Wells Fargo, Fannie Mae Escape Reverse Mortgage Class Action

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The son of a deceased reverse mortgage holder cannot continue to seek damages from Fannie Mae and the originator of the loan, Wells Fargo Bank, according to a judge’s decision to dismiss a proposed class action lawsuit accusing the financial firms making it impossible for heirs and surviving spouses to buy property at its appraised value.

A reverse mortgage, or Home Equity Conversion Mortgage (HECM), allows a homeowner to receive monthly payments, a lump sum, or a line of credit based upon the assessed value of a home and the percentage set by actuaries regarding a senior’s age. The originator of the reverse mortgage already owns the property, but the contract dictates that the balloon payment for the assessed value of the home will only come due after the senior’s death or sale of the property.

California plaintiff Robert Chandler alleges in the class action lawsuit, filed in August 2011, that Fannie Mae and Wells Fargo failed to abide by a key term of HECM reverse mortgages called the “95% Rule” that requires lenders to give borrowers a 30-day notice when the HECM-mortgaged property can be sold for 95% of its current appraised value. 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.

Chandler alleges in the class action lawsuit that not only did Wells Fargo not notify him of the payment due when his mother passed on, but that he should have also been able to buy the house back for 95 percent of the market value at the time of his mother’s death. This differed from the original value by tens of thousands of dollars because of the downturn in the housing market.

Judge Samuel Conti, however, did not find Chandler’s arguments compelling and granted Wells Fargo’s and Sallie Mae’s motion to dismiss the class action lawsuit.

“The court finds that the plain language of the HECM deed does not support plaintiff’s position that he was entitled to notice and an opportunity to purchase the property for 95 percent of its appraised value,” Conti said in his Jan. 3 decision.

The 95% Rule comes from guidance from the federal Department of Housing and Urban Development regarding these reverse mortgages. Judge Conti noted in his decision to dismiss the Wells Fargo reverse mortgage class action lawsuit that the guidance was not in place at the time that the balloon payment had come due.

More importantly, in reviewing the HECM deed, Judge Conti found that the proposed class action lawsuit misconstrued the language found within the document. The company that services a loan does not have to notify the estate that it is putting a home into foreclosure, although it does in other instances, the decision noted.

The plaintiff had sought to have the guidance applied to the HECM deed, but the judge found that while HUD guidance is normally compelling, numerous other jurists had refused to read into express contracts language from federal agencies unless specifically cited therein. Further, even if it was, as previously noted, Conti found that the language Chandler cited in the class action lawsuit was not in force at the time that the home went into foreclosure.

Chandler is represented by class action lawyers Jean Constantine-Davis of AARP Foundation Litigation, Kelly A. Corcoran of Kerr & Wagstaffe LLP, and Steven A. Skalet and Craig L. Briskin of Mehri & Skalet PLLC.

The Wells Fargo Reverse Mortgage Class Action Lawsuit is Robert Chandler v. Wells Fargo Bank NA, et al., Case No. 11-cv-03831, U.S. District Court, Northern District of California.