A federal court judge in Washington has dismissed a case filed by AARP Foundation against the Department of Housing and Urban Development where the plaintiffs had been the surviving spouses of a Home Equity Conversion Mortgage borrower, but not listed on the loan.
The case originally centered on a now-withdrawn HUD mortgagee letter, 2008-38, which provided a different interpretation of the HECM loan’s nonrecourse provision that what the lending community had previously understood.
At the time of the letter’s withdrawal back in April, Jean Constantine-Davis, a senior attorney for AARP Foundation, said the case would continue, saying HUD allegedly ignored statutory protections for the spouses of HECM borrowers.
Now Judge Ellen Segal Huvelle has ruled in favor of HUD’s motion to dismiss without a trial. Her memorandum notes the case was dismissed without prejudice, meaning the plaintiffs are free to refile if they can cure the issue of whether they had legal standing the file the case in the first place.
An email statement from Constantine-Davis said, “We are disappointed with the court’s ruling and are evaluating our options on how to proceed.”
HUD did not respond to a request for comment by press time.
The three loans at the heart of this case, Bennett, et al., v. Donovan, are in foreclosure. In her decision, Judge Huvelle noted that the one remaining claim in the case is whether HUD secretary Shaun Donovan “has acted contrary to law by failing to protect the spouses of holders of HECMs from foreclosure.”
HUD argued in its motion that the spouses lacked legal standing (that is they would be the people harmed) to bring the case. Judge Huvelle agreed the plaintiffs lacked standing because they did not meet the redressability test, which means any harm those who brought the suit might have suffered could be cured by a favorable decision.
Citing a precedent in the circuit court that oversees the U.S. District Court for the District of Columbia, she said it was speculative that a change in government policy would alter the behavior of the lenders on the HECMs. These lenders, under the loan contract, were entitled to foreclose because the loan became due if the property was not the principal residence of one surviving borrower.
“Even if the secretary has failed to require that HUD-insured HECMs include a clause protecting the spouses of homeowners, and even if the statutory interpretation plaintiffs propose will lead to third parties protecting spouses in all future HUD-insured mortgages, plaintiffs 'offer nothing but speculation to substantiate their assertion’ that this change would affect the lenders foreclosing on their mortgages,” Judge Huvelle wrote (the quote in the decision comes from an earlier case she cited as a precedent).
