In Bennett v. Donovan, three plaintiffs brought suit against the Secretary of the Department of Housing and Urban Development (HUD) alleging that regulations implementing the Home Equity Conversion Mortgage (HECM) program violated the Administrative Procedure Act (APA) [an enhanced version of the opinion is available to lexis.com subscribers].
As our readers know, HECMs are reverse mortgages—when an elderly individual enters into a HECM, he or she receives money in exchange for a security interest in his or her home. In the case at hand, the three plaintiffs were elderly widows whose deceased spouses had taken out a HECM on their respective homes. In each instance, the deceased spouse was the only name on the deed and the only obligor on the HECM. Because a house may decrease in value over time, Congress created a HECM insurance program under HUD. Pursuant to the disputed HUD regulations, if a mortgagor spouse died, and the surviving spouse was not also on the mortgage, the lender could demand immediate payment on the balance.
The plaintiffs in Bennett alleged that the HUD regulations violated federal law because they did not protect non-mortgagor spouses. In support of their argument, the plaintiffs cited 12 USC § 1715z-20(j) which states that, “[t]he 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 the homeowner.” 12 USC § 1715z-20(j) (Emphasis added).
Plaintiffs argued, and the court agreed, that the plain language of the statute protects non-mortgagor spouses from the payment-in-full requirement. In order to determine whether an agency’s interpretation of a statute should be given deference, a court will look to whether Congress has made itself clear in the statute. Both the plaintiffs and the government agreed that the case turned on the meaning of the last sentence: “For purposes of this subsection, the term “homeowner” includes the spouse of the homeowner.” The U.S. District Court for the District of Columbia determined that the statute was clear and the plaintiffs were not subject to the payment-in-full requirement. As a result, the court remanded the case to HUD with a finding that HUD violated federal law when it insured the reverse mortgages of the plaintiffs’ spouses.
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It is unknown at the present time what HUD intends to do with respect to this ruling. However, as this outcome has the potential to impact hundreds of homeowners, we’ll continue to monitor this case closely.
Read more articles about the Consumer Financial Protection Bureau at Dykema’s CFPB Blog
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