An onslaught of headlines regarding a 101-year-old Detroit woman who was foreclosed upon and evicted from her home after falling behind on reverse mortgage property tax payments circulated the Web on Monday. Two days later, the headlines stated that the Department of Housing and Urban Development had returned the keys to the house to its former owner.
While a positive outcome for the homeowner, some in the servicing industry were left scratching their heads about how HUD can make tax payments for a borrower who is in default—especially in light of a strong industry effort toward loss mitigation and resolving tax and insurance default—when servicers and lenders cannot.
RMD today learned the details of the situation from HUD.
The loan, made to Texana Hollis of Detroit, was assigned to HUD in 2006, Brian Sullivan, a HUD spokesman told RMD. The borrower was current on her tax and insurance payments, for which her son, under a Power of Attorney, took responsibility.
The loan later went into default, and the borrower’s family members ignored all loss mitigation efforts prompted by HUD. The property went into foreclosure and fell under HUD ownership. In order to maintain ownership, HUD continued to keep up with the taxes and insurance on the property.
“We were absolutely thunderstruck when we understood that a 101-year-old woman was put out of her home,” Sullivan told the press earlier this week. “We just want to make sure that Mrs. Hollis knows that her home of many years is hers to live in for as long as she wants,” he said.
The initial headlines read “One dollar house gets foreclosed; 101-year-old granny gets evicted.” But the negative press aside, the new headlines including “HUD: 101-year-old can go home,” and “Feds pay taxes, let evicted 101-year-old keep home,” have left some within the industry with questions. Will this be the case for all HUD-owned reverse mortgage properties in default?
“It’s too early too tell what the long-term impact may be as a result of this action in Detroit,” one servicing manager told RMD. “However, I believe that by taking this action, HUD has backed themselves into a corner. How could they justify helping this borrower (who happens to be in their assigned portfolio) while not doing the same for a similar borrower, who has a same type of loan, who happens to be serviced by a lender?”
The actions appear to be in conflict with HUD’s guidance for HECM servicers, the servicing source said, which could cause problems when borrowers ask why a borrower in default in a HUD-owned property can remain in the home, but otherwise, cannot.
“HUD does not allow servicers or lenders to pay for the borrower’s defaulted taxes or insurance in order to cure the default,” the servicing manager explained. “As you can imagine, this could make it very difficult for servicers and lenders to work with borrowers in tax and insurance default when HUD is instructing servicers to do one thing—and is doing something completely different on their assigned loans.”
HUD responded, stating that the circumstances warranted an exceptional response.
“No one should consider this exception to be the rule,” Sullivan said. “This was an highly extraordinary situation given Mrs. Hollis’ circumstances.”
Written by Elizabeth Ecker