Despite HECM Program Change, AARP Lawsuit Against HUD Moves Forward

After the Department of Housing and Urban Development announced this it was rescinding guidance issued to clarify its recourse policy for reverse mortgages, AARP told RMD it is pleased with the agency’s decision but still plans to move forward with the lawsuit it filed against HUD earlier this year.

“We believe [the change] will save the homes of many, many older people from foreclosure,” said Jean Constantine-Davis, a senior attorney with the AARP Foundation in an email to RMD. “It does not, however, end the case, because there is still at least one important outstanding issue.”

In March, AARP filed a lawsuit against HUD alleging it abandoned a rule in place since 1989, which states that a borrower or heirs would never owe more than the home was worth at the time of repayment. Guidance HUD published in 2008 states than an heir—including a surviving spouse who was not named on the mortgage—must pay the full mortgage balance to keep the home, even if it exceeds the value of the property.

AARP told RMD it hopes HUD will take action to ensure surviving spouses of reverse mortgage borrowers are protected from foreclosure and eviction pending the resolution of all issues in the case. The lawsuit also alleges that HUD has never recognized the “Safeguard to Prevent Displacement of Homeowner” statute, which it says 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, said AARP.

New guidance from HUD related to its recourse policy is coming in the future said the agency. Until that happens, Steven A. Skalet of Mehri & Skalet, co-counsel for AARP said it’s terrific news for surviving spouses.

“We still need to understand the details and where HUD is going on the issues we have raised, but we are pleased by this first significant step,” he said.

Interestingly enough, Brian Sullivan, a spokesman for HUD told Bloomberg the policy change was unrelated to the lawsuit.

“We recognized there was some confusion on the issue, and we wanted to make sure that the ultimate sale of the property is market-based and reflects the property’s real value,” Sullivan said.

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