Throwing out the decision of a lower federal court (or any lower court) is a serious matter in our judicial system and, if it must be done at all, a reason or reasons must be given by the higher court.
In July 2011, the D.C. federal district court dismissed the failure-to-protect lawsuit three widowed spouses of HECM borrowers brought against HUD. In September that year when the spouses begged the court to reexamine their case, the court refused.
The court’s refusal came from its thinking that the spouses’ problems (foreclosure and displacement) resulted from the terms of reverse-mortgage contracts their dead spouses signed with third-party lenders. Even if they were to win their case against HUD, the court said, the lenders would still have the right to foreclose and displace them, and they would have no solution or redress to their problems.
As we saw in part seven, redressability (or the likelihood that a favorable decision will solve the spouses’ problems) is one of three tests anyone suing a federal agency such as HUD must meet to have standing under the Administrative Procedure Act (APA). Although the spouses insisted that they met all three tests, the district court disagreed on redressability. So redressability was the specific standing issue the D.C. Circuit had to address in its decision.
The D.C. Circuit agreed with the district court that if redressability depended on the actions of lenders, the spouses would have no standing to sue HUD; they would be toast. Nevertheless, it threw out the district court’s decision, gave the spouses standing, and sent the case back to be heard on its merits at the district court.
Why did the D.C. Circuit overrule the district court in this case? It found a part of HECM law which empowered HUD to solve the foreclosure-displacement problems of the spouses and the investment-low headaches of the lenders.
In Subsection (i) of HECM law, Congress says HUD can take “any action necessary” to further the purposes of the HECM mortgage insurance program. Needless to say, protecting homeowners (including their non-borrowing spouses) from displacement and lenders from losses are stated purposes of the HECM program.
But the D.C. Circuit did something else besides granting standing to the spouses, it suggested how HUD could solve the problems.
The how is called assignment. Under HECM rules, lenders can assign a loan to HUD when the loan balance reaches 98 percent of a limit set by HUD called the Maximum Claim Amount. When this happens, HUD holds the loan until the loan’s life ends.
In a Solomonic fashion, the court suggested that HUD could take assignment of the troubled mortgages, pay off the lenders, and decide whether to foreclose on the spouses.
I outlined the court’s assignment suggestion and other ideas for resolution of the non-borrowing spouses’ problem in an article in National Mortgage News on Jan. 15, 2013. While we will return to those resolution ideas in other posts, our next post looks at a direct result of the DC Circuit decision on standing: The merits-hearing and decision at the federal district court.
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.
