Bennett v. Donovan, 11–5288.

• Decision Date: 04 January 2013
• Docket Number: No. 11–5288.,11–5288.
• Citation: 703 F.3d 582
• Parties: Robert BENNETT, et al., Appellants v. Shaun DONOVAN, in his capacity as Secretary of the United States Department of Housing and Urban Development, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

703 F.3d 582

Robert BENNETT, et al., Appellants

v.Shaun DONOVAN, in his capacity as Secretary of the United States Department of Housing and Urban Development, Appellee.

No. 11–5288.

United States Court of Appeals,District of Columbia Circuit.

Argued Nov. 19, 2012.

Decided Jan. 4, 2013.

Appeal from the United States District Court for the District of Columbia (No. 1:11–cv–00498).

Jean Constantine–Davis argued the cause for appellants. With her on the briefs were Steven A. Skalet and Craig L. Briskin. Janell M. Byrd entered an appearance.

Benjamin M. Shultz, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief were Stuart F. Delery, Acting Assistant Attorney General, Ronald C. Machen Jr., U.S. Attorney, Michael S. Raab and Mary L. Smith, Attorneys.

Before: BROWN, Circuit Judge, and EDWARDS and SILBERMAN, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge SILBERMAN.

SILBERMAN, Senior Circuit Judge:

Two widowed spouses of homeowners with reverse-mortgage contracts faced foreclosure by mortgage lenders after their spouses died. They brought suit against the Secretary of the Department of Housing and Urban Development, alleging that HUD's regulation defining the conditions under which it would insure a reverse-mortgage agreement was inconsistent with the applicable statute. The district court dismissed for lack of standing, but we reverse. The district court correctly reasoned that if relief for appellants' injuries depended on the independent actions of the lenders—deciding whether to foreclose or not—then appellants would lack standing. But after, perhaps, a more thorough presentation before us, we think that, assuming the regulation is unlawful, HUD itself has the capability to provide complete relief to the lenders and mortgagors alike, which eliminates the uncertainty of third-party action that would otherwise block standing.

I.

A “reverse mortgage” is a form of equity release in which a mortgage lender (typically, a bank) makes payments to a borrower based on the borrower's accumulated equity in his or her home. Unlike a traditional mortgage, in which the borrower receives a lump sum and steadily repays the balance over time, the borrower in a reverse mortgage receives periodic payments (or a lump sum) and need not repay the outstanding loan balance until certain triggering events occur (like the death of the borrower or the sale of the home). Because repayment can usually be deferred until death, reverse mortgages function as a means for elderly homeowners to receive funds based on their home equity.

Reverse mortgages are generally non-recourse loans, meaning that if a borrower fails to repay the loan when due, and if the sale of the home is insufficient to cover the balance, then the lender has no recourse to any of the borrower's other assets. This feature is, of course, favorable to borrowers but introduces significant risk for lenders—if regular disbursements are chosen, they can continue until the death of the borrower (like a life annuity), and the loan balance will increase over time, making it less and less likely that the borrower will be able to cover the full amount. If a borrower lives substantially longer than expected, lenders could face a major loss.

Congress, concerned that this risk was deterring lenders from offering reverse mortgages, authorized HUD to administer a mortgage-insurance program, which would provide assurance to lenders that, if certain conditions were met, HUD would provide compensation for any outstanding balance not repaid by the borrower or covered by the sale of the home. The Housing and Community Development Act of 1987 set out those conditions. The particular provision at issue in this case states:

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.

12 U.S.C. § 1715z–20(j) (emphasis added). HUD promulgated regulations to implement the Act, which include the following provision establishing when insured loans become due and payable:

The mortgage shall state that the mortgage balance will be due and payable in full if a mortgagor dies and the property is not the principal residence of at least one surviving mortgagor, or a mortgagor conveys all of his or her title in the property and no other mortgagor retains title to the property.

24 C.F.R. § 206.27(c)(1).

Robert Bennett and Leila Joseph are the surviving spouses of reverse-mortgage borrowers whose mortgage contracts were executed pursuant to HUD's insurance program. Only their spouses, not the appellants themselves, were legal borrowers under the mortgage contract. Appellants allege that they were assured by their brokers that they would be protected from displacement after their spouses died, and that in reliance on this protection, they quitclaimed interest in the homes they had owned jointly with their spouses when their mortgages were originated.¹

Yet when appellants' spouses died, the respective lenders both asserted their right to immediate repayment of the loan. Their claim was based on language in the mortgage contracts stating that the balance became due and payable if “[a] Borrower dies and the Property is not the principal residence of at least one surviving Borrower.” Neither Bennett nor Joseph were “borrowers” under the mortgage contracts. When appellants failed to repay the loans, the lenders initiated foreclosure proceedings.

Bennett and Joseph responded by filing suit against the Secretary of HUD in the District Court for the District of Columbia. They asserted that HUD's promulgation of 24 C.F.R. § 206.27(c) was unlawful because insuring loans payable on the death of the last surviving borrower was inconsistent with 12 U.S.C. § 1715z–20(j), which protects “homeowners” from displacement and defines “homeowner” to include “spouse of the homeowner.” On appellants' view, whether or not a spouse is also a borrower is irrelevant.

The district court dismissed the complaint for lack of standing. Bennett and Joseph could not show that a favorable outcome—that is, a declaratory judgment that HUD's regulation violated the statute—would redress this harm. Even if HUD should never have insured these mortgages, the lenders now had a lawful right to foreclose under the mortgage contracts themselves, and that right did not depend on the legality of HUD's regulation. The district court therefore concluded that this set of facts did not fall under any of the limited circumstances whereby redressability of a plaintiff's injury can be based on the actions of a regulated third party.

II.

The issue on appeal is limited to appellants' standing. But we admit to being somewhat puzzled as to how HUD can justify a regulation that seems contrary to the governing statute. HUD explains that it is specially concerned about the scenario in which a homeowner, after taking out a reverse mortgage, marries a spouse—particularly a young spouse—and thereby significantly increases a lender's risk. 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. Be that as it may, we turn to the standing question.

To further limit our focus, it is only the redressability component of Article III standing that is in dispute. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (plaintiffs must show that it is likely, and not merely speculative, that a decision in their favor will redress their injury). There is no dispute that the risk of displacement upon foreclosure constitutes an injury in fact, and although the district court did not specifically determine causation, we see little reason to doubt that a causal connection exists between HUD's actions and appellants' harm. Had HUD not issued its allegedly unlawful regulation—which insures mortgages that protect from displacement only surviving borrowers instead of surviving spouses—it is reasonable to assume that the lenders would not have executed contracts under these terms.

But redressability is a closer question because it is the private lenders, not HUD itself, that currently threaten foreclosure. Bennett and Joseph point out that the lenders are heavily regulated by HUD and would decline to foreclose if HUD so suggested—HUD is the “900–pound gorilla”—and thus a declaratory judgment that HUD's regulation is unlawful would likely redress their injuries. HUD argues that the lenders are independent decision-makers with respect to foreclosure, that they will have a legal right to foreclose (and economic incentive to do so) regardless of the outcome of this litigation, and therefore that any redress would be merely speculative.

Our seminal case discussing standing in the context of a regulated third party is National Wrestling Coaches Ass'n v. Department of Education, 366 F.3d 930, 938 (D.C.Cir.2004) (“When a plaintiff's asserted injury arises from the Government's regulation of a third party that is not before the court, it becomes ‘substantially more difficult’ to establish standing.” (quoting Lujan, 504 U.S. at 562, 112 S.Ct. 2130)). We held that men's wrestling organizations lacked standing to challenge interpretations of Title IX regulations that caused schools to eliminate or reduce the size of the their men's wrestling teams. Id. at 933. That was because, assuming the interpretations were unlawful, schools could still make their own decisions about whether to forego elimination of a wrestling team or to reinstate a disbanded program. Educational institutions were, in this respect, “truly independent of...