the plaintiffs, says it will continue its lawsuit anyway.
[Resource: Get your free Credit Report Card]
Reverse mortgages entitle senior citizens with significant equity in their homes to receive monthly payments from their lender based on the value of the house. In the past, when a mortgage holder died, heirs including spouses not named on the mortgage would never owe a bank more than the home was worth at the time of repayment, according to this press release from the AARP.
In 2008, HUD announced a change in policy, saying that widows or widowers who were not listed on the mortgage would be required to repay the loan in full, even if the loan amount was higher than the property’s value. The change came at an especially bad time, since the bursting housing bubble and declining home values meant that many homes were not worth the value of their mortgages.
That pushed a number of seniors into foreclosure. The AARP sued on behalf of three seniors who faced foreclosure because of the new rules. We covered the lawsuit here.
[Related article: Widows Sue Government, Claim Evictions Illegal]
“HUD has inexplicably turned existing reverse mortgage policies upside down,” Jean Constantine-Davis, a lawyer for the AARP, said in the press release. “These are older individuals with limited means who have been blindsided by arbitrary, retroactive decision making.”
HUD rescinded the rule change in a letter released April 5. But the AARP will continue its lawsuit, trying to win a judge’s order that the federal agency can never force a surviving spouse to pay more to pay off a reverse mortgage than the home is worth.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.