March 1, 2017
FHA refinance loans include the FHA HECM loan option for qualified borrowers. A reader asked us a question recently on HECM loans; “How does the Non-Borrowing spouse prove or show legal ownership of the property to the lender after the last surviving HECM mortgagor has died?”
The reader is referring to an FHA loan rule modification that came out in 2014 about the deferral period for FHA Home Equity Conversion Mortgages that involve a surviving, non-borrowing spouse. Mortgagee Letter 2014-07 states:
“In the event the last surviving mortgagor predeceases a Non-Borrowing Spouse, the due and payable status will be deferred for as long as a Non- Borrowing Spouse continues to meet all the qualifying attributes stated in the above section. In addition, such Non-Borrowing Spouse must satisfy and continue to satisfy the following:
1. Within ninety days from the death of the last surviving HECM mortgagor, establish legal ownership or other ongoing legal right to remain (e.g., executed lease, court order, etc.) in the property securing the HECM;
2. After the death of the last surviving mortgagor, ensure all other obligations of the HECM mortgagor(s) contained in the loan documents continue to be satisfied; and
3. After the death of the last surviving mortgagor, ensure that the HECM does not become eligible to be called due and payable for any other reason.”
Establishing legal ownership involves issues of the law-state law including community property law, probate law, and other applicable regulations or ordinances. These laws are not standardized from state to state. If you have legal questions, it’s best to consult an expert in the applicable laws.
We can’t dispense legal advice or discuss issues of law outside what’s addressed in FHA loan regulations and guidelines, but one answer to this reader’s question-what to furnish to the lender to satisfy proof of legal ownership or right to remain-can be answered by the lender.
The loan officer will be able to tell the borrower what specific documents will satisfy the lender’s requirement to see proof of legal ownership or other rights as they relate to the FHA HECM loan. Depending on the answer, state law, or other issues, it may be best to seek legal counsel on how to proceed in light of any state law that may affect the surviving non-borrowing spouse and/or the nature HECM loan.
Finally, FHA HECM loan requirements and regulations have changed a great deal in recent years, it’s also a good idea to check with the lender to see how any recent or pending changes since the original FHA mortgagee letter discussing these issues might affect the current HECM loan.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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