Federal District Court Invalidates Application Of HUD Regulation Requiring Full Payment of Reverse Mortgage From Surviving Spouses

HUD Reverse Mortgages

On September 30, the U.S. District Court for the District of Columbia held that a HUD regulation defining conditions under which it would insure a reverse mortgage agreement, which would have made it easier for lenders to foreclose on homes occupied by surviving spouses, contradicted the governing statute. Bennett v. Donovan, 11-498, 2013 WL 5424708 (D.D.C. Sept. 30, 2013). The surviving spouses in this case, neither of whom were legal borrowers under the reverse mortgages entered into by their spouses, sought declaratory relief that HUD’s regulations requiring that the mortgage be due and payable in full if a borrower dies and the property is not the principal residence of at least one surviving borrower violated the Administrative Procedure Act because the rule is inconsistent with the governing statute. The statute protects “homeowners,” as opposed to “borrowers,” from displacement and defines “homeowner” to include “spouse of the homeowner.” Applying the Chevron deference test, the court held that that the plain meaning of the statute is not contradicted by context or legislative history and clearly provides for the loan obligation to be deferred until the homeowner’s and the spouse’s death. The court held that the regulation as applied to the surviving spouses is invalid, and, consistent with guidance from the D.C. circuit, directed HUD to determine the appropriate relief.