Sue’s husband, Bill, obtained a reverse mortgage in 2012. But because Sue was younger than 62, she was not eligible to be a borrower. She was removed from title, and the loan documents offered her no protection if Bill died.
Now Bill has passed away, and Sue is receiving notices that the loan is due and payable. She has no ownership interest, no remaining equity, and no Non-Borrowing Spouse protections written into the loan documents.
Can she remain in the home and defer the due & payable status of the loan?
It may be possible because Sue may qualify as an Eligible Surviving Non-Borrowing Spouse, or ESNBS.
Please note that an ESNBS is NOT the same as an Eligible NBS.
Most reverse mortgage professionals are familiar with the term Non-Borrowing Spouse, or NBS. And for HECMs with FHA case numbers assigned on or AFTER August 4, 2014, an eligible NBS may receive a deferral period after the borrower dies or permanently leaves the home for health reasons.
But an ESNBS is different. This special designation applies to certain surviving spouses associated with HECMs assigned an FHA case number BEFORE August 4, 2014—before today’s NBS protections were incorporated into HECM requirements and loan documents.
It is an important distinction that could prevent an eligible widow or widower from being displaced.
WHAT DID HUD CHANGE?
In 2015, HUD created the Mortgagee Optional Election Assignment, commonly called a MOE Assignment. It allows a lender or servicer to assign certain pre-August 2014 HECMs to HUD rather than requiring the loan to be paid back after the last borrower’s death.
Keep in mind, the election is optional for the lender, but it may allow a qualifying ESNBS to remain in the home.
If the HECM was already assigned to HUD before the borrower’s death, the surviving spouse should contact HUD’s servicing contractor and request an ESNBS eligibility review.
DOES SUE QUALIFY FOR A DEFERRAL?
I began by asking her four questions:
- Was the HECM assigned an FHA case number before August 4, 2014?
Yes. - Was Sue married to Bill when the loan closed, and did she remain married to him until his death?
Yes. - Did Sue occupy—and does she continue to occupy—the property as her principal residence?
Yes. - Has the loan already been assigned to HUD?
Yes.
Because she can answer YES to all four questions, Sue’s next step was to contact HUD’s servicing contractor, submit the required documentation, and request recognition as an ESNBS.
The lesson is simple: When a pre-August 2014 HECM involves a surviving spouse, determining whether that spouse qualifies as an ESNBS should be one of the first steps.