Almost HECM NBS Breakthrough



There is good and bad news in the long-running HECM NBS legal tussle between HUD and non-borrowing spouses (NBS) of dead Hecm borrowers. It is almost a breakthrough.

After arguing that it has “no legal authority” to accept assignment of NBS Hecms twenty-one days before in a court filing in the Bennett case, HUD has suddenly found that “the Secretary does have discretion to accept an assignment upon request of a Mortgagee in exchange for claim payment” in a June 24th court paper in the Plunkett class action NBS case.

The technical name for the assignment is “Mortgagee Optional Election,” or MOE. Why the HUD about-face? That is the subject of another post. It is enough to say that HUD has legal authority to solve the wrenching human, legal, and financial problems its bad regulations have created for NBS and lenders. But that is where the good news end.

In other to qualify for MOE, HUD “wisely” erected some hurdles it is calling, yes, “disqualifying factors,” that lenders and NBS must jump through. Never mind these factors are retroactive in a unique situation that HUD’s own bad regulations and negligence created, never mind that some of these factors are silly, never mind that some of these factors are guaranteed to push many seniors into foreclosures and many lenders into endless litigation. It is what some lawyers would call “abuse of discretion.”

Some of HUD’s conditions of assignment are fair and reasonable. For example, to qualify for assignment, the:

  1. NBS must have been married to the dead borrower at the time of the HECM’s origination and remained married throughout the borrower’s life;
  2. NBS has title to property or legal right to remain in the property (marriage confers legal right even where many where removed from title, as HUD itself once advised lenders through a mortgagee letter);
  3. NBS must ensure that all obligations of the dead borrower are met;
  4. NBS must agree that they cannot get cash from the HECM;
  5. NBS must not allow the HECM to go into default for reasons such as taxes, insurance, and maintenance.

MOE is a potential breakthrough in the NBS saga. HUD needs to stop its silly legal maneuvers and solve the existing NBS problems in good faith once and for all.


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