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AARP Represents Surviving Spouses Challenging Reverse Mortgage Actions

AARP Foundation Litigation attorneys are representing plaintiff homeowners who filed a class action  lawsuit against the U.S. Department of Housing and Urban Development (HUD). Plaintiffs claim that HUD failed to implement a federal statute containing safeguards to protect surviving spouses from foreclosure and eviction stemming from reverse mortgages entered into by their now-deceased spouses.  They also challenge the relief HUD has proposed to remedy its error.

Background

Reverse mortgages are loans that allow older homeowners to convert part of the equity in their homes into cash. Instead of paying a monthly mortgage, homeowners can take out a lump sum or periodic payments, using their home as collateral, simply increasing the mortgage debt on the home each month.

In 1988, Congress enacted a federally-insured reverse mortgage program called the Home Equity Conversion Mortgage (HECM) program. It is designed specifically to meet the needs of older homeowners by reducing the hardships they face when attempting to meet health, housing and subsistence needs. Under the statute, the loan cannot come due until one of a number of defined events occurs, including the death of the last surviving homeowner. The statute clearly states the intent of Congress that both spouses be safe and secure in their home while either of them is still living there and makes clear that mortgages cannot be called due and payable until the death of the homeowner, including his/her spouse. HUD was tasked with overseeing implementation of this law.

The amount of equity that can be drawn from a reverse mortgage is a function of the value of the property and the age of the youngest borrower: the older the borrower, the higher the loan. HUD set up the program that requires the use of standard mortgages that are due and payable by their terms upon the death of the borrower spouse, regardless of whether there is another spouse living in the home.  Evidence has been mounting that couples considering reverse mortgages are often persuaded to have the younger spouse quit claim his or her interest in the home to the older, often ailing (and now deceased) spouse. Surviving spouses report that mortgage brokers (whose fees are based on loan amount) assured them that this would be financially beneficial and could later be undone. What the couples did not understand is that the lender can call the mortgage due and foreclose after the death of the borrower. As a result, surviving spouses of reverse mortgage borrowers are faced with foreclosure once the borrowing spouse dies. In an earlier case litigated by AARP Foundation Litigation, the court found that HUD had illegally failed to implement the statutory protection. (Bennett v. Donovan) The court sent the case back to HUD to determine appropriate relief.

A second case then was filed on behalf of four similar plaintiffs, who hail from Nevada, Florida, California and Massachusetts. (Plunkett v. Castro) Like the Bennett plaintiffs, all were younger spouses who had owned their homes with their spouses for decades. 

The relief HUD decided on for the Bennett plaintiffs was wholly inadequate. The Bennett and Plunkett lawsuits were merged by the court under the Plunkett case, which seeks to force HUD to comply with the law and to provide an adequate remedy for the problem it created. The six plaintiffs sought to have the lawsuit declared a class action so as to represent all surviving spouses in the same situation, and sought to halt the foreclosures and loan repayment proceedings and to stop displacement of the surviving spouses.

The court agreed in part and denied in part. While the court denied a class action certification and upheld some of HUD’s decisions, the court also ruled that the decision making regarding foreclosure upon death of one spouse was flawed and sent the matter back to HUD for further consideration of appropriate relief.

Case Status

Plunkett v. Donovan was decided by the U.S. District Court for the District of Columbia. A motion to alter, amend or vacate the judgment is pending.