When AARP filed a lawsuit against the Department of Housing and Urban Development in March, two reverse mortgage issues were on the table: one challenged the non-recourse policy associated with HECM loans, which took a step toward resolution when HUD rescinded its non-recourse guidance in April. The other, which remains on the table, is the interpretation of the word “homeowner” that appears in the HECM statute.
“The HECM statute explicitly defines the homeowner and spouse as two different people, one of whom may not own the home, but still is entitled to protection from displacement,” AARP wrote in a memorandum in opposition to HUD’s motion to dismiss in late April. “This definition demonstrates that Congress clearly understood that some HECMs would be originated by only one of the two spouses. Congress gave both spouses the status and protection from displacement it accorded to homeowners.”
Further, writes AARP, “This is not a question of a few stray words that one could interpret to have been inadvertently inserted without regard to their possible meaning.”
While AARP has long argued that the term “homeowner,” as mentioned and defined by HUD, encompasses the HECM borrower and his or her spouse with respect to ownership of the home under reverse mortgage, counsel for AARP told RMD last week that HUD could come out with regulations that would change and clarify the rule.
“There’s no reason the regulations couldn’t limit the definition of spouse to spouses at the time the mortgage was entered,” said AARP co-counsel Craig Briskin, of Mehri & Skalet, PLLC. However, Briskin said, HUD has made no such effort to change the definition.
Instead, the issue remains pending. “If [AARP] wins, HUD has to come up with regulations that comply with the statute,” Briskin said.
With an extreme interpretation of the statute, many have said, the term “homeowner” could extend to include those who were not even yet married to the borrower at the time of the mortgage—an outcome that could have serious implications for the HECM program.
The question is: how far is AARP willing to go? When asked whether AARP would pursue the suit to the point where it could limit the HECM program, AARP had no comment.
In terms of the issues in the original suit, Jean Constantine-Davis, a senior attorney at AARP Foundation Litigation said this week that the remaining issue stands and provided an update.
“Our complaint asked for different kinds of relief for different claims. We sought to give spouses and heirs of deceased HECM borrowers the ability to purchase the property from the estate for 95% of its appraised value. After we filed the case, HUD capitulated on this claim,” she said.*
“The Complaint, however, also claims that spouses of deceased reverse mortgage borrowers have the right under the HECM statute to be protected from displacement until their death or permanent move from the home,” Constantine-David said. “That issue is currently the subject of Motions before the Court.”
*Correction: A previous version of this article stated in error that the non-borrowing spouse issue is still under discussion, which may have implied to readers that it is still being negotiated publicly. With respect to the non-borrowing spouse issue, “We will wait for the court to decide,” Jean Constantine-Davis told RMD in email correspondence.
Written by Elizabeth Ecker