Overlooking
government
status

Litigation
in
the
reverse
mortgage
space
is
not
a
new
idea,
but
plaintiffs’
attorneys
tend
to
miss
some
key
facts
about
the
product
according
to
partner
Jason
Manning.
While
understanding
that
the


Federal
Housing
Administration
(FHA)
Home
Equity
Conversion
Mortgage
(HECM)
program
serves
a
vulnerable
population,
these
attorneys
tend
to
overlook
the
nature
of
the
program
itself.

“This
is
a
government
program,”
he
said.
“This
is
a
government
product.
It
is
regulated
by
[the


U.S.
Department
of
Housing
and
Urban
Development
(HUD)].
The
government
is
insuring
it.
And
so,
there’s
a
whole
series
of
guidelines
that
servicers
need
to
follow
for
compliance,
but
by
following
for
compliance,
you’re
able
to
demonstrate
that
exactly
that
concern
has
been
addressed.”

The
requirement
for
borrowers
to
undergo
a
session
with
a
HUD-certified
counselor
is
one
element
of
this,
as
are
the
“additional
services
and
notices
that
are
required”
as
part
of
the
HECM
program.

“If
you
comply,
you’re
able
to
demonstrate
very
credibly
to
plaintiff’s
attorneys
that
this
was
done
exactly
as
the
government
required,
and
this
is
a
program
that
the
government
believes
is
beneficial
to
that
population,”
Manning
said.

Non-borrowing
spouses

Associate
attorney
Punit
Marwaha
also
highlighted
different
kinds
of
reverse
mortgage
cases
that
have
come
up,
including
class
and
individual
litigation.
He
mentioned
non-borrowing
spouse
cases,
and
the
measures
that
HUD
and
FHA
have
taken
to
address
any
concerns
for
non-borrowing
occupants.
The
Mortgagee
Optional
Election
(MOE)
assignment,

introduced
in
2015,
is
a
chief
example.

“In
a
lot
of
the
situations
that
we’ve
seen,
it’s
been
foreclosure
filed
due
to
the
death
of
the
borrowing
spouse,”
Marwaha
said.
“Non-borrowing
spouse
comes
in
and
says,
‘This
is
inequitable.
Why
am
I
being
kicked
out
of
my
house
I
lived
in
for
30
years?’
In
those
situations,
we
have
often
utilized
this
MOE
assignment
program
to
resolve
the
litigation,
which
allows
the
non-borrowing
spouse
to
stay
in
the
house,
resolves
the
foreclosure,
and
at
least
on
the
servicer
end,
makes
it
HUD’s
problem.”

Manning
added
that
FHA
does
not
want
HECM

foreclosures
to
occur
if
they’re
going
to
trigger
a
payout.

“So,
the
government
has
done
a
really
good
job
of
providing
at-risk
programs,
which
are
available
and
often
utilized
for
resolving
individual
litigation,”
he
said.

Home
repair
scams,
fraud

There
have
also
been
instances
that
Marwaha
has
seen
involving
fraud,
in
which
a
third-party
scouted
an
area
for
older
homeowners
and
told
them
about
“home
repairs
under
a
free
government
program,
or
a
free
city
program,
and
have
the
elderly
homeowner
fill
out
paperwork
for
a
reverse
mortgage.”

They
then
abscond
with
the
loan’s
proceeds,
and
a
family
member
later
only
learns
about
a
reverse
mortgage
after
the
homeowner’s
death
when
they
receive
a
foreclosure
notice.

“Those
cases
that
we’ve
dealt
with
have
typically
involved
a
third
party,
not
a
family
member
to
the
borrower,
coming
in
and
making
these
promises
of
home
repairs
and
pocketing
the
proceeds
from
the
reverse
mortgage,”
Marwaha
said.

“There,
we
have
—
generally
using
agency
arguments
—
[have
said]
that
there
was
no
agency
between
the
original
lender
of
the
mortgage
and
the
third
party
who
dealt
with
the
borrower.
We
typically
had
a
lot
of
success
in
the
courts
with
this
argument,
because
it’s
trying
to
tie
in
the
mortgage
broker
or
a
third
party
to
the
original
lender.”

But
this
can
be
a
tall
order
for
the
family
members
or
heirs,
he
added,
because
fraud
comes
with
a
“heightened
pleading
standard”
and
documents
are
often
executed
with
the
same
handwriting
as
the
homeowner,
making
it
difficult
to
argue
they
didn’t
understand
what
they
were
signing.

In
instances
of
identified

elder
financial
abuse,
“there
are
general
civil
and
criminal
penalties
that
go
along
with
that,
which
do
vary
from
state
to
state,”
he
said.
“But
generally,
those
are
going
to
be
more
the
issue
of
the
third
party
who
is
helping
originate
the
loan,
rather
than
the
mortgage
servicer
itself.”

Manning
added
that
in
such
instances,
the
loan
originator
as
well
as
the
servicer
are
also
harmed
by
the
fraud.
But
in
other
instances,
fraud
allegations
are
“meritless,”
he
said.

“You
really
have
a
lot
of
HUD
guidelines
and
HUD
documentation
that
can
support
that
on
behalf
of
the
servicer
or
the
originator,”
Manning
said.
“For
example,
part
of
the
origination
process
requires
a
HUD-certified
counselor,
and
also
a
HUD-certified
designation
of
net
benefit
to
the
borrower.
Both
of
those
are
very
useful
for
defending
allegations
of
alleged
fraud.”