As noted above, one protection is that no borrower or his heirs can be liable for more than the value of the property. The lawsuit notes that HUD’s Handbook, in effect since 1994, as well as other information published by HUD on its website and elsewhere, affirmed this policy. Then, in December, 2008, HUD abandoned that interpretation and stated for the first time that spouses or heirs who wanted to retain the home were required to repay the full balance, even if it exceeded the property’s current value. Strangely, HUD’s current rule is that a stranger can purchase the property for its current appraised value, but a surviving spouse cannot.
The lawsuit alleges that, as a result, many spouses or heirs who want to purchase the property have been unable to do so because they cannot obtain financing that exceeds the current value of the property.
A second important protection in the HECM statute – titled "Safeguard to Prevent Displacement of Homeowner" – provides that HECM homeowners cannot be displaced from their homes until the HECM terminates. It then states that "… for purposes of this subsection, the term ‘homeowner’ includes the spouse of a homeowner." Therefore, the spouse — even one who is not named on the mortgage — cannot be arbitrarily displaced from the home upon the death of the borrower.
Despite the clear language, HUD has never recognized the protection this non-displacement provision affords the spouse of a homeowner, according to the lawsuit.
The three plaintiffs, all of modest means, were adversely affected by HUD’s illegal actions. Under HUD’s rules, they do not qualify as "homeowners" because they were not listed on the original reverse mortgage documents with their spouses. And they will suffer "substantial hardship" if forced to repay the original higher mortgage cost in order to retain their home, the lawsuit states.
Plaintiff Delores J. Moore of Covington, Indiana, age 79, married Mr. Moore late in life and was never added to the deed to the home or the HECM mortgage. She is defending against a foreclosure action in Fountain County, Indiana Circuit Court.
Plaintiff Leila Joseph of Brooklyn, New York, age 77, was removed from the deed to the property when her husband, suffering from dementia at the time, entered into the reverse mortgage. Mrs. Joseph is defending a foreclosure action in the Supreme Court of Kings County, New York.
Plaintiff Robert Bennett of Annapolis, Maryland, age 69, had jointly owned the home with his wife since 1981. Unbeknownst to him, he was removed from the deed when the HECM was executed. His wife, who was seriously ill at the time, died the following month. Mr. Bennett faces a foreclosure action in Circuit Court in Anne Arundel County, Maryland.
HUD Secretary Shaun Donovan is the defendant in the lawsuit filed on behalf of the three plaintiffs by AARP Foundation Litigation and Mehri & Skalet, PLLC.
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