Reverse Mortgage Pitfall – Avoided

Lear how to avoid the harm of a reverse mortgage and the effects on the surviving spouse.

Reverse mortgages can be a great financial tool for retirees or others living on a fixed income. A reverse mortgage can be used to pay off an existing home loan, gain freedom from a house payment and/or provide a retirement income source. The homeowner must still pay real estate taxes and homeowner’s insurance but otherwise no payments are due on a reverse mortgage until the borrower spouses both die. Then the loan comes all due and must be paid in full by refinancing, the use of other estate assets or by a sale of the home.

But what happens when the reverse mortgage is taken out by only one spouse?   If the surviving spouse is not also a borrower, he or she may need to sell or refinance the house when the borrower spouse dies. Refinancing is not usually an option for a surviving spouse so the family home would need to be sold at, perhaps, the worst possible time.   At least that was the situation until the advent of an FHA program called Mortgagee Optional Election (MOE).

The MOE program can enable a surviving spouse who was not a reverse mortgage borrower to remain in the family home after the borrowing spouse dies.   But inclusion in this program is not automatic. The surviving spouse needs to contact the mortgage servicer to request an MOE assignment. Certain conditions also apply:

  1. Homeowner’s insurance premiums and real estate taxes must be current,
  2. The applicant must have been married to the borrower when the reverse mortgage was obtained and must have remained married to the borrower spouse until his or her death,
  3. The home must be the surviving spouse’s principal residence at the time the reverse mortgage was obtained and it must remain his or her principal residence at the time of the borrowing spouse’s death, and
  4. The surviving spouse must have marketable title to the home or a legal right to live there for the rest of his or her life.
  5. Same sex spouses who could not legally marry at the time the reverse mortgage was taken out but later marry under applicable state law can qualify.

The lawyers at Platt and Westby, P.C. have been practicing in the area of Real Estate Law for over 40 years. Our partners are experienced real estate investors and landlords. Contact any of our Phoenix Real Estate lawyers at 602-277-4441 or use the e-mail contact utility on our website at to schedule a no-fee initial conference concerning any matter involving Real Estate. We will answer your questions and, where appropriate, suggest potential solutions.

Platt and Westby, P.C. has offices in Phoenix, Arrowhead, Avondale, Scottsdale and Gilbert, Arizona.