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Robert Bennett, et al v. Shaun Donovan

July 15, 2011


The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge


Plaintiffs have sued the Secretary of the Department of Housing and Urban Development ("Secretary") in his official capacity, alleging that certain regulations that implement the Home Equity Conversion Mortgage ("HECM") program violate the Administrative Procedures Act ("APA"), 5 U.S.C. § 551 et seq. Although plaintiffs originally brought four claims against the Secretary, the parties agree that three of the claims are now moot, so these counts have been withdrawn without prejudice. (Def.'s Combined Mem. in Support of his Mot. to Dismiss and in Opp. To Pls.' Mot. for Prelim. Inj. ("Def.'s Mot.") at 14; Pls.' Mem. in Opp. to Def.'s Mot. ("Pls.' Opp'n") at 3-4.) Plaintiffs' surviving claim alleges that the Secretary has acted contrary to law by failing to protect the spouses of holders of HECMs from foreclosure. (Compl. ¶¶ 148-57.) The Secretary now moves to dismiss, arguing that plaintiffs' claim should be dismissed under Fed. R. Civ. P. 12(b)(1) because plaintiffs lack standing. The Secretary moves, in the alternative, to dismiss plaintiffs' claim under Fed. R. Civ. P. 12(b)(6) because his interpretation of the statute is both in accordance with the unambiguously expressed intent of Congress and based on a permissible construction of the statute. For the following reasons, the Court grants the Secretary's motion to dismiss for lack of jurisdiction.


An HECM, or a "reverse mortgage," is a mortgage that provides "future payments to the homeowner" from a "housing creditor," "based on accumulated equity" held by the homeowner.

12 U.S.C. § 1715z-20(b). The HECM program is designed to "authorize the Secretary to carry out a program of mortgage insurance" to "meet the special needs of elderly homeowners," 12 U.S.C. § 1715z-20(a) (emphasis added), and was authorized by Congress as part of the Housing and Community Development Act of 1987. Pub. L. No. 100-242, 101 Stat. 1815, 1908 (1988). Unlike a traditional mortgage, an HECM pays the proceeds of the loan to the mortgagor over an "extended period," while the mortgagor repays the mortgagee in a single payment at the end of a set period of time or after certain qualifying events have occurred.*fn1 53 Fed. Reg. 43,156 (Oct. 25, 1988). Payments are made to the mortgagor via a lump sum payment, monthly payments, or a line of credit. (Def.'s Mot. at 2; see also 12 U.S.C. § 1715z-20(d)(9).) A mortgage that is insured under this program must provide that the "homeowner" shall not be liable for the difference in "remaining indebtedness of the homeowner under the mortgage and the amount recovered by the mortgagee from (A) the net sales proceeds from the dwelling that are subject to the mortgage" or "(B) the insurance benefits paid" to the mortgagee pursuant to the statute. Id. § 1715z-20(d)(7). Thus, a mortgagee may not recover the balance of a loan by suing a mortgagor, obtaining a deficiency judgment, and/or attaching her other assets. (See Def.'s Mot. at 2.) As a result, the "collateral risk of a home equity conversion mortgage" is "greatest in the out years because the loan balance continues to grow as long as the mortgagor occupies the property," and the possibility of loss "becomes quite high" if the "mortgagor occup[ies] the property for many years beyond his or her normal life expectancy at loan origination." 53 Fed. Reg. 43,161 (Oct. 25, 1988). To mitigate against this risk, and to "encourage and increase the involvement of mortgagees and participants in the mortgage markets," the HECM statute permits the Secretary to insure HECMs that meet the eligibility requirements. See 12 U.S.C. §§ 1715z-20(a), (d), (j).

The statute uses various terms to refer to borrowers and lenders, including "homeowner, "elderly homeowner," "mortgagor," and "mortgagee." The terms "'elderly homeowner' and 'homeowner' mean any homeowner who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe."*fn2 Id. § 1715z-20(b)(1). The HECM statute adopts the definitions of "mortgagee" and "mortgagor" contained in 12 U.S.C. § 1707. Id. § 1715z-20(b)(2). Thus, the term "mortgagee" includes "the original lender under a mortgage, and his successors and assigns approved by the Secretary," and "mortgagor" includes the "original borrower under a mortgage and his successors and assigns." Id. § 1707(b). A mortgagor must "qualif[y] as an elderly homeowner" and must receive "adequate counseling . . . by an independent third party" to be eligible for an HECM. Id. § 1715z-20(d)(2).

The statute also prevents the Secretary from insuring mortgages that do not protect homeowners for as long as they live in and own their home:

The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner's obligation to satisfy the loan obligation is deferred until the homeowner's death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term "homeowner" includes the spouse of a homeowner. Id. § 1715z-20(j) ("subsection (j)"). The Secretary has implemented this statutory command with the following regulation:

(1) The mortgage shall state that the mortgage balance will be due and payable in full if a mortgagor dies and the property is not the principal residence of at least one surviving mortgagor, or a mortgagor conveys all or his or her title in the property and no other mortgagor retains title to the property.

24 C.F.R. § 206.27(c) (emphasis added). Once the loan becomes due, the mortgagee "shall require" the mortgagor to "pay the mortgage balance, including" interest, "sell the property for at least 95% of the appraised value . . . with the net proceeds of the sale to be applied towards the mortgage balance," or provide the mortgagee with the deed to the property. 24 C.F.R. § 206.125(a)(2). The mortgagor has thirty days after receiving notice from the mortgagee to pay the balance before the mortgagee may begin foreclosure proceedings. Id.


Each of the three plaintiffs is a widowed spouse of an HECM mortgagor. (Compl. ¶¶ 59-64, 84-94, 107-116.) Plaintiffs, however, were neither listed on the deeds to their homes nor on the HECMs that their spouses had signed. (Id. ¶¶ 61, 92, 114.) The Secretary points out (Def.'s Mot. at 10), and plaintiffs do not contest (see Pls.' Opp'n at 9), that the mortgages on plaintiffs' homes contain the following language, taken from the HECM form contract: "9.Grounds for Acceleration of Debt. (a) Due and Payable. Lender may require immediate payment in full of all sums secured by this Security Instrument if: (i) A Borrower dies and the Property is not the principal residence of at least one surviving borrower." (See Compl. Ex. 6.)

Thus, per the contract language in the HECMs that had been signed by plaintiffs' spouses, and per 24 C.F.R. § 206.27, the HECMs on plaintiffs' homes became due upon their spouses' deaths, because the only borrower/mortgagor listed on each instrument was deceased.

(Id. ¶¶ 66, 97, 118.) Plaintiffs allege that, as a result, they are now the subject of foreclosure actions brought by HECM mortgagees. (See id. ¶¶ 74, 102, 121.) Plaintiffs allege that HUD regulations improperly implement the anti-displacement section in subsection (j) of the HECM statute. (Id. ¶ 156.) Specifically, they argue that 24 C.F.R. § 206.27(c) illegally allows the Secretary to insure mortgages that limit protection to "surviving mortgagors," even though subsection (j) prevents the Secretary from insuring mortgages that do not protect "the spouse of a homeowner." (Id. ¶¶ 148-157.) Thus, they argue, had ...

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