Wells Fargo, Fannie Mae Sued to Block Illegal Reverse Mortgage Foreclosures
Imagine losing an elderly parent only to find, while still grieving, the family home your parents purchased is going to be foreclosed on by their lender. According to a release issued late last week by the AARP, this is exactly what happened to Robert Chandler of Elk Grove, CA.
Chandler's mother, Rosemary, passed away in 2010 leaving behind a reverse mortgage on the property the family has owned since 1940. When Chandler offered to purchase the property at its appraised value, the lender, Wells Fargo, insisted he pay off the full mortgage balance. This is contrary to both the terms of the contract and federal reverse mortgage law. Like so many others, Chandler was never given notice of his right to purchase the property for its current value.
"The surviving spouses and heirs of reverse mortgage borrowers are losing their homes all over this country," says Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation. "This should not be happening. These families are protected by the law. People should know that they have rights, and lenders need to honor them."
To ensure lenders honor those rights and make them known to heirs and spouses of the deceased borrower, AARP Foundation Litigation and two additional law firms have filed a class action law suit to enforce rules that allow any heir of a reverse mortgage borrower to purchase their family home at its appraised value. The suit seeks a declaration of the rights of the heirs, an injunction prohibiting illegal foreclosures and evictions and damages for breach of contract.
The case specifically targets Wells Fargo and Fannie Mae, who required heirs to purchase the deceased's home for the balance of the loan instead of the appraised value. This is against the rules of the Home Equity Conversion Mortgage program, designed by Congress to allow seniors some peace of mind in their later years. A reverse mortgage allows seniors to convert the equity in their home to cash, allowing them peace of mind in their later years.
According to the terms of this program, reverse mortgage borrowers must pay into an insurance fund which assures the beneficiary of their estate can purchase the property for its appraised value - not the full mortgage balance - should home prices fall after the borrower's death. The class action lawsuit seeks to ensure that heirs like Chandler are informed of their rights and allowed to purchase their family home for its appraised value without risking foreclosure.
Constantine-Davis says "We have been contacted by many, many others facing this same problem. It is difficult to understand why reverse mortgage lenders continue to deny heirs their contractual and legal rights."
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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.comand The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.
