A federal judge’s ruling in a case involving government-insured reverse mortgages has the potential to impact hundreds of other similarly situated borrowers.
Three widows filed lawsuits against the Department of Housing and Urban Development. Their deceased spouses had taken out home-equity conversion mortgages against their properties.
The problem was that in each case, the deceased spouses were the only individuals named on the deeds and as obligors on the HECMs.
HUD’s HECM regulations allow lenders to demand immediate repayment when the mortgagor dies and the surviving spouse isn’t also on the mortgage, according to a case summary from Dykema Gossett PLLC.
The plaintiffs in the case, Bennett v. Donovan, allege that HUD violated the Administrative Procedure Act when it implemented HECM regulations.
“The plaintiffs in Bennett alleged that the HUD regulations violated federal law because they did not protect non-mortgagor spouses,” the summary stated. “In support of their argument, the plaintiffs cited 12 USC § 1715z-20(j) which states that, ‘[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.'”
The case summary went on to say that for the purposes of this subsection, the term “homeowner” includes the borrower’s spouse.
The plaintiffs argued that the plain language of the statute protects non-mortgagor spouses from the payment-in-full requirement.
The judge agreed with the plaintiffs.
“In order to determine whether an agency’s interpretation of a statute should be given deference, a court will look to whether Congress has made itself clear in the statute,” the case summary stated. “Both the plaintiffs and the government agreed that the case turned on the meaning of the last sentence: ‘For purposes of this subsection, the term ‘homeowner’ includes the spouse of the homeowner.'”
The court determined that the statute was clear, the plaintiffs weren’t subject to the payment-in-full requirement, and HUD violated federal law when it insured the reverse mortgages of the plaintiffs’ spouses.
The case was remanded to HUD.
Dykema Gossett noted that it is currently unclear how HUD will respond to the ruling — which could impact hundreds ob HECM borrowers.
