AARP Claims Victory in Reverse Mortgage Lawsuit

The AARP claimed a “win” its case against the Department of Housing and Urban Development (HUD), following a federal court’s ruling earlier this week in favor of two non-borrowing reverse mortgage spouses.

This week, a federal trial court in Washington, D.C., ruled that HUD violated federal law when it did not protect surviving spouses of reverse mortgage holders, according to an article from AARP.

Represented by the AARP Foundation Litigation, the plaintiffs in the case had their names taken off the deeds to their homes so that their spouses could obtain the reverse mortgage, leaving them to incur the debt of the loan when their spouses died or face foreclosure. 

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AARP argued that forecloses were illegal because HUD’s regulations and mortgage documents conflicted with a law Congress passed authorizing the federal reverse mortgage program.  

“The court’s decision is clear that the law gives our clients and others like them protection from foreclosure,” said Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation. “We are hopeful that HUD will act quickly to broadly implement this protection.”

The D.C. court told HUD that it had to find a way to fix the problem, though it is unclear how the agency will do that. One thing is for certain, according to AARP, in that spouses will not have to worry about losing their homes when their reverse mortgage-holding spouse dies.

Read the AARP article.

Written by Jason Oliva

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    • that is the reason so many people think it is a horrible program- because of misinformation and no supoport and no education…If they only really understood the benefits and how it could help them… I still have people say to me every day- but then they own the house, right? Really!!!!

  • It is unfortunate because many do not understand what this means-they just think HUD is the bad guy right.. The homeownerds that choose to be a non borrowing spouse do so for a reason..maybe one has a large tax lien on a business, or a second marriage where house is not owned by 2nd spouse, or one is much younger and they want to use house payment to clear all other debt- anyone I ever spoke to had sure cionviction on why and both agreed- they were educated by me, told during counseling session, and listed in print NBS and then had to sign special docs all the way thru the loan-they could be on the deed but not on the loan as a life estate… Now many people who will benefit from having this advantage will not be able to becasue of the ignorance of others… There is NO WAY the non borrowing spouse did not know what they were getting into- too many papers to sign and many people spoke to them through the spouse-plus they only sign a few pages while their spouse sits there and signs 60 other places… I can think of 2 clients right now that will not be able to do it and it was perfect for their situation,,, and because of a few- they ruin it for all others…

  • I am still unsure how HUD planned to get around the law:

    12 U.S.C. § 1715z-20(j)

    “[t]he 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 the homeowner.”

    Congress made it very clear what the intent was and HUD, as well as the industry as a whole, totally ignored it. They chose to ignore the last sentence in the statute, therefore AARP was absolutely correct. I do not know what HUD’s next move is, however the industry has foreclosed on a number of people that they never should have. Just saying that HUD said it was okay is not really enough in this situation. People, many of them seniors, lost their homes of many years. In the end, someone is going to end up paying a fair amount of money.

    As to whether or not this will be another nail in the coffin will depend upon HUD’s next move. Personally, until this is decided one way or another, I think the smartest thing HUD could do is to prevent married people from taking this loan unless both are eligible, however that may run into discrimination laws in some states. They may well have to stop doing HECMs completely and revamp the program. Not a popular thing to do and not one I really want to see happen, but until this gets sorted out, I believe that everyone is playing with fire when they do a loan with a married couple where one will not be on the loan.

    Frank J. Kautz, II
    Staff Attorney

    Community Service Network, Inc.
    52 Broadway
    Stoneham, MA 02180
    (781) 438-1977
    (781) 438-6037 fax
    FrankKautz@csninc.org –work
    Frank@Kautzlaw.com –private

    • Frank,

      I totally disagree with your analysis. The law does not say it only applies to those who were married at the time of funding; it applies to all surviving spouses at the time of loan termination. Thus the law potentially applies to all borrowers, not just borrowers who were married at the time of funding.

      Further, HUD would not insure a loan which followed the law. This was a decision of HUD not mortgagees. The law clearly states: “The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides….” So who was obligated make sure all HECMs have this provision? What advantage was it to lenders to leave this provision out when HUD insured the mortgage?

      Remember this is just the decision of a District Court not the Supreme Court. HUD can still appeal it the Court of Appeals and if they lose there to the Supreme Court.

      The real problem is that HUD would not insure a HECM which included this provision. It was mortgagees who refused to include it!!!

      • Hi Cynic,

        I am not sure that your analysis is correct. HUD has to make a decision on insuring a loan at the time of borrowing. They cannot look into the future to see if someone will marry, only at what is. If your analysis is the correct one, then the only choice HUD will have is to scrap the HECM program completely. Otherwise there will be no way to keep some octogenarian from marrying an 18 year-old, leaving the HECM on the house for another seventy years, and then seeing that 18 year-old who is now 88, marrying another 18 year-old, tying up the house for yet another seventy years. Much like New York City’s rent control laws, the same family could tie up a house for centuries, always preventing HUD or any lender from foreclosing upon it.

        The law has to apply at the time the loan is taken, not prospectively. Again, if read the way you are reading it, no one might ever foreclose on the property. Besides, most such laws, dealing with real property, are read that way.

        As to whether or not it was HUD or the lenders making the decision, it does not really matter all that much. However, if HUD were to insure such loans, then they really have no clue what they are doing and it is little wonder that our government is in chaos.

        Frank J. Kautz, II
        Staff Attorney

        Community Service Network, Inc.
        52 Broadway
        Stoneham, MA 02180
        (781) 438-1977
        (781) 438-6037 fax
        FrankKautz@csninc.org –work
        Frank@Kautzlaw.com –private

      • Frank,

        Because your reply has not posted but as the person you replied to, I can read it, I am posting my reply here.

        You need to think the problem through. With assignment, it is unlikely that the balance due on the HECM would not exceed the MCA long before many generations would pass; if that is not the case, then there is little for HUD to worry about. This is mainly a direct HUD problem in cases where the unpaid balance exceeds the MCA; it is not a direct lender problem.

        You are saying that the law is limited to the odd thinking that HUD must see the likely future. Where is that in the law or somehow associated with the law? The law is clear and there is no place where it says it is limited by HUD arbitrarily deciding at what point the anti-placement rule should end.

        HUD could have gotten the law changed at any time in the last 23 years but did not even bother going to Congress to show how unreasonably this provision could apply. And, yes, based on your description of NYC rent control laws, there is nothing prohibiting a family from tying up a home for generations with one HECM. That could be exactly the result of the wording in the law.

        Now here is a simple question you need to think through. Why have this provision if the only case where the death of a borrowing spouse will not terminate a HECM is when there is another borrower on the loan? Right now the only way a HECM can terminate as a result of the death of a borrower is if there is no other borrower residing in the home.

        The reason why this provision is here is to protect surviving spouses from displacement, whether that spouse is a borrower or not.

  • Lance,

    Like many in the industry you believe the industry and counseling non-borrowing spouse propaganda. Like all propaganda, it is false. The law is very clear that no HECM should have been insured by HUD unless it included the anti-displacement provision presented at 12 USC 1715z-20(j). That provision states:

    “(j) Safeguard to prevent displacement of homeowner

    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. Section 1647(b) of title 15 and any implementing regulations issued by the Board of Governors of the Federal Reserve System shall not apply to a mortgage insured under this section.”

    HUD refused to insure any mortgage which included that provision. It was too problematic. It includes all surviving spouses, borrower or not. In fact the provision does not require that the spouse had to be a spouse at funding.

    My advice is to read the law and not listen to the propaganda about non-borrowing spouses at the time of funding. The issues are much, much broader than that.

    • I don’t understand your remark regarding my believing the propaganda. I only stated what advice I have given people (which I believe to be good advice), and that I didn’t have knowledge of the facts behind the court’s decision. If that decision is based on your response above then now I do, and HUD shot itself in the foot.

  • Lance,

    Your reply to me has not posted yet so I will reply to it here.

    The industry and counseling has adopted the HUD view of the law without either labeling it as such and without challenging that interpretation. Of the two, counseling is the larger offender since its purpose is to counsel seniors about the program, not anyone’s interpretation as if it were law.

    Did you read this provision before this? Did you advise your prospects about the problem of divorce when they transmute their community (or other marital) interests in their home to their spouse?

    The HUD legal staff shot itself in the foot because of its “arrogance” (as some have boldly described it) in believing it could disregard the law in designing the program. HUD could have gone to Congress to get the law changed but somehow believed it was above such need.

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