More On Legal & Compliancefrom The Advisor's Professional Library
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- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
AARP has gone to court for a second time to challenge foreclosures on reverse mortgages in which plaintiffs were not notified and were not offered the option of purchasing the property for 95% of its appraised value when the mortgage became due and payable. The lawsuit alleges that both Fannie Mae and Wells Fargo Bank acted illegally in foreclosing on borrowers and their heirs.
The suit, filed in the U.S. District Court for the Northern District of California in San Francisco on Wednesday, marks the second time this year that AARP has gone to court on the issue.
The first suit, filed in March, alleged that the U.S. Department of Housing and Urban Development had changed long-established rules. According to AARP, rules in place since 1989 were changed: “that a borrower or heirs would never owe more than the home was worth at the time of repayment. But at the end of 2008, HUD abruptly changed the policy and said that an heir–including a surviving spouse who was not named on the mortgage–must pay the full mortgage balance to keep the home, even it if exceeds the value of the property.”
That suit was dismissed by the court in July, but that lawsuit resulted in the issuance of Mortgagee Letter 2011-16, which rescinded Mortgagee Letter 2008-38, a document that provided guidance on the no-recourse policy on reverse mortgages insured by the FHA. Also, according to AARP, HUD reversed itself a month after the original suit was filed, and returned to “the fairer practice of not requiring payment that exceeded the updated value of the home.”
In the new suit, AARP alleges that even though HUD has corrected its rules, Wells Fargo and Fannie Mae “are still failing to give notice to surviving spouses and heirs of their rights to purchase the property for the lower value, and are foreclosing and seeking to evict an heir who is attempting to pay off the current fair market price on an underwater home.”
Ironically, under the rule change that generated the original lawsuit, a stranger could purchase a reverse mortgage home for the fair market value (an “arm’s-length transaction,” according to the original Mortgagee Letter), where an heir could not.
That meant that if a willing buyer could not be found, the home would have to go through foreclosure and the heir would have to find a lender willing to issue a mortgage for more than the worth of the home before an heir could purchase the family home back.