Calif. Judge Dismisses Wells Fargo, FNMA Reverse Mortgage Lawsuit

A proposed class action representing heirs of reverse mortgage borrowers was dismissed by a California judge on Friday without leaving the plaintiff an opportunity to appeal. 

The suit, brought by AARP on behalf of plaintiff Robert Chandler against Fannie Mae and Wells Fargo in 2011, was the second reverse mortgage lawsuit brought by AARP in 2011 following a suit brought against the Department of Housing and Urban Development that is being decided in a court of appeals. 

U.S. District Judge Samuel Conti dismissed the proposed class action suit last week, stating the plaintiff’s home title did not back his claims.

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Chandler, of Elk Grove, Calif., inherited the home of his mother, who had a reverse mortgage and passed away in 2010. The suit alleges that Chandler was never given notice of his right to purchase the property for its current value.

According to the allegations and AARP, Wells Fargo told him that he would have to pay off the full mortgage balance, then acting on Fannie Mae, the owner of the mortgage, proceeded to foreclose on the home. Finding no one willing to buy it for the same market price that Mr. Chandler was Fannie Mae began efforts to evict him from the property.

The suit was brought in 2011, around the time of the lawsuit brought against HUD, alleging Wells Fargo and Fannie Mae foreclosed illegally on the home following the death of Chandler’s mother, who was named on the reverse mortgage and was the only borrower named on the home title. The claims allege the bank and Fannie Mae wrongfully interpreted the Home Equity Conversion Mortgage statute when they foreclosed on Chandler’s home without offering the opportunity for Robert Chandler to purchase the home at 95% of its appraised value. 

In dismissing the suit with prejudice, the judge deemed any additional efforts would be futile by eliminating the plaintiff’s chance to appeal the decision. 

Written by Elizabeth Ecker

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  • This is a very different suit from that filed by the plaintiffs of the case won in the court of appeals. The case won in the court of appeals is one based on the spousal anti–displacement rule found in the law at 12 USC 1715z-20(j). The case just lost has to do with HUD administratively created rule. HUD is appealing the case it lost in the court of appeals to the Supreme Court, something many prognosticators did not believe would happen but as predicted by a much smaller group, HUD has appealed it.

    The case just lost by its plaintiffs should have been lost since it is based on administrative decisions mandated by HUD. But as to the law, the Supreme Court should rule in favor of the plaintiffs stating that HUD should have never endorsed mortgages which omit the protections of 12 USC 1715z-20(j) (that provision states exactly that). The Supreme Court should find that the plaintiffs’ interpretation is the only reasonable interpretation and that if HUD believed it was otherwise they had ample opportunity to get Congress to change the law. However, following the enactment of the Reverse Mortgage Stabilization Act of 2013, the Secretary should be able to specifically exclude application of this provision of the law to future originations through a mortgagee letter or simple notice. Even if the court may state that originations after enactment of the Reverse Mortgage Stabilization Act of 2013, that decision would only be applicable to HECMs funded after August 8, 2013 (the day before enactment).

    Now we will see whether the Supreme Court will even hear the case and if they do, what they determine the result should be. The worst results would be either for the Supreme Court not to hear the case or rule that HUD must get Congress to change the provision if the provision is not to be applied. Many of us wonder why HUD was so obstinate that it did not go to Congress for a change by 1989 when the implications of the provision were first known.

    • The_Cynic —
      If my memory services me well, I believe HUD’s appeal in the displacement case is to the DC Circuit Court, not the US Supreme Court. The ruling against HUD (on the merit of the case) happened in the US District Court for the District of Columbia in September. The earlier ruling by the DC Circuit Court did not address the case’s merit. The question it examined and decided was whether the non-borrowing spouses (appellants) had “standing” to sue HUD. Of course, it concluded that they did and sent the case back to the District Court to be heard on its merits.
      HUD must have some novel legal grounds for appeal for it to go back to the same court that unanimously rejected its argument during the “standing” hearing. The court granted standing to the nonborrowing spouses because it believed HUD can solve the problem. It even offered some ideas for resolution. What I am trying to understand is this: Even if HUD prevails on appeal, will its legal victory solve the displacement problems of nonborrowing spouses?

      • Atare,

        On October 1, 2013, a RMD article on the AARP case stated: “A court of appeals this week ruled in favor of two plaintiffs in a lawsuit filed more than two years ago by the surviving spouse of a reverse mortgage borrower.” I assumed that the information provided by RMD was correct. Thank you for pointing out my inappropriate reliance on that incorrect information. I also found the District Court Memorandum decision at https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2011cv0498-42.

        So in the instant case, the HUD appeal can only be to a federal Court of Appeals unless the Supreme Court decides by its merits of the case to skip the Court of Appeals but the Supreme Court is very, very reluctant to take such action. When you wrote that the case is being appealed “to the DC Circuit Court” did you mean the DC Circuit Court of Appeals?

        It is not the responsibility of the courts or HUD to solve the problems of displaced spouses unless HUD violated the law by endorsing a reverse mortgage as a HECM which not contain the protections afforded under 12 USC 1715z-20(j).. Not even the Reverse Mortgage Stabilization Act of 2013 grants the HUD Secretary powers to help a class of non-borrower who might be harmed by the termination of a HECM.. Either it is a HUD legal responsibility or it is not. To be clear I have no sympathy towards the problems of displaced spouses who were adequately counseled about the consequences of not being a HECM borrower, other than I believe HUD violated the law by endorsing any reverse mortgage which does contain the protections afforded by the law in such situations.

        While that may seem heartless, HECMs are not for everyone and every situation. It is a potentially great mortgage not a social program as some seem to believe. We are talking about a contract between a lender and a borrower, not a lender and parties other than borrowers.

        HUD should have NEVER endorsed a single reverse mortgage as a HECM which did not contain the anti- -displacement provision for homeowners (including their spouses) afforded by the law. Quite frankly, I believe HUD violated the law in over 750,000 HECM endorsements since 1989. Someone at HUD should be indicted on criminal charges for directing endorsement of such bogus reverse mortgages and the Agency should have to pay for damages and punitive damages to those individuals or their heirs due to the harm HUD caused. HUD knew it was taking a risk in violating the clear meaning of the law. Now it is time to pay the piper.

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