Atare Agbamu's Think Reverse! Blog

Fourteen words

It all came down to the meaning of fourteen words.

The merits hearing in the non-borrowing spouses’ case against HUD – the hearing HUD tried and failed to kill from the start by challenging the spouses’ standing – boiled down to the meaning of a fourteen-word sentence Congress dropped into a ninety-nine-word subsection of HECM law.

There was no doubt Congress wanted HECM homeowners protected from displacement; the heading of the subsection made that clear. That Congress also wanted homeowners’ spouses shielded from the streets came through from the fourteen-word sentence. What was in dispute was which spouses Congress meant: Were they spouses who signed the loan papers as co-borrowers or  spouses who did not sign and were removed from title thus becoming non-borrowing spouses?

From the fourteen words, the spouses claimed HUD failed to protect them by issuing regulations which covered only spouses who signed the reverse-mortgage contract. From the fourteen words, HUD argued it “properly applied” the subsection in its regulations. From the fourteen words, armies of lawyers on both sides of the case concocted opposing arguments and meanings and, in the process, produced thousands of words in legal briefs, motions, and memoranda.

Fourteen words. Fourteen ordinary English words which assumed extraordinary importance in a court battle destined to change HECM and strengthen protections for older consumers who use the government-insured retirement mortgage across the U S.

Let’s review Subsection J of HECM law with special attention to the fourteen-word sentence at the heart of the merits-hearing:

(j) Safeguard to prevent displacement of homeowner

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 a homeowner. … .

The spouses argued that those fourteen words covered them whether or not they signed the mortgage contracts as borrowers. HUD countered that the fourteen words include only spouses who signed the loan papers. It claimed that to accept the spouses’ generous interpretation of the fourteen words would bring financial trouble to the HECM insurance program.

Earlier at the DC Circuit during the standing appeal, the judges had expressed surprise at HUD’s take on those fourteen words: “The issue on appeal is limited to appellants’ standing. But we admit to being somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute.”

Now at the merits-hearing, U S District Judge Ellen Segal Huvelle, the same judge who had dismissed the case for “lack of standing” in July and in September 2011, took HUD’s argument apart one by one and came to a decision: HUD’s regulation violated Subsection J of HECM law. The judge ordered HUD to come up with a solution (or relief) for the spouses.

On the merits of their case, the non-borrowing spouses, Robert Bennett of Maryland and Leila Joseph of New York, won. It was a victory that seemed improbable only two years before when they were denied standing to sue HUD by the same court and by the same judge. Because of their struggle, HECM now protects non-borrowing spouses for the first time in twenty-five years.

Our next post looks at solutions HUD has come up with since the merits decision.

Copyright (c) 2014, ThinkReverse LLC. All Rights Reserved.

Why widowed spouses won standing fight

Throwing out the decision of a lower federal court (or any lower court) is a serious matter in our judicial system and, if it must be done at all, a reason or reasons must be given by the higher court.

In July 2011, the DC federal district court dismissed the failure-to-protect lawsuit three widowed spouses of HECM borrowers brought against HUD. In September that year when the spouses begged the court to reexamine their case, the court refused.

The court’s refusal came from its thinking that the spouses’ problems (foreclosure and displacement) resulted from the terms of reverse-mortgage contracts their dead spouses signed with third-party lenders. Even if they were to win their case against HUD, the court said, the lenders would still have the right to foreclose and displace them, and they would have no solution or redress to their problems.

As we saw in part seven, redressability (or the likelihood that a favorable decision will solve the spouses’ problems) is one of three tests anyone suing a federal agency such as HUD must meet to have standing under the Administrative Procedure Act (APA). Although the spouses insisted that they met all three tests, the district court disagreed on redressability. So redressability was the specific standing issue the DC Circuit had to address in its decision.

The DC Circuit agreed with the district court that if redressability depended on the actions of lenders, the spouses would have no standing to sue HUD; they would be toast. Nevertheless, it threw out the district court’s decision, gave the spouses standing, and sent the case back to be heard on its merits at the district court.

Why did the DC Circuit overrule the district court in this case? It found a part of HECM law which empowered HUD to solve the foreclosure-displacement problems of the spouses and the investment-low headaches of the lenders.

In Subsection (i) of HECM law, Congress says HUD can take “any action necessary” to further the purposes of the HECM mortgage insurance program. Needless to say, protecting homeowners (including their non-borrowing spouses) from displacement and lenders from losses are stated purposes of the HECM program.

But the DC Circuit did something else besides granting standing to the spouses, it suggested how HUD could solve the problems.

The how is called assignment. Under HECM rules, lenders can assign a loan to HUD when the loan balance reaches 98 percent of a limit set by HUD called the Maximum Claim Amount. When this happens, HUD holds the loan until the loan’s life ends.

In a Solomonic fashion, the court suggested that HUD could take assignment of the troubled mortgages, pay off the lenders, and decide whether to foreclose on the spouses.

I outlined the court’s assignment suggestion and other ideas for resolution of the non-borrowing spouses’ problem in an article in National Mortgage News on January 15, 2013. While we will return to those resolution ideas in other posts, our next post looks  at a direct result of the DC Circuit decision on standing: the merits-hearing and decision at the federal district court.

Copyright (c) 2014, ThinkReverse LLC. All Rights Reserved.