HUD Says No Relief for Reverse Mortgage Non-Borrowing Spouses in AARP Case

The Department of Housing and Urban Development responded to a judge’s order to determine relief for two reverse mortgage non-borrowing spouse plaintiffs, stating the department would provide no such relief. 

In a letter including a Determination on Remand document sent to legal counsel for the plaintiffs, including representation by the AARP Foundation Litigation, Federal Housing Commissioner Carol Galante stated the administration’s position on what type of relief should be granted, specifying that no further relief should be granted to the plaintiffs. 

The two plaintiffs are non-borrowing spouses of now-deceased reverse mortgage borrowers who first filed their case in the U.S. District Court for Washington D.C. in 2011 claiming they had been unduly foreclosed upon and should be considered “homeowners” under the terms of the loans. 

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The court initially ruled in favor of HUD’s interpretation of the reverse mortgage statue, which resulted in foreclosure of the plaintiffs’ homes. The plaintiffs later appealed the decision and won, in a ruling delivered in October 2013

“The Court determined that the Federal Housing Administration (“FHA”), a division of HUD, had erroneously endorsed the Bennett and Joseph reverse mortgages for insurance under the HECM program because the mortgages did not contain language deferring the due and payable status of the mortgages until the death of the mortgagors’ spouse, the sale of the home, or some other listed event as required by subsection 255(j),” Galante writes as background in her letter. “Instead, the Bennett and Joseph reverse mortgages provide for foreclosure upon the death of the last borrower, an event which has now occurred in both cases.”

While AARP Litigation Foundation attorneys said they were hopeful HUD would provide relief shortly after the late 2013 ruling, the letter from Galante indicates HUD does not see relief as warranted in the case. 

“I have carefully considered the recommendations of my staff and the documents, facts, circumstances, potential forms of relief, and other information relevant to this case,” Galante writes. “I have carefully weighed the facts in light of the numerous options presented to me. Based on my review, I have determined that the appropriate, and in fact only, action legally available to the Department with respect to these two reverse mortgages and these Plaintiffs is for the Department to honor the two contracts of insurance as initially endorsed and provide no further relief to the Plaintiffs.”

The plaintiffs are expected to challenge the HUD determination in court in the coming weeks. 

Written by Elizabeth Ecker

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  • A new lawsuit which demands a jury trial was filed on Monday June 16th. HUD’s decision on existing non-borrowing spouse issue (“Determination on Remand” June 4th) is a low moment in the NBS saga if ML 2014-07 is a high point. It may be legally smart and may win HUD the “relief” battle, but it will cost HUD and the industry the war.

    If HUD does not have “legal authority” [a dubious argument in light of its broad powers under Subsection 255(i) ] to give plaintiffs relief, how about moral authority as a federal agency charged with protecting seniors in the HECM program? While the Determination may be a brilliant legal tactic, it portrays HUD as cold and indifferent to vulnerable seniors its bad regulations have harmed.

    As a result of the Determination,we can expect more litigation against lenders in state courts challenging the validity of reverse mortgages with Subsection 255(J) problems.Now, how smart is that?

    • Atare, your post above surprises me. While I agree with your premise that the Determination will serve only to extend the NBS saga in a way likely unfavorable to both HUD and the industry, I don’t see that there is any alternative without dealing an even more severe blow to the HECM program itself.
      Do you have another suggested course of action?

  • The facts that I would like to know in this case are (1) did the non- borrowing spouses know the consequences of being taken off title when they signed the paperwork? Or at least, is it reasonable to assume that they should have known? (2) Were they coerced into signing by their controling husbands? (3) Were they lied to by the loan originator? My guess is that at least one of these circumstances applies in some way. If none of these apply, then there is a contract to uphold. The FHA’s (HUD) position in the deal is just providing insurance for the contract. I can’t imagine what relief they could provide to someone who was not a party to the contract. The relief, if any is warranted, should come from the lender if it is proved that the non-borrowing spouse was mislead by the loan originator. If she was coerced by her husband, then possibly she has some claim on the estate. In any event I don’t see how it’s HUD’s problem.

    Just as a note: I would not originate a RM with a non-borrowing spouse unless there was some protection insuring that the spouse could keep the home, such as life insurance to pay off the RM.

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