Consumers in West Virginia have found a new subject on which to file lawsuits. Within the past couple of years, litigation over reverse mortgages has become a bigger part of consumer lending litigation in West Virginia.
Reverse mortgages, also known as “home equity conversion mortgages,” allow an individual to obtain payments from a lender based on the amount of equity in the individual’s home.1
Unlike a conventional mortgage, in a reverse mortgage the homeowner never becomes personally liable to repay the loan. After the homeowner dies, the lender obtains title to the home.
In 1996, our legislature enacted the West Virginia Reverse Mortgage Enabling Act, which permitted the making of reverse mortgages in West Virginia.2
Prior to the Enabling Act, reverse mortgages were precluded under West Virginia law.
Consumers now are taking claims traditionally found in conventional mortgage litigation and testing them in reverse mortgage litigation. Three recent court decisions in West Virginia show how courts are reacting to those claims.
I. Unconscionable Inducement
One of the claims consumers have launched against reverse mortgages is “Unconscionable Inducement.” This claim alleges that the borrower only entered into the loan because of “affirmative misrepresentations or active deceit” by the lender.
This claim was analyzed earlier in 2018 in Lavis v. Reverse Mortgage Solutions, LLC
There, the borrower alleged that her reverse mortgage loan should be forgiven because the lender’s agent made misrepresentations to her, including telling her there was no interest on her loan, the loan was a government loan, and she would not have to pay for hazard insurance. She further alleged that her loan counseling was conducted by someone affiliated with the lender and was not independent.
The court looked to the loan documents, which expressly set forth the interest rate, the government’s role in the loan, and the requirement that the borrower pay hazard insurance. Further, the court found that the borrower signed a counseling verification form stating she received independent counseling. The court ultimately refused to allow this claim to proceed.
II. Reverse Mortgage Enabling Act
Borrowers also have argued that the Reverse Mortgage Enabling Act gives them an independent ground on which to attack reverse mortgages. In Woods v. Reverse Mortgage USA, Inc., et al.
, a borrower argued that fees and charges on her loan violated the Enabling Act.4
Likewise, in Boster v. Live Well Financial, Inc.
, the plaintiff argued that the Enabling Act was violated because the loan documents gave the lender a security interest in an inflated amount.5
The court in both cases held that the Enabling Act contains no provision permitting a borrower to sue to enforce it. Without this so-called “private right of action,” a borrower simply cannot sue under that act.
III. West Virginia Residential Mortgage Lender, Broker and Servicer Act6
This statute permits a court to cancel a loan “made in willful violations of [its] provisions.”7
Courts are allowing borrowers to sue to enforce this statute’s provisions. However, the time period in which they must bring suit may be short—the law places a time limit, known as the statute of limitations, on when a person may bring a lawsuit.
, the borrower argued that a 10-year statute of limitations applied to this claim, while the lender argued that a two-year statute of limitations should apply.8
The court conducted a lengthy analysis and agreed with the lender.
The borrower in Woods
tried to save her claims from dismissal by arguing that the limitations period had not begun to run because the fees and charges she complained of did not have to be paid until she died. The court was not persuaded. It found that the fees and charges were imposed at the loan closing, and her claim accrued at that time. In the Boster
lawsuit, the plaintiff asserted an identical claim for allegedly illegal fees and charges. Like in Woods
, the court easily found that such a claim accrues at the loan closing and must be brought within two years.
IV. West Virginia Consumer Credit and Protection Act9
Courts are permitting West Virginia Consumer Credit and Protection Act (“CCPA”) claims in connection with reverse mortgages. However, they have imposed significant limitations.
One limitation is that the prohibition in the CCPA against collecting “any interest or other charge, fee or expense incidental to the principal obligation” not authorized by both the loan documents and statute will not apply to fees and charges imposed at loan closing. Another limitation relates to who can bring a CCPA claim. Broadly speaking, only a person who meets the definition of a “consumer” may bring a claim under the CCPA. In the Boster
lawsuit, the plaintiff was not the borrower on the loan. He was the son of the borrower. The court conducted a lengthy analysis of whether the plaintiff qualified as a consumer who could assert a CCPA claim. The borrower claimed that he was a consumer because he was forced to pay the mortgage to keep the property. The court disagreed, holding that “[t]he option to pay money to retain collateral is not equivalent to a personal obligation to repay” a debt.10
V. Rescission of a loan under the Truth In Lending Act
The federal Truth in Lending Act (“TILA”) gives a borrower the right to rescind a transaction if certain criteria are met.11
Borrowers in reverse mortgages have attempted to rescind transactions under TILA’s provisions.
However, TILA requires the borrower to tender back the loan proceeds to the lender. This is an impediment to the borrower since he or she rarely has enough spare cash on hand. However, one decision may make it easier for borrowers to rescind. In Lavis
, the court agreed with the borrower that she should be permitted to prosecute her claims first, obtain a monetary award from the jury, and use that money to tender the loan proceeds.
Litigation over reverse mortgages is increasing in our state. Borrowers are copying-and-pasting successful claims from conventional mortgage litigation. As shown by three recent decisions, courts are taking a hard look at reverse mortgages and the documents involved to determine whether to let those claims proceed.
112 U.S.C. § 1715z-20(b)(3).
2W. Va. Code §§ 47-24-1 et seq.
3Civil Action No. 5:17-cv-00209, 2018 WL 2171444 (S.D.W. Va. 5/9/18).
4Civil Action No. 2:17-cv-00256, 2017 WL 4399201 (S.D.W. Va. 9/29/17).
5Civil Action No. 2:17-cv-03857, 2018 WL 1582725 (S.D.W. Va. 3/30/18).
6W. Va. Code §§ 31-17-1 et seq.
7W. Va. Code § 31-17-17(a).
82017 WL 4399201, *8.
9W. Va. Code §§ 46A-1-101 et seq.
102018 WL 1582725, *8 (quoting Ballard v. Bank of America, N.A., NO. 2:12-cv-2496 (S.D.W. Va. Nov. 7, 2013), aff’d Ballard v. Bank of America, N.A., 578 Fed. Appx. 226 (4th Cir. 2014).
1115 U.S.C § 1635(a), (f).