AARP Sues Lenders for Wrongful Reverse Mortgage Foreclosures

2:09 pm Uncategorized

law2 e1308847040170 AARP Sues Lenders for Wrongful Reverse Mortgage ForeclosuresThe AARP Foundation’s litigation unit filed suit late last week against Fannie Mae (Federal National Mortgage Corp.) and Wells Fargo Bank for failure to allow surviving spouses and other heirs of deceased reverse mortgage borrowers to purchase the property for appraisal value, according to a news report.

The new suit piggybacks off the success of AARP litigators who won an earlier case when the U.S. Department of Housing and Urban Development (HUD) reversed itself on a 2008 rule that was effectively forcing surviving spouses into foreclosure.

HUD regulates and insures Home Equity Conversion Mortgages (HECMs), which were designed so that borrowers would never owe more than the value of their homes.  In 2008, HUD implemented two new rules that AARP says were illegal.

The first rule made the non-recourse provision apply only when properties are sold, meaning that when the borrower died, the surviving non-signing spouse would have to repay the full balance on the loan, even if the value of the home had dropped.

The second rule change – to an existing rule that stated a borrower could sell secured property for 95 to 100 percent of its appraised value – allowed only “arm’s length transactions,” meaning that a non-signing surviving spouse could only retire the loan by paying the full balance but a third-party buyer could purchase the property for 95 percent of the appraised value.

The rule changes made it more difficult for surviving spouses and children to purchase the family home because financial institutions would not lend amounts in excess of appraised value.

The new suit was filed because, even though HUD reversed itself on the two 2008 rules, financial institutions are still acting on the old regulations.

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