AARP Foundation Litigation, Mehri & Skalet, and Kerr & Wagstaffe File Class Action Suit To Enforce HUD Rule Change After Earlier AARP Suit.
AARP, Mehri & Skalet and Kerr & Wagstaffe today filed a class action on behalf of reverse mortgage borrowers and their survivors designed to head off illegal foreclosures and evictions.
The suit, filed in the U.S. District Court for the Northern District of California in San Francisco, seeks a declaration of the rights of class members, as well as an injunction prohibiting illegal foreclosures and evictions, and damages for breach of contract.
The case involves the failure of Wells Fargo Bank and the Federal National Mortgage Association (Fannie Mae) to accord the surviving spouses and heirs of reverse mortgage borrowers the right to purchase the property for its appraised value after the loan becomes due and payable, either because of the death of the borrower or for some other reason.
The representative plaintiff is Robert Chandler of Elk Grove, CA, whose mother, Rosemary, died in 2010, five years after obtaining a reverse mortgage. Like many other heirs, Mr. Chandler was never given notice of his right to purchase the property for its current value.
When Mr. Chandler expressed an interest in purchasing the property at that price, Wells Fargo told him that he would have to pay off the full mortgage balance. This is contrary to the explicit terms of the contract his mother signed with Wells Fargo and federal reverse mortgage law. Wells Fargo, acting on behalf of the owner of the mortgage, Fannie Mae, then proceeded to foreclose on the Chandler home. Finding no one willing to buy it for the same market price that Mr. Chandler was willing to pay, Fannie Mae then began efforts to evict Mr. Chandler from the property, which his family has owned since the 1940s.
Congress designed the Home Equity Conversion Mortgage program with the explicit goals of helping seniors to access the equity in their homes, without facing a threat of losing their homes. A key part of the program is an insurance fund that every reverse mortgage borrower pays into, which ensures that their survivors can purchase the property at the current market value, should real estate prices fall. The class action seeks to ensure that any heir of a reverse mortgage borrower who wants to purchase their family home, as Mr. Chandler does, will be able to do so.
Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation, said: "Mr. Chandler's case is not an isolated one. In the wake of HUD's reversal of its rule on the rights of surviving spouses and heirs earlier this year, we have been contacted by many, many others facing the same problem. It is difficult to understand why reverse mortgage lenders continue to deny them their contractual and legal rights."
Steven A. Skalet of Mehri & Skalet stated: "We are committed to the cause of survivors of reverse mortgage borrowers who want to keep their family homes. No one should lose a home because lenders fail to observe the explicit purchase provisions of the reverse mortgage program. If defendants insist on breaking those rules, we intend to hold them to account."
Michael Ng of Kerr & Wagstaffe LLP said: "Wells Fargo's actions are not just wrong, they are economically irrational. Even though elderly borrowers paid for insurance that protects the bank against the downturn in the housing market, Wells Fargo insists on evicting family members from homes that will go unsold and unoccupied."
In March, AARP Foundation Litigation and Mehri & Skalet filed suit in federal court alleging that the Department of Housing and Urban Development (HUD) had abandoned long-established federal rules that guaranteed that an heir or surviving spouse would never owe more than the home was worth at the time of repayment.
One month after the AARP suit was filed, HUD reversed itself, and re-instituted the HUD policy to the fairer practice of not requiring payment that exceeded the updated value of the home.
The new suit alleges that, despite HUD's correction of its rules, the defendants are still failing to give notice to surviving spouses and heirs of their rights to purchase the property for the lower value, and are foreclosing and seeking to evict an heir who is attempting to pay off the current fair market price on an underwater home.
A reverse mortgage is a loan that allows older homeowners to convert the equity in their homes into cash. It is the "reverse" of a traditional mortgage, in which the borrower repays the borrowed sum on a monthly basis. Reverse mortgage borrowers receive money in the form of a loan that must be paid back out of their home equity.
Reverse mortgage borrowers are not required to make monthly or other periodic payments to repay the loan, other than payment of property taxes and home insurance premiums. Instead, the loan balance increases over time and the loan does not become due and payable until one of several specific events occur, for example, the last homeowner dies, moves permanently, or sells the home.
The loans are insured under the Home Equity Conversion Mortgage (HECM) program, and because of the complexity of the program and because it is specifically tailored to meet the needs of those 62 and older, Congress included special protections for HECM borrowers.
AARP Foundation Litigation (AFL) is an advocate in courts nationwide for the rights of people 50 and older, addressing diverse legal issues that affect their daily lives and assuring that they have a voice in the judicial system.
AFL expertise spans many specific areas of federal and state law, including:
Age Discrimination in Employment
Consumer, financial fraud and utilities
Employee benefits, including pensions
Health and long-term care, including Medicaid, Medicare and prescription drug affordability
Housing, including predatory mortgage lending, and livable communities
Low-income benefits, such as the Supplemental Nutrition Assistance Program (SNAP)
Mehri & Skalet, PLLC is a public-spirited law firm that brings class action and complex litigation to hold powerful institutions accountable for unlawful practices. Lawyers at M&S have achieved landmark employment and civil rights victories, winning hundreds of millions of dollars in relief and sweeping reforms from such corporate giants as the Coca-Cola Company, Morgan Stanley, Smith Barney, Texaco Inc., and John Hancock. The firm also has achieved substantial results for consumers from companies such as Hewlett Packard, Ford, Kellogg, and Dell Computers. Lawyers at M&S team up with public interest organizations to combat unfairness across our society, including work with the National Football League, the Center for Science in the Public Interest, the National Council on Women's Organizations, and the NAACP.
Established in 1999, Kerr & Wagstaffe LLP is a premier litigation firm representing clients in a wide range of complex cases at the trial and appellate levels, ranging from employment, consumer, intellectual property and antitrust disputes to First Amendment and other constitutional cases. Kerr & Wagstaffe LLP has won relief for millions of consumers and employees in class action litigation, securing significant monetary judgments and successfully halting wrongful practices affecting clients across California and the United States.