Friday, March 7, 2014

New York: Court Refuses "Unconscionable" Foreclosure of Reverse Mortgage

In MetLife Home Loans v. Vareen, decided in Kings County, New York on February 11, the mortgage company attempted to foreclose on a reverse mortgage, apparently because of unpaid water bills for the property.   The case was "conferenced extensively with the defendant homeowner's family in the court's Foreclosure Settlement Conference Part," with no resolution of the dispute, but the homeowner did not file a formal answer in the lawsuit.  Eventually the mortgage company sought an "ex parte" default ruling. 

In denying the requested relief, the judge noted that the homeowner had a contractual obligation to stay current on all items which could become charges against the property.  However, the mortgage company also had the contractual option to "make the payment for the mortgagor and charge the mortgagor's account. If a pattern of missed payments occurs, the [mortgage company] may establish procedures to pay the property charges from the mortgagor's funds as if the mortgagor elected to have the mortgagee pay the property charges under this section."  It appears the homeowner was receiving monthly "reverse mortgage payments," rather than a single lump sum.

This history of the case is a reminder that reverse mortgages may not be the best solution for some older homeowners, especially if the cost to maintain the house is substantial, or if the elderly homeowner (or a volunteer in the family) is unable to handle payment of bills as they come due.

Here the court stepped in to prevent loss of the home, citing the lender's contract options.  The court quoted the rosy language of a HUD-approved consumer guide, appearing to assure borrowers they can "continue to live at home as long as you want," and concluded:

"As such, plaintiff cannot foreclose on defendant's reverse mortgage because of her default in paying the NYC water bill. Furthermore, serving a senior citizen holding a reverse mortgage with a complaint that fails to specify what the default is can only be described as unconscionable."

Other court challenges to attempts to foreclose on reverse mortgages where there is a "surviving" spouse, but that individual is not an owner of record, are detailed here, with the potential class of plaintiffs represented by an AARP Foundation Litigation team.  Thanks to ElderLawGuy Jeff Marshall for tweeting on AARP's efforts.

Consumer Information, Housing | Permalink

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