Unnamed Spouses Protected in Reverse Mortgage Foreclosures

Reverse mortgages allow a homeowner not 62 years or older to convert a portion of the equity in their home into cash. The most dominant reverse mortgage product is the Home Equity Conversion Mortgage (“HECM”), insured by HUD’s FHA program. HECM borrowers are not required to make monthly payments and the loan does not come due until one of several events occur such as the death of the homeowner or sale of the property. In many reverse mortgage cases, one of the spouses is convinced to “quitclaim” their interest in the property to the other spouse because the size of the reverse mortgage is partially determined by the age of the youngest borrower.

In Bennett v. Donovan, 2013 WL 5442154 (D.D.C. Sept. 30, 2013), the Court was faced with the issue of whether a surviving spouse not on a reverse mortgage can stay in the home upon the death of the other spouse.  The HECM statute stated in part that “The Secretary [of HUD] may not insure a home equity conversion mortgage unless such mortgage provides that the homeowner’s obligation to satisfy the loan is deferred to the homeowner’s death, the sale of the home, or…other events.”  The term “homeowner” in the statute is defined to include the spouse of a homeowner. See 12 U.S.C. Sec. 1715z-20(j). The regulations implementing the statute on the other did not protect the spouse of a homeowner and gave the lender the right to foreclose even if the non-borrowing spouse was living in the home. See 24 C.F.R. Sec. 206.27(c). This rule is also known as the spousal displacement rule.

Plaintiff filed suit to challenge the spousal displacement rule.  The district court dismissed the lawsuit initially holding that lenders were not parties to the case and the contracts allowed the lenders to foreclose upon the death of a borrower. The D.C. Circuit court reversed because HUD could accept assignment of the Plaintiffs’ HECM and for the first time, found that Plaintiff’s claims were redressable even though the spouses of the deceased borrowers were not signatories to the HECM, granted summary judgment for Plaintiffs and remanded the case to HUD which is now charged with fashioning a remedy consistent with the Court’s ruling.

The Court’s ruling is clear that HUD’s failure to protect spouses from being displaced was an error and HUD will now be required to take steps to protect spouses of reverse mortgage borrowers.  The opinions in this blog are solely the author’s and any comments, replies or suggestions should be sent to me at John@jrjoneslaw.com.

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Use of Form Affidavits to Establish Commonality in Class Action Rejected (Again)

Defending a class or collective action case is always difficult. The real battle revolves around certification of the class. One of the key defenses to prevent certification is to attack the proof of commonality that one or more questions of fact or law are common to the class. See Fed. R. Civ. P. 23(a). To satisfy commonality, there must be significant proof that the entire class suffered a common injury and the common injury must be specific to the claim for relief. Ellis v. Costco Wholesale Corp., 657 F.3d 970, 981 (9th Cir. 2011). Most of the class petitions have form or identical affidavits signed by individuals that recite the same exact language of alleged wrongdoing even when the individuals dealt with different people at different times, etc. The United States Court of Appeals for the Ninth Circuit has now joined other federal courts in criticizing the use of putative class member affidavits or declarations to meet Rule 23’s class certification requirements. See Thomasson v. GC Services Limited Partnership, Case Number 11-56100 (9th Circuit September 3, 2013) (Not for publication); see also Carrera v. Bayer Corp.,___F.3d ___, No. 12-261, 2013 WL 4437225 (3d Cir. August 21, 2013).

In Thomasson, Plaintiffs filed suit under the Fair Debt Collection Practices Act (“FDCPA”) and California’s Invasion of Privacy Act  claiming that Defendant violated both acts for failing to tell the individuals that their calls may be monitored or recorded. Plaintiffs submitted 18 fill-in-the-blank declarations from putative class members out of the 421 putative class members. The District Court certified the class and an appeal was taken.The Ninth Circuit reversed certification based on the use of 18 fill-in-the-blank declarations from putative class members and held that the affidavits were only anecdotal and did not meet Plaintiffs’ burden to provide or establish “significant proof that Defendant acted uniformly across the class.” See Thomasson v. GC Services Limited Partnership, Case Number 11-56100, at pp.2 (9th Circuit September 3, 2013) (Not for publication). The Ninth Circuit also held that it is insufficient to simply allege “any common question” and the proposed class in Thomasson would necessarily require an individualized inquiry into each telephone call. As a result, the proposed class could not be certified.

The opinions of this blog are solely the author’s and any comments, suggestions or replies should be sent to John@jrjoneslaw.com.