A Washington, D.C., District Court ruled recently that a Housing and Urban Development (HUD) regulation allowing lenders to demand that widowers immediately repay reverse mortgage loans upon the death of their spouses violates federal law.

In Bennett et al., v. Donovan, a group of widowers faced foreclosure following the deaths of their spouses, who were holders of reverse mortgage loans. The reverse mortgage loans were federally insured, and therefore controlled by various federal statutes and regulations through HUD.

Under the terms of the loans, the lender could demand immediate payment on the loan if the "borrower dies and the property is not the principal residence of at least one surviving borrower." This meant that if the borrower died, but was survived by a spouse who was not named on the deed to the home or the loan, the lender could seek to foreclose on the property. The language in the loans permitting foreclosure under these circumstances was taken from a regulation promulgated by HUD.

The plaintiffs, who were represented by AARP Foundation Litigation attorneys, claimed that the HUD regulation violated federal law because it did not protect them as non-mortgagor spouses. Specifically, the plaintiffs relied on a federal statute providing that HUD may not insure a reverse mortgage unless the obligation to satisfy the loan was deferred until the "homeowner's" death.

This same statute expressly defined the term "homeowner" to include the "homeowner's spouse." Consequently, the plaintiffs argued that they were statutorily protected from repayment requirements and foreclosure and demanded that HUD be required to take immediate action to stop lenders from disregarding this protection.

The court found that HUD violated the statute by insuring reverse mortgages of the plaintiffs' spouses in a manner that permitted the lender to declare the loan obligations immediately due even if the plaintiffs' spouses were still alive. As a result, the court agreed with plaintiffs that HUD's regulation was inconsistent with federal law.

The court also found, however, that it did not have the authority to require HUD to take any particular action to remedy its error. The court remanded the case to HUD so that HUD, in its discretion, could fashion appropriate relief consistent with the opinion.