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August 05, 2011 at 10:32 AM
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suit was dismissed by the court in July, but that lawsuit resulted in the issuance of Mortgagee Letter 2011-16, which rescinded Mortgagee Letter 2008-38, a document that provided guidance on the no-recourse policy on reverse mortgages insured by the FHA.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.”
