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HECM Protects Non-Borrowing Spouses (Part VII): A Lifeline from the D.C. Circuit

Atare E. Agbamu
Sep 29, 2014

The stakes were nothing if not high for the non-borrowing spouses (NBS) and for HUD as the parties awaited the decision of the second most important federal court in the United States in the winter of 2012.

At the federal district court for D.C. a year before, HUD had argued successfully that a widower and two widows lacked “standing” to drag it to court. The victory had affirmed the brilliance of its contain-and-dismiss NBS litigation strategy. A ruling granting standing to plaintiffs would wreck that hasty plan. It would mean that plaintiffs’ allegations would have to be heard on their merits.

And who knew how the merit-hearing would turn out given the uncertainties of litigation? Would HUD’s soiled HECM-rulemaking laundry be once again exposed to the sunshine of judicial scrutiny? With the HECM portion of the Mutual Mortgage Insurance (MMI) Fund still bleeding red ink then from the HECM fixed-rate fiasco, who knew what financial pain a ruling for non-borrowing spouses would bring to HUD?

For plaintiffs, a ruling upholding HUD’s no-standing victory would have probably meant the end of litigation road as a path to saving their marital homes from foreclosures and themselves from displacements.

For HECM origination, it would have meant business as usual where the prospect of large loan amounts (and fat commission-income checks) encouraged some originators (and some borrowers) to continue the deadly practice of removing non-borrowing spouses from title and exposing them to foreclosures and displacements when their borrowing spouses die.

And for the HECM reverse mortgage program itself, it would have meant the continuing negative association of HECMs with spousal displacement in the mind of an aging market, hardly a recipe for promoting an otherwise beneficial product. Such were the stakes in the decision that would come down from the D.C. Circuit Court.

Before the three-judge panel was a simple question: Did HECM non-borrowing spouses have standing to sue HUD under the Administrative Procedure Act (APA)?

To haul HUD to court under the APA, plaintiffs must show that they meet three requirements for standing:

1) Injury-in-fact: Was there a breach of a legally protected interest or right? Plaintiffs claimed their impending foreclosures (temporarily suspended during the lawsuit) and displacement met the first test;

2) Causality: Was there a connection between the action of defendant and plaintiffs’ injuries? Plaintiffs alleged HUD’s flawed regulations and non-recourse policy missteps did them in;

3) Redressability: Was it “likely” that a favorable decision will redress the injury?  Plaintiffs said it was.

Relying on HUD’s argument more than a year earlier at the D.C. federal district court, plaintiffs had been denied standing on the ground that they failed test three (redressability). The D C Circuit must now decide whether that decision was correct.

In what amounts to a lifeline to (and a present for) plaintiffs four days into the new year in 2013, it did. In a unanimous 13-page decision, the D.C. Circuit reversed the lower federal court, granted standing to the non-borrowing spouses, and sent the case back to be heard on its merits.

Our next post looks deeper into the D C Circuit decision on standing and the ideas for resolution of the NBS problem it spawned.


Atare Agbamu is author of Think Reverse! With more than 200 articles on reverse mortgages in circulation since 2002, Agbamu wrote Forward on Reverse, the first regular monthly column on reverse mortgages in America’s financial media from 2002 to 2011. Through his advisory, ThinkReverse LLC, Agbamu advises financial professionals, institutions, and regulators across the country.


Sep 29, 2014