Reverse Mortgages, also called “home equity conversion mortgages” or “HECMs” allow older homeowners to obtain monthly payments from a lender based on the equity in their home. The homeowners don’t have to pay any payments on this loan until they move or pass away. Reverse mortgages are heavily promoted and utilized in Florida. In late July, Florida’s Third District Court of Appeal (“Third DCA”) in Smith v. Reverse Mortgage Solutions, Inc., issued an opinion that helps protect the surviving spouses.
Meet the Smiths
Celia and Kenneth Smith entered into a reverse mortgage arrangement in May 2008. They signed a note for the loan and secured it with the reverse mortgage. The mortgage provided that the loan would be accelerated (i.e. become due) upon death of the borrower or a change in the borrower’s primary residence. Mrs. Smith signed the mortgage, but not the note.
Here Comes the Reverse Mortgage Foreclosure
Mr. Smith passed away approximately a year and a half after the reverse mortgage arrangement began. Reverse Mortgage Solutions filed an action for foreclosure on the grounds that Mr. Smith was the “sole borrower under the note and mortgage,” and when he died the mortgage was accelerated. In September of 2013, the trial court entered judgment of foreclosure in favor of Reverse Mortgage Solutions.
A Second Chance at the Third DCA
Mrs. Smith appealed the unfavorable ruling and argued that under the terms of the mortgage, she was a co-borrower and Reverse Mortgage Solutions was prohibited from foreclosing until she died or changed her primary residence.) The Third DCA agreed.
The court’s decision turned on whether Mrs. Smith was the “Borrower” within the meaning of the term in the mortgage. If she was, then Reverse Mortgage Solutions couldn’t accelerate until she passed away or changed her primary residence. If she wasn’t, the trial court’s decision would stand.
The mortgage itself was inconsistent, in certain sections, Mr. Smith alone was referred to as the mortgagor but in other sections it was clearly stated that BOTH Mr. and Mrs. Smith were the “Borrower” under the mortgage. The note referred only to Mr. Smith. The Third DCA found that the unequivocal definition of both the Smiths as the “Borrower” in the mortgage meant that Reverse Mortgage Solutions could not accelerate the mortgage until she passed away or relocated.
Though its core decision was based on the terms of the mortgage itself, the Third DCA took time to explain that its decision was also consistent with Florida and federal law. Florida’s homestead law provides strong protections for homeowners, among them, a mandate that mortgages in homesteads are only valid if they are signed by both the owner and their spouse. Thus, Reverse Mortgage Solution’s mortgage would only have been valid if Mr. and Mrs. Smith were considered the “Borrower” under the mortgage.
HUD insured the loan involved in the Smith’s reverse mortgage and thus, federal law governing HUD insured reverse mortgages applied. The law provides, in part, that such loans may not be insured by HUD “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.” Homeowner, under the law includes the owner’s spouse. The court found that construing the term “Borrower” to include both Smiths was consistent with this federal law.
This case is just another example that shows that defenses to a reverse mortgage foreclosure are available. If you’re interested in learning whether there are viable defenses in your foreclosure case, the Jacksonville foreclosure defense attorneys at Adam Law Group are here to help.