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Compliance Update - September 2015
Ryan LaRose & Debra Taylor
You are undoubtedly aware that HUD issued Mortgagee Letter 2015-15 on June 12th providing a method by which servicers can offer a Mortgagee Optional Election (MOE) to defer a due and payable action initiated by the death of the last surviving borrower when there is an eligible Non-Borrowing Spouse (NBS) living in the property.
Further, if the NBS meets all of the criteria, the loan can then be assigned to HUD, even if the loan balance is less than 98% of the Maximum Claim Amount.
This process, however, is applicable only for loans with an FHA Case Number issued before 8/4/14 and there are a number of other qualifications that the NBS must meet to be eligible for MOE including:
- The NBS must provide proof that they were legally married to the borrower at the time the loan was originated, or
- The NBS was engaged in a committed relationship with the borrower but was prohibited at the time of HECM origination from legally marrying the borrower based on the gender of both the borrower and NBS.
- The NBS has to currently reside, and has resided, in the property secured by the HECM as their principal residence since the time of origination.
- The NBS must be able to provide proof that they have good, marketable title to the property, or a legal right to remain in the property for life, within 90 days from the date of the borrower’s death.
- No unresolved defaults on the loan (i.e. tax/insurance default must be cured prior to MOE approval).
It is important to note that not every NBS will qualify for these protections. Those that do will be under a very tight timeline to provide the necessary documentation after the borrower’s death to qualify for the MOE.
In addition, if the NBS qualifies for the MOE and the loan is assigned to HUD, the NBS will still be responsible to meet all of the requirements of the reverse mortgage (i.e. live in the home as their primary residence, keep the taxes and insurance current at all times, maintain and perform upkeep on the property, etc.). Any failure to comply with the obligations of the HECM could result in rescission of the MOE protections for the NBS.
As a final note, there will be other documents/certifications that the NBS will be required to execute to qualify for the MOE, the most interesting of which is typically called a “Tolling Agreement”. This document is necessary due to the fact that the loan will have already been called due and payable due to the death of the last surviving borrower. It will need to be executed by the NBS and its intent is to protect the HECM investor and HUD from a potential issue whereby a state-specific statute of limitations threshold on enforcing the lien passes during the time that the loan is in a MOE deferral status.
If you have any MOE questions, please don’t hesitate to contact us.
(We couldn’t resist!)