AARP Reverse Mortgage Lawsuit Against HUD Dismissed

The lawsuit filed by AARP against the Department of Housing and Urban Development concerning three reverse mortgage borrowers facing foreclosure has been dismissed by the Court, without prejudice, according to court documents. The decision came on July 15, in an important, but not necessarily permanent, victory for HUD.

The lawsuit, filed on March 8 of this year, brought two issues to the attention of the Court. The first had to do with HUD’s non-recourse policy regarding HECM loans, and the second, bringing to light the interpretation of the word “homeowner” that appears in the HECM statute. Whether the term “homeowner” includes a non-borrowing spouse of a HECM borrower remained an outstanding issue after HUD rescinded its non-recourse guidance in April.

“We are disappointed with the Court’s ruling and are evaluating our options on how to proceed from here,” Jean Constantine-Davis, AARP Foundation Senior Attorney, told RMD in an email.

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While the Court dismissed the remaining issue in the lawsuit for lack of jurisdiction, still there are some unanswered questions. The Court did not rule as to whether HUD’s interpretation of the HECM statute was permissible or correct. For this reason, noted analysis from Weiner Brodsky Sidman Kider PC, legal counsel for the National Reverse Mortgage Lenders association, the victory for HUD may be temporary, as HUD’s interpretation of the statute has yet to be addressed by the courts.

“It is not enough that the plaintiffs have been harmed or injured by the conduct they complain about; they must also show, among other things, that the court, if it ruled in their favor, could do something meaningful about it,” noted NRMLA’s counsel.

The Court did not contest the plaintiffs’ injuries, however, it found the plaintiffs have failed to establish redressability—that anything can be done by HUD to change the situation. Because the plaintiffs entered into contracts with private sector lenders, the documents state, their injuries can not be redressed by HUD. “Plaintiffs lack standing because the relief they seek would not redress their injuries,” court documents stated.

“The Court held that it was the Lenders, not HUD, that were pursuing the foreclosure actions against the plaintiffs,” according to the legal analysis from Weiner Brodsky Sidman Kider, “and that in doing so the Lenders were simply and correctly relying upon the contractual rights they had to foreclose under the mortgage instruments signed by the borrowers themselves.”

The dismissal, without prejudice, means that the plaintiffs can try their their case again or submit an amended complaint against HUD, said WBSK.

Further, the counsel noted, this victory may be temporary, “as HUD’s interpretation of the statute has yet to be addressed by the courts.”

Written by Elizabeth Ecker

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  • This is no victory for anyone especially those non-borrowing surviving spouses who are now in limbo.  It was most certainly a setback.  Should non-borrowing surviving spouses fight to stay in the home or should they move?
     
    In Arizona one widow sits not knowing what to do.  If she does not move now, the best rentals with the best prices will be gone in late August due to snowbirds returning to Arizona from their summer flight.  If she moves now, she could lose the beautiful all but brand new home she enjoys with perhaps some future monetary gain if AARP ultimately wins.  She is between the rock and the hard place.
     
    Is AARP so satisfied with ML 2011-16 (rescinding ML 2008-38, the greatly disputed HUD position on nonrecourse) that it will not return to the courts to see through a decision on the spouse displacement rule?  Will there (or can there be) a class action suit replacing the AARP suit, if AARP does not move forward?
     
    One thing NRMLA has provided in its reporting of this case is an even handed approach.  NRMLA deserves a lot of credit for using that tact.

    • I don’t think it’s even a question as to move or stay for the non-borrowing spouse. They should move!
      Why did they sign off when the loan was put in place?
      Why do they feel they are entitled to stay?
      They knew they were not 62 at the time of the loan therefore could not be on the loan and this was a possible outcome.
      When the loan was put in place it helped them tremendously by paying off their mortgage, home improvements, European vacation, paying off all their credit card debt and that nice new car (that is still parked in their driveway). Although, now it’s a terrible loan and a sad story.

  • 2545,
     
    Who is calling the HECM a terrible loan?  Perhaps you have not read 12 USC 1715z-20(j) so for your convenience, here it is in part:
     
    “The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term ‘homeowner’ includes the spouse of a homeowner.”
     
    Per the plaintiffs’ attorneys the law clearly states that the HUD Secretary cannot insure the loan you describe.   It seems your idea of what constitutes an insurable HECM and theirs is very different.  If the displacement rule does not cover the non-borrowing spouse then why was the last quoted sentence placed in the law?  It was entirely unnecessary if the sentence is only addressing borrowing spouses since they are homeowners.  Even some high ranking HUD officials have questioned its meaning for years.  HUD should have straightened this issue out decades ago.
     
    The court did not strike down the interpretation presented by the legal team for the Plaintiffs; it struck the case down because of who was named as the defendant but it did so without prejudice.  Your fight is with lawyers not some widow.  The AARP case is about the rights of widows and widowers to stay in their home.
     
    The attitude expressed in your comment is callous towards these widows and widowers.  It paints us all as greedy mortgagees and originators just crouching and waiting for the right moment to attack and “take the widow’s home” in the midst of what for most people is the most tragic event of their life.  If these surviving spouses have rights, why shouldn’t they exercise them?  As I am finding out several in the industry care little for the seniors who employ them or for those they spent so many years providing for.  Words fail to describe my revulsion.
     
    It is up to the Courts, Congress, and HUD to take care of this mess.  If HUD wins, so be it.  If AARP wins, again so be it but in that case both Congress and HUD will have their work cut out for them; no doubt lenders will also have to pitch in to help clean up the mess.  In between our industry should provide care and sympathy to the surviving spouses of our customers.

  • The inconsistencies between the letter of the statute and the purpose of having a non-borrowing spouse sign off title should not surprise any of us when it so often is the case that the left hand does not know what the right hand is doing.  I was trained to counsel customers who were in the situation where there was going to be a non-borrowing spouse to the effect that if the borrowing spouse passes away prior to the non-borrowing spouse, that unless he/she could then qualify for a reverse mortgage of their own at that point to pay off the existing reverse mortgage, they were either going to have to find another way to pay off the debt or may need to sell the property.  It was for this reason that we had them sign a disclosure that encouraged them to seek independent counsel to advise on this issue (usually none was sought).  In the situations in which I was involved, the customers were in need of the reverse mortgage just to stay in the home.  They were usually using the funds to pay off the mortgages for which they were in danger of falling behind on payments.  They were NOT taking European vacations or buying a new Mercedes.
    Mr. Veale aptly points out the need for HUD clarification and congressional action.  If the letter of the law prevails, what is the situation where the spouse of the homeowner only became the spouse after the homeowner obtained the reverse mortgage?  Let’s hope that clarification comes while the program is still available! Just kidding, we’re here to stay.

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