AARP Foundation is suing Wells Fargo and Fannie Mae in the San Francisco Federal Court over the rights of a survivor to redeem the property after a Home Equity Conversion Mortgage borrower dies. This case involves the nonrecourse provision of the HECM and the withdrawn HUD Mortgagee Letter 2008-38, which called for heirs having to repay the loan in full if they wanted to keep the property. The Department of Housing and Urban Development removed the letter in April.
In the legal filings Robert Chandler, the son of borrower Rosemary Chandler, argues that the HECM contract calls for him to be able to purchase the property at 95% of the appraised value or the loan balance, whichever figure is lower.
Rosemary Chandler died in 2010, and Robert Chandler, who lived in the residence, sought to buy the property at the appraised value but was told he needed to pay off the full balance of the loan. In the court papers, AARP Foundation states the 95% standard is part of the contract Rosemary Chandler signed with Wells Fargo as well as mandated by federal law. They are seeking class-action status.
The plaintiff is arguing in the complaint that because the loans are insured by the Federal Housing Administration, through premiums that every reverse mortgage borrower pays, that ensures their survivors can purchase the property at its current market value, should real estate prices fall.
At the time of her death, the loan balance was $338,000. The plaintiff cites data from Zillow which puts its current value at $194,900. According to AARP Foundation, the Chandler family has owned the property since the 1940s.
FHA as the mortgage insurer, AARP Foundation states in the legal papers, bears the risk that the loan balance is greater than the property is worth.
A spokeswoman for Wells Fargo provided the following statement: “First, it's important to acknowledge that this is a case in which the reverse mortgage worked well for Ms. Chandler who remained in the home through the end of her life.
“Wells Fargo services reverse mortgages in accordance with the guidelines required by the Department of Housing and Urban Development. In April 2011, HUD changed the rules to allow the heirs of a reverse mortgage property to purchase the home at 95% of the appraised value.
“When the HUD rules changed, we adopted them including providing notice to the heirs. We intend to defend our company in this case.” The company was bound to comply with the standards in place at the time the loan came due.
Fannie Mae said it does not comment on pending litigation.
“Defendants refuse to allow the surviving spouses and other heirs of deceased HECM borrowers to pay a fair market price for their homes and continue living in them,” the filing states.
Wells Fargo has foreclosed on the property. Fannie Mae, finding no buyers, now owns it and is looking to evict Robert Chandler.
Jean Constantine-Davis, a senior attorney with AARP Foundation, 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.”
She along with the other attorneys in this case, Mehri & Skalet and Kerr & Wagstaffe, state that even after the withdrawal of ML 2008-38, the defendants are not giving notice to surviving spouses and heirs of their right to purchase the property at 95% of the appraised value.
“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,” said Michael Ng of Kerr & Wagstaffe.
