AARP Sues HUD on Behalf of Borrowers Over Reverse Mortgage Program Changes

AARP’s Foundation for Litigation recently filed a lawsuit on behalf of three surviving spouses of reverse mortgage borrowers against the Department of Housing and Urban Development (HUD) for alleged illegal reverse mortgage foreclosure actions.  The suit follows recent complaints from HECM borrowers relating to issues associated with non-borrowing spouses.  The three plaintiffs are represented by AARP Foundation Litigation and the Washington, D.C.-based law firm Mehri & Skalet PLLC and allege HUD’s abandonment of long-established federal rules and violation of protections for surviving spouses with reverse mortgages has led to foreclosure of their properties.

“HUD has inexplicably turned existing reverse mortgage policies upside down,” said Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation, in discussing HUD’s actions.  “These are older individuals with limited means who have been blindsided by arbitrary, retroactive decision making.”

The original rules for reverse mortgages state that borrowers or heirs would never owe more than the home was worth at the time of repayment.  During 2008, the rule was changed to require an heir, including a surviving spouse who was not named on the mortgage, to pay the full mortgage balance to keep the home, even it if exceeds the value of the property.  The rule change made it it difficult for surviving spouses or heirs to purchase the homes as they might have been required to purchase the home at a higher price than a independent, third party buyer.  The suit also states that spouses and heirs that want to purchase the property have been unable to do so as they cannot get financing based upon the declines associated with the property’s value.

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Steven A. Skalet, of Mehri & Skalet PLLC, stated, “Rather than protecting borrowers, HUD retroactively changed the terms of the loans to make these elderly borrowers’ spouses and heirs pay more to keep their home than an unrelated purchaser would have to pay to purchase the property.  This is shameful and we intend to make HUD honor the representations and promises they made to borrowers when they signed up for these government-insured loans.”

Read the AARP Statement