Posted Jan 04, 2013 06:50 pm CST
A lawsuit contending that federal regulations contravene legislative intent by encouraging the foreclosure of reverse mortgages against borrowers’ surviving spouses has been given a green light by a federal appeals court in Washington, D.C.
Reversing a lower court’s dismissal, the U.S. Court of Appeals for the D.C. Circuit ruled Friday that a suit brought by two widowers against the U.S. Department of Housing and Urban Development can proceed, Bloomberg reports.
“We admit to being somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute,” Judge Laurence Silberman wrote in the opinion (PDF) for the three-judge panel deciding the case.
The statutory language at issue says that a reverse mortgage can be foreclosed “if a mortgagor dies and the property is not the principal residence of at least one surviving mortgagor.” The lower court had found that the lender had discretion to foreclose because the widowers weren’t parties to the reverse mortgage.
The article says HUD responded to the suit by explaining that it was concerned an elderly borrower could marry a young spouse after getting a reverse mortgage, thus potentially significantly increasing the lender’s risk of loss. A reverse mortgage is often taken out by a longtime homeowner with significant equity in the residence but limited income who wants to live out the rest of his or her life there. It provides the borrower with cash, in exchange for hefty fees, and may permit the borrower to live in the home for the rest of his or her life.
A HUD spokesman declined to comment when contacted by the news agency.
Attorney Craig Briskin of Briskin Mehri & Skalet is one of the plaintiffs lawyers. Contacted by Bloomerg, he said he is “thrilled,” adding: “The D.C. Circuit clearly told HUD it made a mistake.”
ABAJournal.com: “AARP Suit Targets HUD for Reverse Mortgage Foreclosures”