Wells Fargo, Fannie Mae HECM Reverse Mortgage Class Action Lawsuit

A federal class action lawsuit claims Wells Fargo Bank and Fannie Mae have failed to abide by a key term of reverse mortgages that Wells Fargo has sold and serviced, and Fannie Mae has owned, for many years. As a result, many homeowners have lost their homes in unlawful foreclosures and evictions.

According to the Wells Fargo, Sallie Mae class action lawsuit, the companies fail to abide by the “95% Rule” term under reverse mortgages called “Home Equity Conversion Mortgages” (HECM). Under the HECM program, when a loan becomes due and payable, the borrower has the right to receive a 30-day notice that they may sell the HECM-mortgaged property for 95% of its current appraised value (the “95% Rule”), which may be less than the mortgage balance. The borrow can then sell or transfer the property for 95% of the appraised value, including to a family member.

The 95% Rule is mandated by federal law and is designed to prevent families and survivors of deceased HECM borrowers from losing their homes in the event of a downturn in the real estate market. HECM lenders are also protected under the rule and receive compensation from the federal government for any sale for any amount that is less than the balance on the HECM. HECM borrowers are required to fund this insurance program through initial and monthly premium payments.

“Nevertheless, Defendants have failed and continue to fail to observe the 95% Rule: when a HECM is due and payable, they demand repayment of the full mortgage balance from borrowers and their survivors, and if that is not paid, Defendants initiate foreclosure and eviction proceedings,” the Wells Fargo reverse mortgage class action lawsuit states. “Defendants’ blatant disregard of the 95% Rule is having widespread and dire consequences for Plaintiff and the proposed Class…Defendants refuse to allow the surviving spouses and their heirs of deceased HECM borrowers to pay a fair market price for their homes and continue living in them.”

The Fannie Mae and Wells Fargo HECM class action lawsuit is brought on behalf of a proposed class of all HECM borrowers, and the estates, heirs and personal representatives of such borrowers, whose loans are or were owned and/or serviced by Wells Fargo and Fannie Mae, and who were not given the required 95% of its appraised value. It is seeking damages for breach of contract, permanent injuctive relief prohibiting Wells Fargo and Fannie Mae from initiating or continuing eviction or foreclosure proceedings on HECM-mortgaged properties until they have been provided notice that they can sell or transfer the property for 95% of the appraised value.

The Wells Fargo, Sallie Mae HECM Reverse Mortgage Class Action Lawsuit is Robert Chandler v. Wells Fargo Bank and Federal National Mortgage Association a/k/a Fannie Mae, Case No CV-11-3831, United States District Court, Northern District of California, San Francisco Division.

UPDATE: A federal judge dismissed the class action lawsuit on Jan. 3, 2014, finding that the terms of HUD’s 95% Rule did not apply in this case.