Are contingent liabilities included in the expense analysis for a HECM Borrower?

A contingent liability is a liability that may result in the obligation to repay only where a specific event occurs. For example, a contingent liability exists when an individual can be held responsible for the repayment of a debt if another party defaults on the payment. Contingent liabilities may include co-signer liabilities and liabilities resulting from a mortgage assumption without release of liability.

The lender must include monthly payments on contingent liabilities in the expense analysis unless the lender verifies that there is no possibility that the debt holder will pursue debt collection against the HECM borrower should the other party default, or the other party has made 12 months of timely payments.

Mortgage Assumptions
The lender must obtain the agreement creating the contingent liability or assumption agreement and deed showing transfer of title out of the HECM borrower’s name.

Co-signed Liabilities
If the co-signed liability is not included in the monthly obligation, the lender must obtain documentation to evidence that the other party to the debt has been making regular on-time payments during the previous 12 months, and does not have a history of delinquent payments on the loan.

Court Ordered Divorce Decree
The lender must obtain a copy of the divorce decree ordering the spouse to make payments.

Calculation of Monthly Obligation
The lender must calculate the monthly payment on the contingent liability based on the terms of the agreement creating the contingent liability.

For additional information see Mortgagee Letter 2016-10 and the attached revised HECM Financial Assessment and Property Charge Guide, Section 3.89 at

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-04862