Reverse mortgages, which pay older homeowners regular sums against the equity in their houses, are supposed to shield borrowers from economic upheaval.
But they have become tangled in the real-estate collapse.
AARP, the seniors' organization, filed suit last month against the Department of Housing and Urban Development, which regulates reverse mortgages. The suit asserts that policy changes by the department are pushing older homeowners into foreclosure.
The case was filed in U.S. District Court for the District of Columbia on behalf of the surviving spouses of three homeowners who had taken out reverse mortgages.
All three are facing eviction, the suit says.
The lawsuit centers on a HUD policy shift in late 2008 that said surviving spouses who are not named on the mortgage must pay the full loan balance to keep the house, even if it is worth less.
It says HUD is ignoring its own provisions against displacing a surviving spouse.
Borrowers with traditional mortgages often are liable for the difference between the value of their house after foreclosure and the amount of their original loan.
Reverse mortgages were intended to prevent the borrower from losing more than the house itself, even if the value of the property shrinks.
Nearly a quarter of all homes with mortgages in the U.S. are worth less than the loan. These so-called underwater properties are difficult to sell and impossible to refinance.
A spokesman with HUD said the agency does not comment on pending litigation.
More than half a million people have received reverse mortgages since Congress authorized the program a quarter-century ago.
Participants must be at least 62 and have substantial equity in their houses. They receive either a lump sum or monthly payments from lenders. After a participant's death, the house is sold and the mortgage is paid off.
Robert Bennett, 69, who retired as a cook at the United States Naval Academy, is a plaintiff in the suit. Three years ago, he and his wife, Ophelia, replaced the traditional mortgage on their house in Annapolis with a reverse mortgage so they could make ends meet.
Lenders sometimes encourage only the elder member of a couple to put his or her name on the mortgage because that increases the payout. Mr. Bennett said he did not realize that his new mortgage had taken his name off the title of the house, which the couple had owned since 1981.
Mrs. Bennett, who was a decade senior to her husband, died shortly after the new mortgage went into effect. The payments stopped and the mortgage became due.
The lender began foreclosure proceedings and scheduled a sale of the property.
The Bennetts paid $20,000 in fees to take out the mortgage but received only $1,800 in cash. Meanwhile, fees and interest continue to accumulate. The balance of the loan is now about $300,000, and the value of the property has fallen to about $200,000.
The suit says that if HUD had not changed the rules, Mr. Bennett would have been allowed to live in the house until his death.