Lawsuit calls out HUD rule change on reverse mortgages
In late 2008, the federal Housing and Urban Development issued a rule clarification. This “clarification” has led to several individuals being foreclosed upon. The AARP has teamed up with these people to bring a lawsuit against HUD in hopes of preventing further foreclosures.
Rule clarification on reverse mortgages
The department of Housing and Urban Development in 2008 issued what it calls a “rule clarification” on reverse mortgages. This clarification applied to a rule that had, previously, allowed spouses who were not on home titles to continue reverse mortgages when their spouses died. The clarification said that rather than getting these bank-supported payday loans, spouses who were not on the home deed would have to close out the reverse mortgage. In effect, the surviving spouse would have to pay back either the reverse mortgage or the difference between the reverse mortgage and the value of the home, most often within a few months, if they want to keep the home or continue living in it.
Reverse mortgage lawsuit
The AARP is calling this “rule clarification” a “rule change.” If this is a rule change as opposed to a rule clarification, HUD may have violated prior-notification laws. Three people have brought a lawsuit against HUD with the support of the AARP. These individuals, who are not listed on the deeds of their homes and whose spouses have passed away, will argue against the requirement that they pay up or face being evicted from their foreclosed-upon home. The argument is that these spouses were not notified that they were going to lose their house until foreclosures were already in progress. This is forcing many seniors into a situation where they must take out a short term loan or move out of their home.
The dangers of reverse mortgages
Though this lawsuit questions the actions of the Department of Housing and Urban Development, most industry-watchers are surprised it took this long. A reverse mortgage allows senior citizens to cash out the equity of their home. When the senior either sells their home or passes away, the bank owns the home. With the crash in the housing market, many banks are facing the same situation of many homeowners — the homes they own are not worth the amount of money they have already paid. Combined with the fact that many homeowners with reverse mortgages have stopped paying insurance and property taxes on these homes, banks and HUD are ending up owing more than they can afford. By turning banks into homeowners, those who take out reverse mortgages are taking a significant risk of losing their home.