HUD Asks Court to Drop Reverse Mortgage Non-Borrowing Spouse Case

Following recent updates to its reverse mortgage non-borrowing spouse guidance, the Department of Housing and Urban Development (HUD) has asked the U.S. District Court for Washington D.C. to dismiss ongoing litigation around the issue on the grounds of mootness.

On June 12, the same day the housing agency issued its latest Mortgagee Letter 2015-15, HUD filed a motion to drop the case involving six non-borrowing spouse plaintiffs — Charlie Plunkett, Clarisa Welte, Roselaine LaBonte, Winnie Barlock, Robert Bennett and Leila Joseph — all of whom have been associated with the lawsuit since it was first filed by the AARP Litigation Foundation in 2011.

In its request, HUD asked the court to dismiss the case following the agency’s new guidance, under which lenders are allowed to defer foreclosure for certain eligible non-borrowing spouses with home equity conversion mortgage (HECM) case numbers assigned before Aug. 4, 2014. 

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They are able to do so through a Mortgagee Optional Election, or MOE, process. The new guidance removes requirements that consumer advocates argued would make it very difficult for many non-borrowing spouses to exercise the MOE as it was originally written — namely a Factor Test and Principal Limit Test. 

Given the new protections, HUD writes in its court filing, “If selected by the applicable mortgagee, this [modified MOE assignment] will … provide plaintiffs with the relief they have sought in this case, protection from foreclosure and displacement during their lifetimes, with the additional element that the mortgage will be immediately assigned to and then held by HUD. The availability of this option confirms that plaintiffs’ claims are moot.”

Previously, HUD filed a similar motion on April 9, following its then-recently issued guidance in Mortgagee Letter 2015-03. However, a week after HUD’s filings, court documents were filed on behalf of the plaintiffs in the case, suggesting that HUD had still failed to provide adequate relief to the plaintiffs and other non-borrowing spouses who may be in similar situations.

Following its recent revisions, HUD asserts that the new guidance will provide adequate protections to such individuals.

“As stated, Mortgagee Letter 2015-15 revises the [MOE], the alternative option for claim payment for certain HECMs with surviving non-borrowing spouses that was previously set forth in Mortgagee Letter 2015-03,” the June 12 filing states. “Notably, as revised, this option … no longer requires the non-borrowing spouse to satisfy either the Factor Test or the Principal Limit Test.”

It continued, “Thus, in circumstances where the Principal Limit Test would have applied, under the current Mortgagee Letter the non-borrowing spouse will no longer have to contribute the cash that would reflect the mortgage terms had the spouse signed the mortgage when it was originated in order for the HECM to be eligible for immediate assignment to HUD.”

Following HUD’s announcement Friday, consumer advocates, along with attorneys who represented non-borrowing spouse plaintiffs in various reverse mortgage cases, applauded the new policy, noting that it will benefit thousands of older homeowners across the nation who could otherwise be at risk of foreclosure.

Another advocate, Congresswoman Maxine Waters (D-Calif.), also lauds HUD’s latest guidance, having previously called for more relief for reverse mortgage non-borrowing spouses.

“I applaud HUD and Secretary [Julian] Castro for this announcement, which has the potential to ensure that thousands of seniors will not have the loss of a spouse further complicated by the prospect of losing the home they shared as well,” she said in a statement issued Tuesday. “I’m pleased the Department took note of my recent request for increased study and transparency around this issue, with the ultimate goal of changing its policy to provide relief to our seniors.”

AARP declined to comment at this time. HUD has not yet responded to RMD’s request for comment. 

Written by Emily Study

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  • HUD has every right to ask for termination of the case. Let us hope that the court ultimately rejects HUD’s request and its rationale.

    So far all HUD is done is to create a situation where potentially thousands of surviving spouses will ultimately be stripped of their right to protection from displacement under the law. Also HUD fails to address compensation to those surviving spouses (or their heirs) who have already lost their homes due to the HUD draconian policy of the past. Although more surviving spouses may be helped under Mortgagee Letter 2015-15 than without it, HUD refuses to recognize its error in insuring mortgages that did not have the protection from displacement for non-borrowing spouses as stated in the law [12 USC 1715z-20(j)].

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