There are a few issues here. In most states your husband’s grandmother can keep the house as long as she’s alive. But when she dies, the state will have a claim against the house for reimbursement of its expenses for your grandmother’s care. However, the mortgage is the bank’s claim against the house and it comes before the state’s claim. So, when the house is sold, first the bank gets paid, then the state, and then, if there’s still money left, it goes to your husband’s family. Ownership, however, remains with your husband’s grandmother during her life and then passes to her estate.
For more information about how Medicaid treats the home, click here.