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Plunkett v. Cantro

United States District Court, D. Columbia.

August 28, 2014

CHARLIE PLUNKETT, et al., Plaintiffs,

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For ROBERT BENNETT, 14ca1017, LEILA JOSEPH, 14ca1017, Plaintiffs: Jean Marie Constantine-Davis, LEAD ATTORNEY, AARP FOUNDATION, Washington, DC; Steven A. Skalet, Craig L. Briskin, MEHRI & SKALET, PLLC, Washington, DC.


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ELLEN SEGAL HUVELLE, United States District Judge.

In 2011, three surviving spouses of deceased individuals who had entered into Home Equity Converse Mortgages (" HECMs" ) sued the Secretary of the Department of Housing and Urban Development (" HUD" ) in his official capacity, alleging that regulations implementing the federal HECM insurance program violated the Administrative Procedure Act (" APA" ), 5 U.S.C. § § 551, et seq. This Court initially dismissed the case for lack of standing. See Bennett v. Donovan (" Bennett I" ), 797 F.Supp.2d 69, 77-78 (D.D.C. 2011). The Court of Appeals reversed. See Bennett v. Donovan, 703 F.3d 582, 590, 403 U.S.App.D.C. 262 (D.C. Cir. 2013).

On remand, this Court granted summary judgment to plaintiffs on the grounds that HUD violated 12 U.S.C. § 1715z-20(j) by insuring HECMs (also known as reverse mortgages) which failed to protect the rights of non-borrower surviving spouses. Bennett v. Donovan (" Bennett II" ), 4 F.Supp.3d 5, 2013 WL 5424708, at *7 (D.D.C. Sept. 30, 2013).[2] Accordingly, this Court remanded the case to the agency to fashion appropriate relief. Id.

In February 2014, while this remand was pending, Charlie Plunkett and three other non-borrower surviving spouses of now-deceased HECM holders filed suit on behalf of themselves and other similarly situated non-borrower surviving spouses. In their complaint, they allege identical violations of 12 U.S.C. § 1715z-20(j) and that HUD's failure to take immediate action in accordance with Bennett II violated the APA. (Compl., Feb. 27, 2014 [ECF No. 1].) After HUD issued two determinations on remand--the first as to the two Bennett plaintiffs and the second as to the Bennett plaintiffs as well as the four named plaintiffs in Plunkett --the Court consolidated the two cases and transferred the Bennett plaintiffs to the Plunkett case. ( See Minute Order, June 30, 2014.)

The Court now has before it cross motions for summary judgment. (Pls.' Mot. for Summ. J. (" Mot." ), July 10, 2014 [ECF No. 36]; Def.'s Mem. in Support of Def.'s Mot. to Dismiss or, in the Alternative, for Summ. J. and in Opp. To Pls.' Mot. for Summ. J. (" Opp." ), July 21, 2014 [ECF No. 37].) The Court also has before it a motion for class certification. (Mot. for Class Cert., Feb. 27, 2014 [ECF No. 2].) For the reasons stated below, plaintiffs' motion for summary judgment and defendant's motion for summary judgment will be granted in part and denied in part. The motion for class certification will be denied without prejudice.



The material facts and statutory framework relevant to this case were described in detail in this Court's prior opinions and the opinion of the Court of Appeals. See Bennett, 703 F.3d at 584-86; Bennett II, 2013 WL 5424708, at *1-2; Bennett I, 797 F.Supp.2d at 72-73. Therefore an abbreviated and updated version will suffice.

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This case arises from the Home Equity Conversion Mortgage insurance program. This program is run by the Federal Housing Administration within HUD pursuant to the National Housing Act (" NHA" ), 12 U.S.C. § § 1701, et seq. HECMs provide a mechanism for elderly homeowners to convert " a portion of accumulated home equity into liquid assets." 12 U.S.C. § 1715z-20(a). When an elderly homeowner enters into a reverse mortgage, he or she receives some combination of a lump sum payment, monthly payments, or a line of credit. See id. § 1715z-20(d)(9). Though interest is charged each month, unlike a traditional mortgage, an HECM loan is generally not repaid until a specific " trigger" event occurs, such as the death of the borrower or the sale of the home. Id. § 1715z-20(j); 24 C.F.R. § 206.27(c)(1). This non-recourse loan is secured by a mortgage on the borrower's home. 12 U.S.C. § 1715z-20(d)(3). As a non-recourse loan, the lender may only recover the borrower's house (or the sale value thereof). Id. § 1715z-20(d)(7). Therefore, because the lender may suffer a financial loss if the value of the home at the time of the triggering event is less than the outstanding balance on the HECM loan, Congress created an insurance program administered by HUD to incentivize private lenders to participate in the HECM market. The insurance program is funded in part by monthly mortgage insurance premiums that are paid by the lenders, though these costs are generally passed on directly to the borrowers. See 24 C.F.R. § 206.103, .25.

Because HUD insures these loans, it limits the maximum amount that lenders can loan to borrowers. This maximum amount is calculated by multiplying the appraised value of the home (up to $625,500) by a fraction known as the " principal limit factor" (" PLF" ). See id. § 206.3. The principal limit factor is an actuarial variable based on the age of the youngest borrower and the expected loan interest rate. Under this scheme, an older borrower will almost always have a higher PLF. For purposes of these loans, therefore, if there is more than one borrower, the younger borrower's PLF is used under 24 C.F.R. § 206.33. Prior to Bennett II, married couples often took out HECMs only in the name of the older spouse in order to receive a bigger loan amount up front. In fact, each of the six named plaintiffs was younger than their now deceased spouses who took out the HECMs solely in their own names. Had these plaintiffs been on the HECMs originally, they would have received less money from their lenders.

The maximum loan amount that HUD will insure is the lower of the appraised value of the home at the time the HECM is taken out and $625,500. To prevent the lender from incurring uninsured losses after the maximum loan amount is reached, the lender is permitted to assign the HECM to HUD when the HECM reaches 98% of the maximum loan amount. See 24 C.F.R. § 206.107(a). If the lender makes this election, HUD takes on full responsibility for servicing the loan until a trigger event occurs and, when such an event occurs, HUD may foreclose the home if necessary.

Plaintiffs in these actions are widowed spouses of now deceased holders of reverse mortgages insured by HUD. Plaintiffs are not listed on the deeds of their homes, nor are they obligors on the reverse mortgages. See Bennett I, 797 F.Supp.2d at 72-73; (Compl. at 11, 13-14). The reverse mortgages at issue contain language from the HECM form contract in effect at the time the loans were entered into between the lenders and the borrowers which permit the lender to demand immediate payment on the loan if the " [b]orrower dies and the [p]roperty is not

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the principal residence of a least one surviving borrower." Bennett I, 797 F.Supp.2d at 73 This language is consistent with 24 C.F.R. § 206.27(c)(1), a regulation promulgated by HUD, which states that " [t]he mortgage shall state that the mortgage balance will be due and payable in full if a mortgagor dies and the property is not the principle residence of at least one surviving mortgagor . . . ."

In Bennett II, plaintiffs argued that this regulation violated federal law because it did not protect the non-borrower spouse from foreclosure at the death of the borrower spouse. In support of their position, plaintiffs relied solely on 12 U.S.C. § 1715z-20(j) (" subsection (j)" ). Subsection (j) states,

[t]he 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 the homeowner. (emphasis added).

This Court agreed holding that the only plausible construction of subsection (j) was that " the loan obligation [should be] deferred until the homeowner's and the spouse's death." Bennett II, 2013 WL 5424708, at *7. As required in an APA challenge, the Court remanded the case to the agency in order to fashion appropriate relief consistent with its opinion and order remanding the case. In providing this remedy, the Court relied expressly on the guidance set forth by the Court of Appeals:

We do not hold, of course, that HUD is required to take [a] precise series of steps, nor do we suggest that the district court should issue an injunction to that effect. Appellants brought a complaint under the Administrative Procedure Act to set aside an unlawful agency action, and in such circumstances, it is the prerogative of the agency to decide in the first instance how best to provide relief.
Perhaps HUD would provide the precise relief we have outlined, perhaps it would find another alternative, or perhaps it would decide no such relief was appropriate. We recognize that, even if the district court issues a declaratory judgment, appellants still have no guaranty of relief. Though of course, if Bennett and Joseph prevailed on the merits in the district court but were dissatisfied with HUD's remedy, they would always have the option to seek review on the ground that HUD's actions were arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.

Bennett, 703 F.3d at 589 (emphasis in original) (internal quotation marks and citations omitted).

While this remand was pending and before HUD issued a formal determination on remand, HUD issued Mortgagee Letter 2014-07. " The Letter provides that, for loans [initiated after August 4, 2014], where there is a sole borrower who was married at the time of loan origination (and the spouse was not on the loan), the HECM documents will contain a provision deferring the due and payable status of the loan until the death of the non-borrowing spouse. This letter thus implements, prospectively, the interpretation of Subsection (j) adopted by this Court in Bennett [II]." (Status Report, May 12, 2014 [ECF No. 24], at 2.) On May 2, 2014, FHA published a Federal Register notice soliciting public comments on this Mortgagee Letter. See id.

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Several months after this Court issued Bennett II, four non-borrower surviving spouses who were not parties in the Bennett litigation, filed a new lawsuit on behalf of themselves and a purported class of similarly situated individuals. (Compl., Feb. 27, 2014 [ECF No. 1].) In their Complaint, they made the identical challenge made by the Bennett plaintiffs that section 206.27(c)(1) violated subsection (j) and further alleged that HUD's failure to act as a result of Bennett II violated their rights under APA. ( Id.) Simultaneously, they filed a motion for class certification. The Court reserved judgment on the motion for class certification, while HUD considered the Bennett case on remand.

On June 4, 2014, HUD issued its first determination on remand. (Determination on Remand (" First DOR" ), June 4, 2014 [ECF No. 26-2].) In this twenty-page single spaced decision, the Assistant Secretary for Housing Carol J. Galante concluded that neither Mr. Bennett nor Mrs. Joseph, the two remaining plaintiffs in Bennett, was eligible for any relief. The Commissioner explained,

I base this decision on my thorough review and careful consideration of the facts and circumstances surrounding the insurance of these two reverse mortgages by FHA and the operation of the HECM program, both as applicable to each reverse mortgage included in this case and in general. I have carefully considered the recommendations of my staff and the documents, facts, circumstances, potential forms of relief, and other information relevant to this case. I have carefully weighed the facts in light of the numerous options presented to me. Based on my review, I have determined that the appropriate, and in fact only, action legally available to the Department with respect to these two reverse mortgages and these Plaintiffs is for the Department to honor the two contracts of insurance as initially endorsed and provide no further relief to the plaintiffs.

(First DOR at 1.) This determination on remand did not consider the appropriate remedy, if any, for other non-borrower surviving spouses besides the two Bennett plaintiffs.[3] The Court accordingly remanded the Plunkett plaintiffs to the agency for immediate review. ( See Order, June 10, 2014 [ECF No. 29].)

A. The Mortgagee Optional Election (" MOE" )

On June 24, 2014, Commissioner Galante issued a second determination on remand. (Determination on Remand (" Second DOR" ), June 24, 2014 [ECF No. 32-1].) In this determination on remand, the Commissioner expressly limited her conclusions to the four named plaintiffs in Plunkett, as well as the two named plaintiffs in Bennett. The Commissioner once again concluded that HUD was not required to provide

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any relief as a result of Bennett II to any non-borrower surviving spouse, including the four named plaintiffs in Plunkett. However, Commissioner Galante also introduced an alternative, voluntary remedy known as the Mortgagee Optional Election (" MOE" ). The Commissioner expressly stated that the MOE applied " only with respect to the[] four Plaintiffs as well as the two Plaintiffs in the Bennett case." (Second DOR at 6.) In order to be eligible for the MOE, the Commissioner explained that five criteria must be met:

(1) the plaintiff must have been married to the borrower at the time of origination of the loan and ...

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