Tuesday, January 8, 2013

Widows/Widowers Who Are Not Named In Now-Deceased Spouse's Reverse Mortgage Score Big Appeals Court Win In Effort To Dodge Foreclosure Boot; HUD Regs That Seem Contrary To Statute Leave 3-Judge Panel "Somewhat Puzzled"

In Washington, D.C., Bloomberg reports:

  • A federal appeals court revived a lawsuit accusing the U.S. Department of Housing and Urban Development of setting up its reverse-mortgage program in a way that makes it more likely a surviving spouse will end up in foreclosure.

    A three-judge panel of the U.S. Court of Appeals in Washington [] ruled that a case brought by two widowers challenging HUD regulations on reverse-mortgage loans may proceed. The widowers claim that HUD rules on when loans become due and payable conflict with language in the law aimed at protecting surviving spouses from foreclosure.(1)

    We admit to being somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute,” U.S. Circuit Judge Laurence Silberman wrote in the 13-page opinion.

    Lemar Wooley, a spokesman for HUD, declined to comment on the decision. Reverse-mortgage loans pay out a home’s equity to the homeowner, often in installments, and are usually repaid when the borrower dies or moves out of the house. Borrowers are considered in arrears if they don’t keep current on their property taxes and insurance.

    The loans are available only to borrowers who are at least 62 and who have significant equity in their homes.

    ‘Surviving Mortgagor’

    The lawsuit involves changes to the program that were mandated by Congress in 1987 in authorizing HUD to administer a mortgage-insurance program. Congress, in the law, said the loan obligation was deferred until the homeowner’s death, specifically stating that the term “homeowner” includes the spouse of the homeowner.

    The language HUD crafted when implementing the law states that the balance of the loan is due and payable in full “if a mortgagor dies and the property is not the principal residence of at least one surviving mortgagor.”

    HUD said in its response to the lawsuit that it was concerned a homeowner, after taking out a reverse mortgage, might marry a young spouse, which would increase a lender’s risk.

    The lawsuit had been dismissed by a lower court judge who found that because the widowers weren’t borrowers on the loans at issue, winning the lawsuit wouldn’t save their homes because it was the lender’s decision on to whether to foreclose.

    HUD Remedy

    In establishing that the widowers have the authority to sue, the appeals court said today that HUD could come up with a remedy that would allow them to keep their homes. “HUD could accept assignment of the mortgage, pay off the balance of the loans to the lenders, and then decline to foreclose,” Silberman said.

    Craig Briskin, one of the lawyers for the plaintiffs, said he’s “thrilled with the decision.”

    “The ball is really in HUD’s court right now,” Briskin, of Mehri & Skalet PLLC in Washington, said in an interview. “The D.C. Circuit clearly told HUD it made a mistake.”
Source: Reverse-Mortgage Suit Against HUD Revived on Appeal.

For the ruling, see Bennett v. Donovan, 11-5288 (D.C. Cir. January 4, 2013) .

(1) According to the facts of the case:
  • Robert Bennett and Leila Joseph are the surviving spouses of reverse-mortgage borrowers whose mortgage contracts were executed pursuant to HUD’s insurance program. Only their spouses, not the appellants themselves, were legal borrowers under the mortgage contract. Appellants allege that they were assured by their brokers that they would be protected from displacement after their spouses died, and that in reliance on this protection, they quitclaimed interest in the homes they had owned jointly with their spouses when their mortgages were originated.
In a footnote, the court added some context as to the possible reason why the surviving spouses had been talked into signing away their respective ownership interests in their homes by the brokers peddling the reverse mortgages:
  • Both Bennett and Joseph were younger than their respective spouses, and because loan limits depend on the age of the youngest borrower, quitclaiming interest in their homes likely allowed the banks to provide appellants more favorable loan terms than if they had been parties to the contract as well. Pricing of reverse mortgages is like the inverse of life-insurance policies — older borrowers are expected to live for a shorter period of time, and thus draw fewer payments over the life of the mortgage, so the magnitude of those payments can be greater for a given amount of equity.

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