united states district court for the district of … · 09-01-2013 · case 1:11-cv-00498-esh...

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

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ROBERT BENNETT, et al., )

Plaintiffs, )

vs. ) 11-CV-0498 (ESH)

SHAUN DONOVAN, in his capacity as )

SECRETARY OF THE )

UNITED STATES DEPARTMENT OF )

HOUSING AND URBAN DEVELOPMENT, )

Defendant. )

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PLAINTIFFS’ MEMORANDUM OF LAW IN FURTHER SUPPORT OF

THEIR MOTION FOR SUMMARY JUDGMENT, AND IN RESPONSE TO

DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

Case 1:11-cv-00498-ESH Document 38 Filed 07/16/13 Page 1 of 29

Table of Contents

I. INTRODUCTION ................................................................................................................... 1

II. ARGUMENT........................................................................................................................... 1

A. Defendant’s Misreading of the Spousal Displacement Provision Fails

Under Chevron. ................................................................................................................... 1

B. Defendant’s Reading of the Protection Against Spousal Displacement

Contradicts the Plain Language of the Statute .................................................................... 5

C. HUD’s Post Hoc Rationalizations for Its Illegal Reading of the Statute

are Irrelevant under the APA…………………………………………………………...…8

1. Garn St. Germain Act ................................................................................. 9

2. “Actuarial Soundness” .............................................................................. 10

3. The 20 Year-Old Spouse Hypothetical ..................................................... 12

4. Equal Credit Opportunity Act ................................................................... 12

5. Intestacy Issues ......................................................................................... 13

D. Plaintiffs Are Entitled to Specific Relief ..................................................................... 14

E. National Reverse Mortgage Lenders Association ........................................................ 17

III. CONCLUSION ..................................................................................................................... 19

Table of Authorities

Allen v. Card, 799 F. Supp. 158 (D.D.C. 1992)............................................................................ 13

American Horse Protection Assoc. v. Lyng, 812 F.2d 1 (D.C. Cir. 1987) ...................................... 8

Athlone Industries, Inc. v. Consumer Product Safety Com., 707 F.2d 1485 (D.C. Cir. 1983) ....... 1

Barlow v. Collins, 397 U.S. 159 (1970) .......................................................................................... 1

*Bennett v. Donovan, 703 F.3d 582 (D.C. Cir. 2013) ........................................................ 2, 12, 16

Burlington Truck Lines v. United States, 371 U.S. 156 (1962) ...................................................... 8

*Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984) .............................................. 1, 2, 4, 7

Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) ........................................ 8

City of Arlington v. FCC, 133 S. Ct. 1863 (2013) .......................................................................... 4

Federal Trade Comm. v. MTK Mktg., 149 F.3d 1036 (9th Cir. Cal. 1998) .................................... 6

Henry Ford Health Sys. v. HHS, 654 F.3d 660 (6th Cir. 2011) ...................................................... 3

Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232 (2004) ..................................................... 4

In re Yochum, 89 F.3d 661 (9th Cir. 1996) ..................................................................................... 6

INS v. Cardoza-Fonseca, 480 U.S. 421 (1987) .............................................................................. 1

Manhattan General Equip. v. Commissioner, 297 U.S. 129 (1936) ............................................... 4

Morton v. Ruiz, 415 U.S. 199 (1974) .............................................................................................. 2

Nat’l Cable & Telecomm. Ass’n v. Brand X Internet Services, 545 U.S. 967 (2005) .................... 4

Nat’l Treasury Emples. Union v. Chertoff, 452 F.3d 839 (D.C. Cir. 2006) ................................... 4

Pauley v. Bethenergy Mines, 501 U.S. 697 (1991) ......................................................................... 4

Railway Labor Executive Ass'n v. Nat'l Mediation Bd., 29 F.3d 655 (D.C. Cir. 1994) .................. 4

Sea-Land Serv., Inc. v. Department of Transp., 137 F.3d 640 (D.C. Cir. 1998) ............................ 1

Smith v. University of Tennessee, 300 F. Supp. 777 (E.D. Tenn. 1969) ....................................... 15

Strickland v. Comm’r, Me. Dep’t of Human Servs., 48 F.3d 12 (1st Cir. 1995) ............................. 4

Walter O. Boswell Mem. Hospital. v. Heckler, 749 F.2d 788 (D.C. Cir. 1984) ........................... 18

Wint v. Yeutter, 902 F.2d 76 (D.C. Cir. 1990) ................................................................................ 3

Statutes

12 U.S.C. § 1701j-3 ............................................................................................................ 9, 10, 14

12 U.S.C. § 1709(e) ...................................................................................................................... 15

12 U.S.C. § 1715z-20(b) ................................................................................................. 3, 7, 11, 14

12 U.S.C. § 1715z-20(i) .......................................................................................................... 12, 16

12 U.S.C. § 1715z-20(j) ......................................................................................................... passim

15 U.S.C. § 1691(a) ...................................................................................................................... 13

25 U.S.C. § 9 ................................................................................................................................... 2

28 U.S.C. § 2201 ........................................................................................................................... 14

5 U.S.C. § 703 ............................................................................................................................... 16

5 U.S.C. § 706 ............................................................................................................................... 18

8 U.S.C. § 1160(h) .......................................................................................................................... 3

Public Law 111-22 .......................................................................................................................... 8

Other Authorities

Amer. Heritage College Dictionary, 4th

ed. (2007) ......................................................................... 6

S. Rep. 97-536 (1982) ................................................................................................................... 10

24 C.F.R. § 206.125 .................................................................................................................. 9, 17

24 C.F.R. § 206.27 .............................................................................................................. 9, 10, 17

24 C.F.R. § 206.3 .......................................................................................................................... 14

I. INTRODUCTION

Plaintiffs’ Motion for Summary Judgment should be granted, and Defendant’s motion

denied. Defendant’s regulations violate the clear purpose of Subsection (j), which is to protect

spouses of reverse mortgage borrowers from displacement.

II. ARGUMENT

A. Defendant’s Misreading of the Spousal Displacement Provision Fails Under

Chevron.

Defendant asserts that the D.C. Circuit’s skepticism of its reading of the statute “should

not supplant the normally deferential review of an agency’s interpretation of a statute that it

administers.” Dkt. No. 33 at 12. Defendant misstates the Chevron standard. First and foremost,

it is the judiciary, not the agency, that is “the final authority on issues of statutory construction

and must reject administrative constructions which are contrary to clear congressional intent.”

Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 843 (1984). This is a “step one” analysis

under Chevron. “[Chevron] deference comes into play, of course, only as a consequence of

statutory ambiguity, and then only if the reviewing court finds an implicit delegation of authority

to the agency.” Sea-Land Serv., Inc. v. Dep’t of Transp., 137 F.3d 640, 645 (D.C. Cir. 1998);

INS v. Cardoza-Fonseca, 480 U.S. 421, 446 (1987) (this is a “pure question of statutory

construction for the courts to decide.”). Those are the circumstances necessary to proceed to

“step two.” “If a court, employing traditional tools of statutory construction, ascertains that

Congress had an intention on the precise question at issue, that intention is the law and must be

given effect.”1

1 Chevron, 467 U.S. at 843. See also Barlow v. Collins, 397 U.S. 159, 166 (1970), quoted in

Athlone Industries, Inc. v. Consumer Product Safety Comm’n., 707 F.2d 1485, 1489 (D.C. Cir.

1983) (“Where the only . . . dispute relates to the meaning of the statutory term . . . [the

Here, “Congress has directly spoken to the precise question at issue,” Chevron, 467 U.S.

at 842, with a statutory provision that explicitly protects spouses from displacement. Thus, “that

is the end of the matter.” Id. Such was the opinion of the D.C. Circuit, which stated that it was

“somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing

statute,” and as such, would not be entitled to deference. Bennett v. Donovan, 703 F.3d 582, 586

(D.C. Cir. 2013).

Defendant fails to carry its burden of demonstrating that the statute is “ambiguous,” and

would require a “step two” analysis. It gives two reasons why Plaintiffs’ reading is incorrect:

the protection applies only to one with an “obligation to satisfy the loan obligation,” and the

“inclusion” of a “spouse” as “homeowner” does not mean that a spouse is covered by the

protection. Dkt. No. 34 at 13-15. But neither of these arguments gets Defendant past Chevron

step one. They are both pure questions of statutory of interpretation for the Court to decide, and

for which the agency is entitled to no deference.

Nor has Congress “explicitly left a gap for the agency to fill,” such that “there is an

express delegation of authority to the agency to elucidate a specific provision of the statute by

regulation.” Chevron, 467 U.S. at 843-44. As an example of this, the Supreme Court in

Chevron cited its prior opinion in Morton v. Ruiz, 415 U.S. 199 (1974), where the operative

statute explicitly gave the agency the power to “prescribe such regulations as he may think fit for

carrying into effect the various provisions of any act relating to Indian affairs, and for the

settlement of the accounts of Indian affairs.” Id. at 231 n.25 (quoting 25 U.S.C. § 9).

In contrast, Subsection (j) announces itself as a “Safeguard to prevent displacement of

homeowner.” It does not broadly authorize HUD to come up with those protections from

controversy] presents issues on which courts, and not [administrators] are relatively more

expert.”).

displacement for homeowners and spouses as it sees fit; the protection is in the statute itself. The

statute explicitly defines “homeowner,” and it expressly contemplates that the homeowner may

be married to a “spouse” who is not a homeowner. 12 U.S.C. § 1715z-20(b) (a homeowner is

one “who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may

prescribe”); 12 U.S.C. 1715z-20(j) (homeowner includes the spouse of the homeowner).

Congress did not leave it for the agency to define these terms, nor do they require agency

expertise, as in Wint v. Yeutter, 902 F.2d 76 (D.C. Cir. 1990), where Congress explicitly

conferred on the USDA authority to define “fruits and vegetables.” Id. at 78 (quoting 8 U.S.C.

§ 1160(h)) (setting out these operative terms “as defined in regulations by the Secretary of

Agriculture”); see also Henry Ford Health Sys. v. HHS, 654 F.3d 660, 664 (6th Cir. 2011) (“the

key words of the provision are not self-defining”). In Subsection (j), Congress was explicit and

unambiguous: “For purposes of this subsection, homeowner includes the spouse of the

homeowner.”

Defendant is of the opinion that by giving it the power to define “other events” that could

trigger an obligation to repay the mortgage in Subsection (j), Congress allowed it to nullify the

protection from displacement. Defendant argues that even if Plaintiffs are right that the statute

protects non-borrower spouses, it was free to decide that the death of all borrowers would make

the mortgage due and payable. Dkt. No. 34 at 20-21. HUD’s fundamental misconception about

its function is troubling, to say the least. Congress makes the laws; it is for agencies such as

HUD to execute them. “The power of an administrative officer or board to administer a federal

statute and to prescribe rules and regulations to that end is not the power to make law -- for no

such power can be delegated by Congress -- but the power to adopt regulations to carry into

effect the will of Congress as expressed by statute.”2 HUD’s contention that Plaintiffs’ reading

leaves no room for it to designate other triggering events, which could occur prior to their deaths,

is nonsensical. Congress allowed HUD to set forth “other events” making the mortgage due and

payable, not to contradict its express intent that widowed spouses be protected.

The cases Defendant cites in support of its reading of the statute are, by its own

admission, “step two,” not “step one” cases. Nat’l Cable & Telecomms. Ass’n v. Brand X

Internet Servs., 545 U.S. 967 (2005) concerned the Federal Communications Commission’s

conclusion in a rulemaking proceeding that broadband internet service was an “information

service” but not a “telecommunications service” under the Communications Act, and thus not

subject to common-carrier regulation. Id. at 977-78. Key to the Court’s ruling was its

conclusion that the relevant statutory text was ambiguous: “This construction passes Chevron’s

first step.” Id. at 989. The Brand X Court went on to conclude that the FCC’s “construction was

‘a reasonable policy choice” under the second step.3

2 Manhattan General Equip. Co. v. Comm’r, 297 U.S. 129, 134 (1936); Nat’l Treasury Emples.

Union v. Chertoff, 452 F.3d 839, 858-59 (D.C. Cir. 2006) (Department of Homeland Security

cannot “nullify the statute’s specific guarantee of collective bargaining rights”); Railway Labor

Executives’ Ass'n v. Nat'l Mediation Bd., 29 F.3d 655, 670 (D.C. Cir. 1994) (“the Board's

position in this case amounts to the bare suggestion that it possesses plenary authority to act

within a given area simply because Congress has endowed it with some authority to act in that

area.”).

3 Id. at 997. See also Pauley v. Bethenergy Mines, 501 U.S. 680, 697 (1991) (“The identification

and classification of medical eligibility criteria necessarily require significant expertise and entail

the exercise of judgment grounded in policy concerns. In those circumstances, courts

appropriately defer to the agency entrusted by Congress to make such policy determinations.”);

City of Arlington v. FCC, 133 S. Ct. 1863, 1868 (2013) (“The question here is whether a court

must defer under Chevron to an agency’s interpretation of a statutory ambiguity that concerns the

scope of the agency’s statutory authority (that is, its jurisdiction).”); Strickland v. Comm’r, Me.

Dep’t of Human Servs., 48 F.3d 12, 19 (1st Cir. 1995) (“we begin by examining the plain

language of 7 U.S.C. § 2014(d)(9) to determine if it speaks definitively to the necessity of

including depreciation as a “cost” of producing self-employment income. We think it does

not.”); Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 242 (2004) (quoting United States

v. Mead Corp., 533 U.S. 218, 227 (2001)) (“Because § 1605 is ambiguous, the Board's

Even if one were to proceed to step two of the Chevron analysis, Defendant’s reading

would fail. An administrative agency, like a court, should seek to avoid absurd results when

interpreting a statute. Defendant’s reading is that despite all the evidence of Congressional intent

to protect seniors from displacement, it intended that the elderly spouse of a reverse mortgage

borrower should face foreclosure and eviction 30 days after becoming widowed. Perhaps the

only reason this result does not seem completely absurd is that it is actually happening.

B. Defendant’s Reading of the Protection Against Spousal Displacement

Contradicts the Plain Language of the Statute.

Subsection (j) reads in relevant part:

The 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 a homeowner.

The instruction to “include” “spouse” as a “homeowner” means that only the death of

both the homeowner and spouse will trigger an obligation to repay the loan. This reflects a core

purpose of the HUD program: to let seniors age in place, and not be foreclosed on soon after one

of them dies.

Much of HUD’s misreading of this provision stems from its failure to recognize that

“homeowner” “includes” “spouse” in the statute. HUD appears to believe that “includes” means

one should substitute “spouse” wherever one sees “homeowner” in the statute. But that is not

what “include” means:

regulation implementing § 1605 ‘is binding in the courts unless procedurally defective, arbitrary

or capricious in substance, or manifestly contrary to the statute.’”).

1. To take in as a part, element or member. 2. To contain as a

secondary or subordinate element. 3. To consider with or place into

a group, class, or total.

Amer. Heritage College Dictionary, 4th

ed. See also Federal Trade Comm. v. MTK Mktg., 149

F.3d 1036, 1040 (9th Cir. 1998) (quoting In re Yochum, 89 F.3d 661, 668 (9th Cir. 1996)) (“in

terms of statutory construction, use of the word 'includes' does not connote limitation. In

definitive provisions of statutes and other writings, 'include' is frequently, if not generally used as

a word of extension or enlargement rather than as one of limitation or enumeration.”).

Disregarding the plain meaning of “includes,” Defendant contends that the second

sentence of Subsection (j) requires the substitution of the word “spouse” for the word

“homeowner” in the first sentence, and produces a situation that will never happen, because a

spouse has no obligation to satisfy the loan, unless the spouse is also a homeowner. Dkt. No. 34

at 14-15. But that is not, of course, what “includes” means at all, and Congress would not have

specifically singled out “spouses” for protection if it meant only to protect homeowners.

“Includes” does not imply substitution; it means encompassing. Subsection (j) states plainly that

the term “homeowner” “includes” -- encompasses -- both the homeowner and the spouse of the

homeowner. The inclusion of “spouse” in the term “homeowner” does not require or justify the

substitution of spouse for homeowner throughout.

Defendant makes a similar substitution-not-inclusion error in its attempt to prove that

Plaintiffs’ (plain) reading of Subsection (j) is inconsistent with the HECM statute. Insisting

again that one must use either “homeowner” or “spouse” throughout (rather than spouse as a

subset of “homeowner”), HUD argues that Plaintiffs’ meaning of the first sentence of Subsection

(j) is: “The 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 spouse’s death.” Dkt. No. 34 at 16. (emphasis in original). This convoluted

reading is not Plaintiffs’ position at all: because “spouse” is included in the term “homeowner,”

they are not mutually exclusive. Subsection (j) unambiguously accords the spouse and the

homeowner protection from displacement.4

Because HUD cannot establish that Subsection (j) does anything but unambiguously

protect homeowners and spouses, its resort to legislative history unjustifiably crosses into step 2

of Chevron. In fact, the legislative history cited fully supports Plaintiffs. Both the Senate and

House Reports reflect concern that the terms of the mortgage defer repayment until the

homeowner’s death. Considering this concern in the context of the language, “For purposes of

this subsection, homeowner includes the spouse of the homeowner,” Plaintiffs are among the

homeowners Congress intended to protect. The House Conference Report also demonstrates that

Congress believed displacement of homeowners should be an “extraordinary event.” Dkt. No.

34 at n.18. There is no evidence that Congress ever contemplated that HECMs would authorize

displacement of a surviving spouse upon the (ordinary event of) the death of one other spouse.

The correct understanding of “include” obviates HUD’s protracted analysis of who has an

“obligation” to satisfy the loan and is protected by Subsection (j). See Dkt. No. 34 at 14-15.

What obligations may fall on Plaintiffs or other similar spouses in the execution of this statutory

mandate is a question for another day. The question now before the Court is whether spouses are

“homeowners” to be protected from displacement. On that question, the statute is clear. Spouses

4 HUD rejects Plaintiffs’ suggestion that Subsection (j)’s inclusion of spouses as “homeowners”

is consistent with the general definition of “homeowner” in the statute. 12 U.S.C. § 1715z-

20(b)(1); see Dkt. No. 34 at 11. The meaning of “homeowner” in Subsection (b) is not essential

to the Court’s decision here, because Subsection (j) states plainly, “For purposes of this

subsection, homeowner includes the spouse of the homeowner.”

are entitled to be protected from displacement until they die, sell the property or are subject to

another (valid) terminating event identified by HUD.

In sum, HUD makes no credible argument that the Section (j) is ambiguous; the

challenged regulations are manifestly contrary to the HECM statute. As Plaintiffs stated in their

opening brief, “[t]he protection from displacement is a full sentence, one that Congress stated

with intentionality (“For the purposes of this subsection . . .”), directed specifically towards the

provision in which it is found (against displacement), and inserted immediately after the term

(“homeowner”) it is referencing.” Dkt. No. 31 at 12-13. It must be enforced as written.5

C. HUD’s Post Hoc Rationalizations for Its Illegal Reading of the Statute are

Irrelevant under the APA.

The Supreme Court and Court of Appeals have both cautioned courts to take a critical

view of an agency’s “post hoc rationalizations” for its regulations.6 So should the Court regard

Defendant’s various explanations for why it has failed to protect spouses of recently deceased

reverse mortgage borrowers from displacement.

5 HUD reads too much into the fact that Congress has not amended the HECM statute to correct

HUD’s misreading of Subsection (j). HUD cites nothing to support the idea that Congress

considered the displacement issue in any way, and decided to leave it as is. The only

amendments Congress has made are to other sections of the statute, not the anti-displacement

provision. Public Law 111-22, which Defendant cites as an example of Congressional

“acquiescence,” does not mention the reverse mortgage statute at all. It also is likely that this

issue did not come to light for Congress or anyone else until recently, when real estate values

plummeted such that surviving spouses like Plaintiffs were unable to refinance their spouses’

HECMs after their spouses deaths. During the many years of escalating property values,

surviving spouses might realistically have refinanced the HECM because the value of the homes

had appreciated. After the downturn, there was a significant increase in foreclosures against

spouses like Plaintiffs.

6 Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 421 (1971) (quoting Burlington

Truck Lines v. United States, 371 U.S. 156, 168-69 (1962)) (improper to consider litigation

affidavits that were not part of administrative record; “These affidavits were merely ‘post hoc’

rationalizations . . . which have traditionally been found to be an inadequate basis for review.”);

American Horse Protection Ass’n, Inc. v. Lyng, 812 F.2d 1, 6 (D.C. Cir. 1987) (“We are adjured

to take a critical view of an agency's "post hoc rationalization," . . . but under even the most

charitable view the agency's post hoc conclusory statement lacks substance.”).

None of these post hoc rationalizations are before the Court. The Court’s review in this

APA case is limited to whether HUD has failed to effectuate the statutory protection from

displacement for spouses of reverse mortgage borrowers. The administrative record (Dkt. No.

33-2) confirms that the post hoc concerns HUD raises here were not among the issues raised by

the commenters, nor did they play any role in HUD’s adoption of 24 C.F.R. § 206.27(c) or 24

C.F.R. § 206.125(a). They have no place in the Court’s review of whether the regulations are

contrary to law.

1. Garn St. Germain Act

HUD contends that its reading of the anti-displacement provision does not render the

second sentence of Subsection (j) (defining homeowner to include spouse) superfluous, because

after passage of the Garn St. Germain Act, 12 U.S.C. § 1701j-3, the death of a joint tenant or the

termination of a tenancy by the entirety was in a “transfer” that would trigger a due-on-sale

clause in a HECM. Dkt. No. 34 at 17-18. According to HUD, Subsection (j) includes “spouse”

in its definition of “homeowner” to protect a co-borrower spouse from having the mortgage

called due and payable after the death of the other borrower spouse. Assuming arguendo the

text supported such a reading, there is no evidence in the administrative record that there were

mortgage contracts that were due-and-payable upon the death of one of two co-borrowing

spouses, or that Congress was addressing that issue. HUD’s strained post hoc explanation of

how the HECM statute may relate to a completely different statute does not create ambiguity in

the text of a provision that explicitly protects both the “homeowner” and “spouse.”

Garn St. Germain’s purpose was to preempt state laws that protected borrowers from due-

on-sale clauses in mortgage contracts.7 Subject to certain exceptions, “the exercise by the lender

of its option pursuant to [a due-on-sale] clause shall be exclusively governed by the terms of the

loan contract, and all rights and remedies of the lender and the borrower shall be fixed and

governed by the contract.” 12 U.S. C. § 1701j-3(b)(2) (emphasis added). Garn did not create or

impose due-on-sale clauses in any mortgages, including any reverse mortgages.

In the reverse mortgage statute, Congress determined two events that would trigger a

HECM becoming due and payable: the death of the homeowner and spouse or the sale of the

home. 12 U.S.C. 1715z-20(j). But HUD did not implement this directive in its regulation, which

calls the HECM due-and-payable upon the death of all mortgagors or the mortgagors’ sale of the

property. 24 C.F.R. § 206.27(c). If HUD had implemented the due-on-sale triggers in the statute,

the HECM documents would not have called Plaintiffs’ spouses’ mortgages due and payable

upon their deaths. Nothing in Garn St. Germain would have dictated otherwise.

2. “Actuarial Soundness”

Defendant’s next post hoc rationalization for failing to protect the spouse from

displacement is that the HEM program could not exist without it: “To run an actuarially sound

program while maximizing payments to borrowers, HECMs must be underwritten to the

projected lifespan of the borrower, not to a non-borrower spouse.” Dkt. No. 34 at 22. There are

several infirmities in this argument. The first is that nowhere in HUD’s brief or in the legislative

7 Garn St. German was primarily concerned with sales of real estate using assumed mortgages. It

was passed in 1982 at a time of escalating interest rates during which it was difficult to purchase

and finance real property. See S. Rep. 97-536, at 18-19 (1982). Upon sale, the purchaser would

assume the lower rate mortgage on the property from the seller. Lenders objected because their

rate of return on these assumed loans was lower than prevailing market rates. They began

inserting due-on-sale clauses in real estate contracts that called the mortgage due-and-payable

when the property was transferred to a new owner. See id.

history does one find that HUD actually considered the actuarial soundness of a program in

which both spouses, at the time the HECM was entered, were protected from displacement. If

“actuarial soundness” is HUD’s primary concern, requiring that reverse mortgages be

underwritten to protect both spouses would make the program just as actuarially sound as the

existing one, if not more so, because the insurance fund will not have to reimburse the cost of

foreclosing on the surviving elderly widow or widower.

Indeed, the HECM statute empowers HUD to insure HECMs where one spouse is 62, and

the other spouse is younger. 12 U.S.C. 1715z-20(b) (defining homeowner as “any homeowner

who is, or whose spouse is, at least 62 years of age or higher. . .”). The only question is how

much home equity that borrower will be entitled to draw. There may come a point at which the

youth of one spouse will make the amount of money available so small that it is not worth the

bother, but such a calculation would reflect the same concern for “actuarial soundness” as does

HUD’s current program. HUD also appears to disregard the fact that the statute gives it explicit

authority to set the age of the spouse. 12 U.S.C. § 1715z-20(b)(1). If it indeed is concerned

about some risk of lending to a homeowner with a 57 year-old spouse, it could require that the

spouse be older.

HUD’s contention that its current system also “maximize[s] payments to borrowers” is a

fig leaf that takes no account of the interests of the non-borrowing spouse. When there is a

spouse that is left off the HECM, HUD’s “actuarially sound” program maximizes payments to

one borrowing spouse but leaves the non-borrower facing foreclosure and eviction upon the

predictably earlier death of the borrower.

HUD’s remaining argument is that changing the term of the existing mortgage to the

death of the younger spouse would make the program “financially unsound.” Dkt. No. 34 at 23.

But this is a problem of HUD’s making, and the financial soundness of the HECM program is

not before the Court. The statute does not empower HUD to prioritize its balance sheet above

the rights of older homeowners it has placed in peril. In fact, it does the opposite, requiring

HUD “to take any action necessary” “to further the purposes of the program,” including paying

off the lender, and/or accepting assignment of the insured mortgage. 12 U.S.C. § 1715z-20(i).

3. The 20 Year-Old Spouse Hypothetical

HUD continues to raise the specter of Anna Nicole Smith: the 89 year-old man who

marries the 26 year-old woman—both before and after taking out a HECM.8 The Court of

Appeals explained why the after-acquired spouse need not be a problem: “It would seem,

however, that HUD could legitimately deal with that problem by issuing a regulation defining a

"spouse" as only a spouse in existence at the time of the mortgage.” Bennett, 703 F.3d at 586.

Plaintiffs have already addressed the existence of a younger spouse at the time the HECM

is originated: the actuarial calculations could take account of the younger spouse’s age and

commensurately limit (or eliminate) the equity that could be drawn from the home.

4. Equal Credit Opportunity Act

HUD relegates to a footnote the “difficulty” of the Equal Credit Opportunity Act

(“ECOA”), which, because it forbids discrimination against any applicant on the basis of marital

status, “may prevent a lender from requiring the signature of a non-title holding spouse on a

HECM note and mortgage.” Dkt. No. 34 at 23 n.16. First, that question is not before the Court,

because HUD barely raises it, cites no evidence that it was considering it in promulgating its

regulations, and it does not even apply as regards Plaintiffs, who wanted to be borrowers. Under

8 If this were actually a problem that occurred with any frequency, NRMLA certainly would

have submitted ample documentation of it.

the HECM statute, the spouse need not sign the note to be protected from displacement; the

spouse just has to be a spouse.

Defendant’s ECOA argument certainly does not apply to Mr. Bennett, who was a joint

owner of his home on the day he and his wife went to settlement on the reverse mortgage. It was

the lender who arranged for him to be divested of his interest in the property because of his age.

See Plaintiffs’ Statement of Facts as to Which There is No Genuine Issue (“SOF”) (Dkt. No. 31)

at 24-25, ¶¶ 1-7. Similarly, Mr. Joseph had not been on the title to the home until a few months

before the reverse mortgage was consummated. It was the lender’s idea to have him reinstated

and to take Mrs. Joseph off title because she was younger. Dkt. No. 31 at 26-27, ¶¶15, 18-21.

Invoking ECOA’s proscriptions against discrimination to countenance such conduct is a strange

twist on its purposes. In any event, the HECM statute’s protection of homeowners and spouses

from displacement was enacted later in time and is more specific than 15 U.S.C. § 1691(a). See

Allen v. Card, 799 F. Supp. 158, 161 (D.D.C. 1992) (when two statutes appear to conflict, the

more specific statute is deemed to control the more general one, and the more recent statute is

deemed to control the older statute).

5. Intestacy Issues

HUD contends that its regulation calling HECMs due and payable upon the death of all

borrowers is not arbitrary and capricious but is “necessary . . . to ensure that the HECM is

actually repayable” if the borrower dies intestate and the spouse is one among a number of heirs.

Dkt. No. 34 at 24. It argues that, if lenders had to await the deaths of both spouses before

foreclosing, “they would have to contend with numerous additional title holders” and, when the

HECM eventually comes due,” and would have difficulty establishing that the HECM

supersedes other title claims. Id. Even if the issue HUD raises were not a post hoc

rationalization and was properly before the Court, it postulates a hypothetical problem that does

not overcome the mandate of Subsection (j).

HUD’s concerns about the difficulties for foreclosing lenders are misplaced and

exaggerated. By statute and regulation, a HECM cannot be originated unless it will hold a first

lien position. 12 U.S.C. § 1715z-20(b)(4) (“‘home equity conversion mortgage’ means a first

mortgage. . .”); 24 C.F.R. § 206.3 (defining “mortgage” as a first lien on real property. . .”).

The lien cannot be displaced by any subsequent lien or by the inheritance of the property by one

heir or one hundred heirs.

Even with the protections of Subsection (j), a non-borrowing spouse will often not be the

sole heir to the property upon the death of the other spouse. But the lender cannot call the

mortgage due until his or her death or the sale of the property.9 If the property is sold, the loan

will be repaid. Once the non-borrowing spouse passes away, the lender will have no greater

difficulty foreclosing than it otherwise would have; the HECM’s priority position would have

been maintained because the heirs take title subject to existing liens of record. The hypothetical

problem HUD claims is solved by its arbitrary regulations is neither a real problem nor is it

grounds for dishonoring the clear statutory mandate.

D. Plaintiffs Are Entitled to Specific Relief

Plaintiffs agree that ordinarily, injunctive relief would not be necessary to afford them

complete relief in this case, should a declaratory judgment state that the reverse mortgage statute

protects them from displacement. The Declaratory Judgment Act, 28 U.S.C. § 2201, authorizes a

9 This is not an unusual situation. The typical 30-year mortgage does not become due and

payable when the borrower dies and the property is inherited by heirs. If the HECM contracts

had been drafted in accordance with the mandate of Subsection (j), they would not be due until

the death of both spouses or sale of the property, as the statute requires. When and if HUD

remedies this situation, there will be no problem with title passing to HECM heirs while the loan

continues until it becomes due according to its terms. See 12 U.S.C. § 1701j-3(b).

federal court to “declare the rights and other legal relations of any interested party seeking such a

declaration.” Plaintiffs here seek a declaration that Subsection (j) is a “safeguard” that protects

“homeowners” and their “spouses” from displacement. Should this Court issue such a

declaration, Defendant would be duty-bound to execute its reading of the law the moment the

Order is entered. For example, in Smith v. University of Tennessee, 300 F. Supp. 777 (E.D.

Tenn. 1969), the district court held that prevailing plaintiffs were accorded sufficient relief

through declaratory judgment: “We believe that [defendants] will abide by the declaration of this

Court that the current policy of the University is not in accord with plaintiffs’ First Amendment

rights . . . For that reason injunctive relief is not granted at this time but plaintiffs may renew

their application at an appropriate time if it becomes necessary.” Id. at 783.

However, HUD suggests that should this Court rule in Plaintiffs’ favor, it does not

necessarily intend to protect them from displacement. Dkt. No. 34 at 30-32. HUD contends that

the only action this Court can take is to declare that HUD should never have insured their

mortgages, and remand to the agency. See Dkt. No. 34 at 1, 10, 30, 34. Defendant reads the

statute merely as an instruction on the required features of reverse mortgages that it can insure.

HUD has insisted that it “cannot deny an insurance claim from [a] lender on the grounds that

HUD mistakenly provided insurance on an ineligible loan. Congress has by statute provided that

‘any contract of insurance . . . executed by [HUD] . . . shall be conclusive evidence of the

eligibility of the loan or mortgage for insurance, and the validity of any contract of insurance so

executed shall be incontestable in the hands of an approved financial institution. 12 U.S.C. §

1709(e).” Brief for Appellee, at 4-5; see also Dkt. No. 14 at 6-7 n.4 (HUD’s Reply in Support of

Motion to Dismiss). If an insurance claim is incontestable, what relief can Plaintiffs expect from

a declaration that HUD should not have entered into the insurance contracts?

HUD’s overly technical reading is entirely divorced from its context: Subsection (j) is

Congress’ directive to HUD to “safeguard” spouses from displacement. Indeed, the Court of

Appeals recognized the statute’s “intended protection for spouses,” and that protecting them

“would seem to ‘further the purposes of the program authorized in this section.’” Bennett, 703

F.3d at 589 (quoting Subsection (i)).

Contrary to Defendant’s argument, this Court has the power to order injunctive relief

under the Administrative Procedure Act. See 5 U.S.C. § 703 (“including actions for declaratory

judgments or writs of prohibitory or mandatory injunction or habeas corpus”). This injunctive

relief would maintain the status quo that Defendant itself has established by instructing

Plaintiffs’ mortgage servicers to stay their foreclosures during the pendency of this lawsuit.

Indeed, the Court of Appeals’ ruling rested on its conclusion that “HUD itself has the capability

to provide complete relief to the lenders and mortgagors alike[.]” Bennett, 703 F.3d at 584. It

expressly contemplated that if Plaintiffs prevailed on the merits, Defendant had the power in

Subsection (i) of the statute “to provide complete relief to both appellants and their lenders[.]”

Id. It should go without saying that complete relief that does not include protection from

displacement for the surviving spouse is far from complete relief: it is the predominant form of

relief Plaintiffs seek in this case. And of course, the Court of Appeals’ ruling rested on its

finding that HUD could redress the injury of which Plaintiffs complain. The redress Defendant

contemplates here is no redress at all.

Plaintiffs’ interest is in the substance, not the form of the relief ordered by the Court. The

Proposed Order (Dkt. No. 31-1) states that “Defendant should take any action necessary to

protect Plaintiffs from displacement . . .” Should a declaratory judgment set forth Defendant’s

obligations to protect non-borrower spouses from displacement, injunctive relief may only be

necessary at a later date, if Defendant violates that judgment. But to be clear, HUD’s

responsibility is immediate and Plaintiffs’ need is clear. Defendant cannot take months or years

to figure out how to protect Plaintiffs, while their foreclosures and evictions proceed. It will be

up to HUD to determine how to protect Plaintiffs from displacement, but protect them they

must.10

Last, HUD contends that Plaintiffs cannot meet the burden of a facial challenge to 24

C.F.R. § 206.27(c)(1) and 24 C.F.R. § 206.125(a). Dkt. No. at 32-33. The distinctions between

facial and as-applied challenges are of little consequence where, as here, Plaintiffs challenge two

regulations that have been in effect for many years. As such, Plaintiffs do not speculate about

their possible interpretation or application: they have been applied to Plaintiffs and other similar

surviving spouses in a way that violates federal law. If Plaintiffs prevail, Defendant will have to

promulgate new regulations that accord the spouse of a reverse mortgage borrower the status of a

“homeowner” who is protected from displacement after the death of the borrower spouse. See

Dkt. No. 31-1 (Proposed Order).

Thus, the Court should issue a declaratory judgment that the challenged regulations are

invalid as applied to Plaintiffs, who are non-borrowing spouses who were married to HECM

borrowers at the time the loan was consummated.

E. National Reverse Mortgage Lenders Association

Repeating several of Defendant’s post hoc rationalizations for its failure to protect

surviving spouses, amicus National Reverse Mortgage Lenders Association (“NRMLA”)

advances arguments that are not properly before the Court, and submits extra-record materials

HUD contention that Plaintiffs would require to deprive lenders of other grounds for

termination of HECMs is simply wrong. Dkt. No. 34 at 32. Plaintiffs recognize that other,

legitimate grounds for calling their spouses’ mortgages due and payable could arise while they

continue to live in their homes; those issues are not before the Court.

that the Court cannot and should not consider. NRMLA states that it aims “to provide the Court

with information about the special subset of older Americans who currently benefit greatly from

the availability of single spouse reverse mortgages, and would be irreparably harmed by the

adoption of the Plaintiffs’ arguments.” Dkt. No. 35-1 at 6. NRMLA thus proceeds under the

misconception that the Court is to decide a policy question, and not a question of statutory

interpretation. It asks this Court to consider the implications for the reverse mortgage insurance

fund, the many protections from predatory lending that spouses currently enjoy, and a host of

other matters that are not properly before this Court.11

The Court should reject these arguments

on the record.

Similarly, the materials that NRMLA has attached to its brief are not part of the

administrative record, and should be stricken. “Under the Administrative Procedure Act, a

reviewing court ‘shall review the whole record or those parts of it cited by a party.’” Walter O.

Boswell Mem. Hospital. v. Heckler, 749 F.2d 788, 792 (D.C. Cir. 1984) (quoting 5 U.S.C. § 706

(1982)). “If a court is to review an agency’s action fairly, it should have before it neither more

nor less information than did the agency when it made its decision . . . To review more than the

information before the Secretary at the time she made her decision risks our requiring

administrators to be prescient or allowing them to take advantage of post hoc

rationalizations.” Id. (emphasis added). Indeed, most of NRLMA’s brief, its supporting

NRMLA estimates that only around 4% of HECM loans are made to a single spouse. Dkt. No.

35-1 at 7. Thus, the threat that Defendants raises to the survival of the HECM program, appears

overblown.

exhibits, and, as noted above, many of Defendant’s arguments, are “post hoc rationalizations”

that this Court should not permit.12

NRMLA makes one statutory interpretation argument: it contends that Plaintiffs’

interpretation would defeat the Congressional intent underlying the HUD program, as expressed

in Subsection (a) of the statute, which is to “expand” and not “reduce” the availability of reverse

mortgage loans. Dkt. No. 35-1 at 11. This does not get one very far. It should go without saying

that the statute surely has allowed the program to “expand,” but under explicitly defined

parameters, one of which is at issue here.13

III. CONCLUSION

Plaintiffs request that their motion for summary judgment be granted, that Defendant’s

motion be denied, and that the Court fashion appropriate declaratory and injunctive relief to

protect them from foreclosure.

To be clear, many of NRMLA’s factual assertions are wholly misleading, incomplete, and

offensive to Plaintiffs. If its arguments were properly before the Court, Plaintiffs would submit

arguments and evidence to refute them. But under applicable law, this is unnecessary.

Notably, NRMLA argues that Ms. Joseph “may” be an example of someone who

benefited from the “single-spouse” HUD policy, because at the time she quitclaimed her interest

in her home, she was behind in her mortgage payments. Dkt. No. 35-1 at 7 n.4. NRMLA

sidesteps the fact that Ms. Joseph, and others like her, would gladly have accepted a lower

borrowing limit in order to be protected from displacement when her husband passed away, and

that she was defrauded by one of NRMLA’s members into obtaining this supposed “benefit.”

Indeed, the three plaintiffs who filed this suit are representative of the many spouses who were

aged 62 or older at the time of mortgage origination, and likely would have qualified as

borrowers themselves, but were deceived into waiving their rights by predatory reverse mortgage

lenders, of whose existence NRMLA purports to be unaware.

13 The only other argument NRMLA makes regarding the statute is one it admits that HUD “has

aptly explained,” that of the actuarial soundness of the program. Dkt. No. 35-1 at 9.

Date: July 16, 2013

Respectfully submitted,

/s/ Craig L. Briskin

Steven A. Skalet (D.C. Bar No. 359804)

Craig L. Briskin (D.C. Bar No. 980841)

Mehri & Skalet, PLLC

1250 Connecticut Avenue N.W., Suite 300

Washington, D.C. 20036

(202) 822-5100 (phone)

(202) 822-4997 (fax)

Jean Constantine-Davis (D.C. Bar No. 250084)

AARP Foundation Litigation

601 E Street NW

(202) 434-2058 (phone)

855-296-1218 (fax)

Counsel for Plaintiffs

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

----------------------------------------------------------

ROBERT BENNETT, et al., )

Plaintiffs, )

vs. ) 11-CV-0498 (ESH)

SHAUN DONOVAN, in his capacity as )

SECRETARY OF THE )

UNITED STATES DEPARTMENT OF )

HOUSING AND URBAN DEVELOPMENT, )

Defendant. )

----------------------------------------------------------

PLAINTIFFS’ RESPONSE TO DEFENDANT’S STATEMENT

OF MATERIAL FACTS AS TO WHICH THERE IS NO GENUINE ISSUE

Pursuant to Local Rule 7(h), Plaintiffs submit this response to Defendant’s

Statement of Material Facts as to Which There is No Genuine Issue. This response is designed

to respond to Defendant’s Statement of Material Facts by identifying which of the factual

grounds for Defendant’s motion for are admitted or irrelevant. Any disputes relate only to

Defendant’s Statement of Material Facts, and have no bearing on Plaintiffs’ motion for summary

judgment or the factual support for it. Plaintiffs maintain that there are no genuine issues of

material fact with respect to the grounds entitling them to summary judgment.

A. Plaintiff Leila Joseph

1. On April 18, 2009, Plaintiff Leila Joseph’s husband, Albert Joseph, executed a

HECM loan secured by a house at 627 Vermont Street, Brooklyn, New York. Frazier

Declaration Doc. G; Frazier Declaration Doc. H.

Response: Plaintiffs admit that Mr. Bennett signed First and Second Mortgages

secured by 627 Vermont Street, Brooklyn, NY and a Home Equity Conversion Loan

Agreement on April 18, 2009. Plaintiffs’ Ex. F & K. They have insufficient information to

admit or deny that he signed the Notes.

2. Mr. Joseph signed the reverse Note and Mortgage as the sole obligor. Frazier

Declaration Doc. H (Note); Frazier Declaration Doc. G (Mortgage).

Response. Plaintiffs admit that Mr. Joseph signed as a sole obligor on two

Mortgages. Plaintiffs’ Ex. F & K. They have insufficient information to admit or deny

that he signed the Note or in what capacity.

3. MetLife Home Loans, a private lender, originated the loan, which HUD insured HUD.

Frazier Declaration Doc. F.

Response: Plaintiffs admit that MetLife Home Loans originated the loan. Plaintiffs’

Ex. K & G. Plaintiffs have insufficient information to know whether HUD insured the

4. On August 30, 2009, Mr. Joseph died. Compl. ¶ 94.

Response: Admit. Joseph Declaration ¶ 8.

5. Mr. Joseph died intestate; Mrs. Joseph and their children and grandchildren are his heirs.

Compl. ¶ 96.

Response: This statement is irrelevant and immaterial.

6. MetLife initiated a foreclosure action; however, MetLife agreed to stay foreclosure during the

pendency of the litigation. Bene Declaration Exhibit B, ECF No. 8-4.

Response: Admitted. Plaintiffs’ Ex. H.

B. Plaintiff Robert Bennett

1. On December 17, 2008, Plaintiff Robert Bennett’s wife, Ophelia Bennett, executed a HECM

loan secured by a house at 1938 Drew Street, Annapolis, MD 21401. Frazier Declaration Doc. B

(Deed of Trust); Frazier Declaration Doc. C (Note).

Response: Plaintiffs admit that Mrs. Bennett executed two HEC mortgages secured

by 1938 Drew Street, Annapolis, MD 21401. They have insufficient information to admit

or deny that she signed the Notes or other documents. Plaintiffs’ Ex. B & C.

2. Mrs. Bennett signed the reverse Note and Deed of Trust as the sole obligor. Frazier

Declaration Doc. C (Note); Doc. B (Deed of Trust).

Response: Plaintiffs admit that Mrs. Bennett signed the two mortgages as the sole

obligor. They have insufficient information to admit or deny whether or in what capacity

she signed the Notes. Plaintiffs’ Ex. B & C.

3. 1st Continental Mortgage, a private lender, originated the loan for subsequent sale to James B.

Nutter & Co., which HUD insured. Frazier Declaration Doc. A.

Response: Plaintiffs admit that 1st Continental Mortgage originated the loan.

Plaintiffs’ Ex. B. Plaintiffs have insufficient information to know whether HUD insured the

4. On January 26, 2009, Mrs. Bennett died. Compl. ¶ 116.

Response: Admitted. Bennett Declaration ¶ 9.

5. Mrs. Bennett died intestate; Mrs. Bennett and their children and grandchildren are

his heirs. Compl. ¶ 117.

Response: This statement is irrelevant and immaterial.

6. Following Mrs. Bennett’s death, James B. Nutter & Co. initiated a foreclosure action;

however, James B. Nutter & Co. agreed to stay foreclosure during the pendency of the

litigation. Bene Declaration Exhibit B, ECF No 8-4.

Response: Admitted. Plaintiffs’ Ex. H.

Dated: July 16, 2013 Respectfully submitted,

/s/ Craig L. Briskin

Steven A. Skalet (D.C. Bar No. 359804)

Craig L. Briskin (D.C. Bar No. 980841)

Mehri & Skalet, PLLC

1250 Connecticut Avenue N.W., Suite 300

(202) 822-5100 (phone)

(202) 822-4997 (fax)

Jean Constantine-Davis (D.C. Bar No. 250084)

AARP Foundation Litigation

601 E Street NW

(202) 434-2058 (phone)

855-296-1218 (fax)

Counsel for Plaintiffs

united states district court for the district of … · 09-01-2013 · case 1:11-cv-00498-esh...

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