How Far Is AARP Willing to Take Reverse Mortgage Lawsuit? [Correction]

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table: one challenged the non-recourse policy associated with HECM loans, which took a step toward resolution when HUD rescinded its non-recourse guidance in April.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.”

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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

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  • The hubris expressed by both AARP and HUD is utterly remarkable.  AARP is acting as if what it and its plaintiffs decide will be treated as if it is a class action lawsuit.  If it is a class action lawsuit that is news to most of us.
     
    A new regulation will only impact new borrowers, not current or prior borrowers and their surviving non-borrowing spouses.  HUD needs a Congressional amendment if it wants to stop a class action lawsuit.  Why not just get it now as the time seems ripe from a Congressional viewpoint?
     
    The law does not distinguish between a spouse at signing and a spouse at demise.  Further it does not define who such a spouse is.  Does the spouse have to be living in the home at demise or just by the time the note is ultimately ended?  Do separated spouses qualify especially if they are living in the home as their primary residence at the time of death?  It would seem discriminatory if domestic partners are excluded from this definition.
    Of course the rule only applies to spouses and no one else.  But then could the term spouse later apply to a spouse of the surviving non-borrowing spouse.  Probably not but the statute is not distinctly clear on this point since the surviving non-borrowing spouse could technically become the borrowing spouse for this purpose and this purpose alone. 
    Of course the rule only applies to spouses and no one else.  But then could the term spouse later apply to a spouse of the surviving non-borrowing spouse.  Probably not but the statute is not distinctly clear on this point since the surviving non-borrowing spouse could technically become the borrowing spouse for this purpose and this purpose alone. 
     
    HUD has a mess on its hands IF the courts find in favor of the position that AARP has taken.  HUD needs to issue a new ML redefining non-recourse now.  It also needs legislation right away correcting the spouse displacement rule.  Its legal manuevering may just end the HECM program as we know it. 
     
    The bad thing is hubris seems to reign as these two titans duke it out in public.  And, yes, it is appropriate to ask AARP if these three cases are so important that they should be allowed to dramatically result in a curtailing of the HECM program as we know it.  For the sake of the plaintiffs that should not impact their cases but it should cause pause to AARP as to how far they want this whole thing to go.

    • Mr. Veale,
      This seems to be a very different outlook on this issue than you had during the May 23rd article about this lawsuit.

      It now sounds like you have taken a walk on the bridge and are looking off the edge.  The same bridge and edge you convinced me to stop looking over?  

      • 2545,
         
        It is always good to have someone who wants you to be accountable.  But here is what I also replied directly to you in that same string attached to the May 23rd article:
         
        “Believe me I am just as concerned about things the way you are.  I have no idea how certain politicians will use this case for their own purposes.  All we can do is point to facts as we know them.  In the right hands any outcome could have a terrible ending for the program or help us find more ways to help senior homeowners.”
         
        You may view my position as having changed.  It has a little but that is due to the hubris seen in some of the recent statements from both sides.  That was somewhat unexpected. 
         
        But the danger in my eyes remains more political than financial.  How many HECMs end with non-borrowing spouses inheriting the home?  Yet our detractors could demand through legislation that HUD add 40 additional years to the actuarial computations.  Imagine the size of the principal limits in that case.
         
        While I do not blame HUD for fighting in the courts over the issue, they also need to bite the bullet and have Congress change the law or provide the funding needed to include the provision in the program.  Fighting a myriad of cases over many years does not seem as if it will help the prestige of the program and may do little more than create fodder for our detractors.  The regulation avenue seeks questionable at best. 

        But then I am no attorney….

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