A lawsuit concerning the non-borrowing spouses of reverse mortgage borrowers was brought back today by the decision of a court of appeals after having been dismissed earlier by a Washington D.C. District Court.
The appeal indicates that there are still issues in question regarding the rights of non-borrowing spouses and heirs of reverse mortgage holders.
The suit, which was brought to the court of appeals by two non-borrowing spouses of reverse mortgage borrowers, challenges the Department of Housing and Urban Development on its regulations regarding rights of the non-borrowing spouse to assume the home, even if his or her name is not on the home title.
The issue was first raised by AARP on behalf of three plaintiffs in March 2011, which alleged HUD had abandoned a rule in place since 1989 that states the borrowers would never owe more than the home was worth at the time of repayment through a mortgagee letter in 2008 that required a surviving spouse to pay the full loan balance in order to keep the home.
HUD revised its guidance following the allegations to clarify that a surviving heir of a reverse mortgage borrower is entitled to repay the loan for the appraised value of the home at the time of sale.
The lawsuit was dismissed by a lower court following the HUD’s rescinded guidance, but Friday, a court of appeals decided the appellants’ case has standing.
“We admit to being somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute,” wrote one of the deciding judges. “HUD explains that it is specially concerned about the scenario in which a homeowner, after taking out a reverse mortgage, marries a spouse — particularly a young spouse — and thereby significantly increases a lender’s risk. It would seem, however, that HUD could legitimately deal with that problem by issuing a regulation defining a “spouse” as only a spouse in existence at the time of the mortgage.”
The opinion leaves HUD to decide whether to use its authority to further revise the regulations regarding non-borrowing spouses.
“It’s clear the court thinks spouses are considered homeowners regardless of whether they’re on the mortgage or not,” Craig Briskin of Mehri & Skalet PLLC, co-counsel for the plaintiff told RMD. “The ball is in HUD’s court right now to decide if they want to appeal or come to settle it.”
A spokesman for HUD told RMD the Department does not comment on pending litigation.
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