Despite HECM Program Change, AARP Lawsuit Against HUD Moves Forward

After the Department of Housing and Urban Development announced this it was rescinding guidance issued to clarify its recourse policy for reverse mortgages, AARP told RMD it is pleased with the agency’s decision but still plans to move forward with the lawsuit it filed against HUD earlier this year.

“We believe [the change] will save the homes of many, many older people from foreclosure,” said Jean Constantine-Davis, a senior attorney with the AARP Foundation in an email to RMD. “It does not, however, end the case, because there is still at least one important outstanding issue.”

In March, AARP filed a lawsuit against HUD alleging it abandoned a rule in place since 1989, which states that a borrower or heirs would never owe more than the home was worth at the time of repayment. Guidance HUD published in 2008 states than an heir—including a surviving spouse who was not named on the mortgage—must pay the full mortgage balance to keep the home, even if it exceeds the value of the property.

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AARP told RMD it hopes HUD will take action to ensure surviving spouses of reverse mortgage borrowers are protected from foreclosure and eviction pending the resolution of all issues in the case. The lawsuit also alleges that HUD has never recognized the “Safeguard to Prevent Displacement of Homeowner” statute, which it says provides that HECM homeowners cannot be displaced from their homes until the HECM terminates.

It then states that “…for purposes of this subsection, the term ‘homeowner’ includes the spouse of a homeowner.” Therefore, the spouse—even one who is not named on the mortgage—cannot be arbitrarily displaced from the home upon the death of the borrower, said AARP.

New guidance from HUD related to its recourse policy is coming in the future said the agency. Until that happens, Steven A. Skalet of Mehri & Skalet, co-counsel for AARP said it’s terrific news for surviving spouses.

“We still need to understand the details and where HUD is going on the issues we have raised, but we are pleased by this first significant step,” he said.

Interestingly enough, Brian Sullivan, a spokesman for HUD told Bloomberg the policy change was unrelated to the lawsuit.

“We recognized there was some confusion on the issue, and we wanted to make sure that the ultimate sale of the property is market-based and reflects the property’s real value,” Sullivan said.

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  • The comments in the article above are full of double talk. If there is no guidance on nonrecourse, there is no guidance. This is not yet a victory on the nonrecourse issue. However it is significant that Brian is now saying that HUD just wants to be assured that the sales price reflects market value; that was never the point of ML 2008-38.

    Many in the industry were sure that the AARP case was about ML 2008-38 but that was a misconception and little more than a bargaining chip. To some degree the ML was a side show. Looking at the plaintiffs it has always been clear that the case was about 12 USC 1715z-20(j), the so called displaced spouse rule.

    All of the plaintiffs were non-borrowing spouses. In the AARP press release none of the facts in the cases included any facts related to the problems these surviving spouses had in retaining the collateral. Even one is about a non-borrowing spouse who was married long after the HECM was funded and whose name never appeared on title.

    If the case was about ML 2008-38, AARP would have withdrawn at this point. This case is and has been primarily and principally about displaced non-borrowing spouses.

    • They are separate but related issues: ML -08-38 caused the spouses to owe more than the market value of their homes; their financial inability to pay the loan balance led to default, and foreclosure proceedings; meanwhile, 12 USC 1715z-20(j) offers displacement protection to “non-borrowing” spouses that HUD has never implemented.

      • Atare,

        From a financial view, ML 2008-38 has no negative or potentially negative impact to the program. None of the financial underpinnings of the HECM program reflect any reduction to potential losses as a result of borrowers or heirs exercising their right to retain the home under ML 2008-38. The only financial impact connected to the survival of the interpretation of nonrecourse as found in ML 2008-38 is a marginally positive one from a HECM MMI Fund point of view. Why it is marginal is that HUD believed that all but a few borrowers (or heirs and other related parties) would be discouraged from retaining the home based on the terms of this ML, so why reflect it in any financial model?

        On the flip side, the interpretation being presented by legal counsel for AARP on the so called displaced spouse issue would have a very potentially negative financial impact on the program. None of the HUD financial modeling reflects any contingencies for non-borrowing spouses. If the AARP position prevails, it would fundamentally change the program; Principal Limit Factors would have to be drastically reduced and serious consideration would have to be given to dismantling the program in its entirety or Congress would have to give a blank check to HUD to underwrite it.

        On the other hand, a simple amendment would take care of the problem on future HECMs. The problem would be those HECMs which are outstanding at the time a decision comes down in favor of AARP – IF that happens. The suit exposes the weakness of HUD’s bureaucractic structure . ML 2008-38 looks like the tip of an iceberg.

        I see no ties between ML 2008-38 and 12 USC 1715z-20(j) of any nature at all. One is a policy issue impacting who will own the property with little financial impact to the HECM program. The other is a fundamental issue to the program, the right of possession of the property. One is of minor financial consequence and should have never been introduced into the program – an unfortunate draconian decision of HUD while the other is a fundamental issue related to whether or not the HECM program is a social welfare program for spouses of seniors or a true mortgage.

        So I see absolutely no connection between the two other than one has potential impact on some surviving non-borrowing spouses (balance due exceeds the balance due at termination) while the other has an impact on all non-borrowing spouses and perhaps as some indicate spouse after spouse into perpetuity.

    • They are separate but related issues: ML -08-38 caused the spouses to owe more than the market value of their homes; their financial inability to pay the loan balance led to default, and foreclosure proceedings; meanwhile, 12 USC 1715z-20(j) offers displacement protection to “non-borrowing” spouses that HUD has never implemented.

  • The comments in the article above are full of double talk. If there is no guidance on nonrecourse, there is no guidance. This is not yet a victory on the nonrecourse issue. However it is significant that Brian is now saying that HUD just wants to be assured that the sales price reflects market value; that was never the point of ML 2008-38.

    Many in the industry were sure that the AARP case was about ML 2008-38 but that was a misconception and little more than a bargaining chip. To some degree the ML was a side show. Looking at the plaintiffs it has always been clear that the case was about 12 USC 1715z-20(j), the so called displaced spouse rule.

    All of the plaintiffs were non-borrowing spouses. In the AARP press release none of the facts in the cases included any facts related to the problems these surviving spouses had in retaining the collateral. Even one is about a non-borrowing spouse who was married long after the HECM was funded and whose name never appeared on title.

    If the case was about ML 2008-38, AARP would have withdrawn at this point. This case is and has been primarily and principally about displaced non-borrowing spouses.

  • The comments in the article above are full of double talk. If there is no guidance on nonrecourse, there is no guidance. This is not yet a victory on the nonrecourse issue. However it is significant that Brian is now saying that HUD just wants to be assured that the sales price reflects market value; that was never the point of ML 2008-38.

    Many in the industry were sure that the AARP case was about ML 2008-38 but that was a misconception and little more than a bargaining chip. To some degree the ML was a side show. Looking at the plaintiffs it has always been clear that the case was about 12 USC 1715z-20(j), the so called displaced spouse rule.

    All of the plaintiffs were non-borrowing spouses. In the AARP press release none of the facts in the cases included any facts related to the problems these surviving spouses had in retaining the collateral. Even one is about a non-borrowing spouse who was married long after the HECM was funded and whose name never appeared on title.

    If the case was about ML 2008-38, AARP would have withdrawn at this point. This case is and has been primarily and principally about displaced non-borrowing spouses.

  • The comments in the article above are full of double talk. If there is no guidance on nonrecourse, there is no guidance. This is not yet a victory on the nonrecourse issue. However it is significant that Brian is now saying that HUD just wants to be assured that the sales price reflects market value; that was never the point of ML 2008-38.

    Many in the industry were sure that the AARP case was about ML 2008-38 but that was a misconception and little more than a bargaining chip. To some degree the ML was a side show. Looking at the plaintiffs it has always been clear that the case was about 12 USC 1715z-20(j), the so called displaced spouse rule.

    All of the plaintiffs were non-borrowing spouses. In the AARP press release none of the facts in the cases included any facts related to the problems these surviving spouses had in retaining the collateral. Even one is about a non-borrowing spouse who was married long after the HECM was funded and whose name never appeared on title.

    If the case was about ML 2008-38, AARP would have withdrawn at this point. This case is and has been primarily and principally about displaced non-borrowing spouses.

  • I wasn’t aware the plaintiffs in the AARP case against HUD were all individuals who became spouses AFTER the HECM was already in place: I thought they were Quit Claimed off title to allow the HECM to close and they now claim they were duped into this action. Something of that nature MIGHT have merit.

    But if The Critic is correct and all became spouse after the HECM loan closed, I am incensed a case like this wasn’t thrown out on a request for summary judgment by defendant-HUD’s counsel. Were all of the spouses 62 or better when they got married to HECM homeowner? If that even an issue? If not, let say in this public forum I want to provide 84-year old Hugh Hefner a HECM on the Playboy Mansion, then let him marry his next 24-year old bride and when Hef dies, his despondent (and soon to be displaced) widow can get in line to sue HUD claiming her life estate rights were violated. I’m sure there would be at least one attorney at the NCLC who would represent her.

    • Ken,

      I simply do not remember posting any comment of the nature you reference in your comment. The_Cynic has made such a comment but as I read it, The_Cynic states: “Even one is about a non-borrowing spouse who was married long after the HECM was funded and whose name never appeared on title.” As I read that comment and the AARP press release all three were surviving non-borrowing spouses but only two were taken off of title.

    • Here are the facts from the complaint:

      1) Plaintiff Robert Bennett (and his late spouse, Ophelia Bennett) were married in 1976 and jointly owned their home since about 1981; HECM loan documents were signed by Ophelia Bennett on December 17, 2008;

      2) Plaintiff Delores Moore (and her late spouse, Harlan E. Moore) were married in 2001; HECM loan documents were signed by Harlan Moore on December 2, 2005;

      3) Plaintiff Leila Joseph ( and her late spouse, Albert Joseph) bought and jointly owned their home from 1980 to 2005;in 2005, Albert was removed from title because they believed the house was exposed to his creditors(they remained married). HECM loan documents were signed by Albert Joseph on April 18, 2009. Yes, the couple was persuaded, according to the complaint, to put Albert back on title. Meanwhile, Albert Joseph was diagnosed with Alzheimer’s disease in 2006.

      Ken, I have found that independent research helps. Thanks.

    • Ken,

      The_Critic got it essentially right. Per the March 8th AARP Press Release there are two cases of surviving non-borrowing spouses coming off of title and one where the surviving non-borrowing spouse was never on title. What is odd is that in the AARP Press Release the summary of the alleged facts makes it appear that fraud was involved in the process of originating the first two HECMs. It is alleged that one surviving spouse did not know his name was removed from title in the process of originating the HECM. It is alleged that the other surviving spouse went off of title so that her husband who clearly had dementia could obtain the HECM.

      Why are you incensed? If the law, not the handbook or the regulations, is properly interpreted as saying that a spouse cannot be displaced whether s/he is 18 or 90 and whether s/he is a borrower or not, the law takes precedent over all else. What dedicated originator has read 12 USC 1715z-20(j) and not questioned its meaning?

      No doubt over the last several years, you have read the provision several times yourself. HUD wants to interpret the word spouse as “non-borrowing spouse” but the law does not say that and does not even come close to implying it. What is strange is that no one has litigated this issue before now! Even stranger is that HUD never issued any regulations codifying its position so that the courts could point to long established regs for its interpretation.

      How the AARP attorneys are interpreting the law is exactly the way several of us did when we first read it years ago. When I asked about it upon coming into the industry, the industry leaders I went to told me not to worry about it and bring in some more loans. Asking what I should tell borrowers who could be impacted, I was instructed that HUD and the big lenders knew what they were doing. I have heard that several employees at HUD who questioned the interpretation of the HUD legal department were told that with legal opinion there was nothing to worry about. Both of these nonsensical responses need to be exposed for what they are, utter nonsense.

      Since you are so upset about the issue, what is wrong with the position of the attorneys for the plaintiffs? This is not the first issue that the legal department at HUD has made decisions which make little sense. The legal department decided in ML 2008-35 that the $417,000 lending limit applies to the contiguous states with adjustments for a few places that are addressed in the original act and not all high cost areas as clearly indicated by specifically cited reference in HERA. (Notice the close proximity of ML 2008-35 to ML 2008-38. This is by no means a mere coincidence.)

      HUD is clearly caught with its feet flat on 12 USC 1715z-20(j). What is odd is that a simple Congressional amendment during the infancy of the program would have cured everything. Why didn’t HUD take action regarding what was considered an ambiguity decades ago by a simple legislative proposal? Some blatantly have called this the hubris of the HUD legal staff of that era, i.e., they simply could not believe anyone WOULD or could successfully challenge their positions.

  • 04.08.11RMD
    Re: AARP Lawsuit against HUD

    The question is when will AARP, advocate to the secretary of Department of Housing and Urban Development for a reverse mortgage package in behalf of stock cooperative dwelling owners? Today co-op seniors have no access to dwelling equity.

    Obviously, the HUD secretary needs encouragement to do the Right Thing in replacing the 12-year co-op Home Keeper RM package. Co-op owners have been waiting going on three years, ever since the HUD secretary sent his July 2008 mortgage letter telling lenders to end co-op RMs. Yet since 2009, HUD has implemented two reverse mortgage packages for single family owners.

    Please, Steven A. Skalet of Mehri & Skalet, co-counsel for AARP, bring this matter to the board. HUD has apparently ignored our message of July 2010, which asked when co-op RMs would be implemented under the Housing and Economic Recovery Act of 2008. The HUD response was “soon.”

    Well AARP “soon” has come and gone. The question still is “when?”.

    BARBARA B. HOWARD 
    Cofounder HECMs for CO-OPs GROUP at Laguna Woods CA

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