One month after the AARP Foundation sued the U.S. Department of Housing and Urban Development (HUD), the agency has said that the 2008 reverse mortgage rule that factored prominently in the lawsuit's claims has now been reversed.
Reverse mortgage loans allow elders to withdraw in cash the equity from their home and only repay the loan upon selling the house or dying. According to Reuters, the AARP suit says that the loans had been non-recourse until 2008, meaning that the most the bank was entitled to for repayment was the value of the house itself at the time of repayment. In 2008, HUD illegally implemented two rule changes, the AARP claims, that made it so that the spouses of deceased reverse mortgage-holders could have to either face foreclosure or repay the full outstanding balance of the loan, even if the home's value had dropped since the loan was taken out.
Now, HUD has notified the plaintiffs in the AARP case - three widowers who allegedly faced foreclosure after their spouses passed away - that they no longer have to worry about repaying the full mortgage balance, as the 2008 rule has been reversed, according to Detroit News. Brian Sullivan, a spokesman for HUD, said that the policy change was unrelated to the AARP lawsuit.
"We recognized there was some confusion on the issue, and we wanted to make sure that the ultimate sale of the property is market-based and reflects the property's real value," he said.
The AARP has praised the policy change, but has also said that the lawsuit against the federal agency will continue, according to the news provider.
Jean Constantine-Davis, a senior attorney with the AARP, said that the policy reversal is "definitely going in the right direction," but that her organization is still pursuing other regulatory changes on behalf of the elderly plaintiffs. Surviving spouses of reverse mortgage holders should be able to remain in their homes even if their names were not on the original deed, she said. This often happens, since one must be 62 years of age or older to take out a reverse mortgage. When one spouse is older than that and the other is younger, only one may put his or her name on the reverse mortgage.
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