Non-Borrowing Spouse Lawsuits Against HUD

3 Mar

Reverse Mortgage Daily has been reporting on these lawsuits:

“Four surviving spouses of reverse mortgage borrowers filed a lawsuit this week against Department of Housing and Urban Development Secretary Shaun Donovan claiming they faced undue harm due to reverse mortgage statute.

The lawsuit comes several months following a previous suit filed by AARP on behalf of non-borrowing spouses of reverse mortgage borrowers, in which a court ruled against HUD and granted relief to the plaintiffs, to be determined by the agency. HUD appealed the ruling, but the appeal was later thrown out.

The new suit seeks relief for a class of borrowers who faced situations similar to those detailed in the earlier lawsuit; namely those who faced foreclosure of their homes because they had been removed from the home title or were not named on the title prior to the closing of the reverse mortgage and had survived their borrower-spouses.”

Every reverse mortgage application contains disclosures warning against removing a homeowner from title.  Some of these non-borrowing homeowners claim that this was not made clear, or they were encouraged to change the title to “get more money”.

With HECMs, there is an additional wrinkle, where the Statute and the Regulation differ slightly:

The Statute:

The 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.  For purposes of this subsection, the term “homeowner” includes the spouse of the homeowner. (12 U.S.C. § 1715z-20(j) (emphasis added))

The Regulation:

The mortgage shall state that the mortgage balance will be due and payable in full if a mortgagor dies and the property is not the principal residence of at least one surviving mortgagor.  (24 C.F.R. § 206.27)

Because of this, lenders are adding additional documentation requirements for a non-borrowing spouse:

•Valid ID for NBS
•Letter of Explanation signed by borrower and NBS
•Non-Borrower Certification
•Attorney Letter stating that upon a trigger event, the loan must be satisfied or the lender may foreclose on the property
•Credit authorization
•In community property states:  signed deeds and right to cancel, credit report


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