D.C. Circuit Reinstates Challenge to HUD Reverse Mortgage Regulations

HUD Reverse Mortgages

On January 4, the U.S. Court of Appeals for the District of Columbia held that two widowed spouses have standing to pursue allegations that a HUD regulation defining conditions under which it would insure a reverse mortgage agreement contradicted the governing statute, and in doing so made it easier for lenders to foreclose on homes occupied by surviving spouses. Bennett v. Donovan, No. 11-5288, 2013 WL 45879 (D.C. Cir. Jan. 4, 2012). The surviving spouses, neither of whom were legal borrowers under the reverse mortgages entered into by their spouses, sought declaratory relief that HUD’s regulations requiring that the mortgage be due and payable in full if a borrower dies and the property is not the principal residence of at least one surviving borrower violated the Administrative Procedure Act because the rule is inconsistent with the governing statute. The statute protects “homeowners,” as opposed to “borrowers,” from displacement and defines “homeowner” to include “spouse of the homeowner.” The district court held that the spouses lacked standing to sue HUD because relief for their injuries depended solely on the lenders’ decision whether to foreclose. The appellate court held, however, that in situations like those at issue here, it is within HUD’s power to provide complete relief to the lenders and borrowers, and therefore such relief is likely, as opposed to speculative, and as such is sufficient to establish standing. Though it limited its holding to the standing issue, the court added that it was “puzzled” by HUD’s attempt to justify a rule that appears to contradict the governing statute. Further, the court outlined potential relief that HUD could provide, explaining that HUD could accept assignment of the mortgage, pay off the balance of the loans to the lenders, and then decline to foreclose against the spouses. The court reinstated the case and remanded for further proceedings.