Remember the case filed by two widowers against the US Department of Housing and Urban Development (HUD) under the Housing Equity Conversion Mortgage (HECM) program? Well, it was recently revived by an appeals court within Washington. The case was given the green-light by three judges of the aforesaid court who argued that HECM regulations seem to be in conflict with the governing statute on which they are based. As you might already know, when you purchase a FHA-insured home under the HUD homes program, ownership reverts to HUD when you default on the loan.
In their 13-page opinion, the judges wrote that “We admit to being somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute”. In other words, the appeals court was particularly confounded by the regulations of the HECM program that appear to offer no protection to surviving spouses of borrowers yet the statute approving the same HECM program categorically affords them protection.
The lawsuit, filed on March 8, 2011, was previously dismissed by a lower court judge who ruled that the complainants were not the borrowers and that the lender had the right to foreclose the mortgage when defaulted on, as in death of the borrower.
In the suit, the widowers argue that as surviving spouses, they are protected against foreclosure by a provision in the National Housing Act that approves the HECM program. The provision, according to the applicants, defines the term ‘homeowner’ on the HECM loan as encompassing the spouse of the borrower. The HECM loan matures upon borrower’s death, according to the same statute.
The appeals court, however, stated that there are a couple of remedies that HUD could come up with, such as accepting the mortgage obligation, clearing the loan balance and eschewing the foreclosure.
The HUD homes program offers cheap homes for sale to prospective homeowners insured by the FHA. The suit against HUD will now proceed in the District Court of Washington, D.C.