Reverse Mortgage

Florida Supreme Court docket Guidelines for Lender in Reverse Mortgage NBS Case


The Florida State Supreme Court overturned a lawsuit decision that was overturned by the Third District Court of Appeals in a case involving an expedited mortgage loan that was foreclosed by the lender. Following the ruling on the case, the Court and Third District made a mistake in preventing a foreclosure of a reverse mortgage loan in which the principal borrower died but the borrower’s spouse continued to want to stay at the home. This is evident from the court filings received from RMD.

Ultimately, the Florida Supreme Court ruled in favor of the lender and its successor company. The original lender was OneWest Bank, which was replaced by WVMF Funding. The dispute arises over a reverse mortgage where the primary borrower applied for without including his or her spouse on the reverse mortgage, making foreclosure proceedings difficult after his / her death.

Ultimately, the decision of the Supreme Court seems to be due to the fact that the lower courts disregarded the definition of the credit terms due to the case law cited in the majority opinion.

The case

Roberto Palmero and his wife Luisa initially applied for a reverse mortgage loan as joint borrowers in August 2006, but withdrew and re-applied in December, listing Mr. Palmero as the sole borrower. Of the five documents Mr Palmero signed to grant the loan, one was a floating rate note which the court considers to be of “primary concern” as it defines the term “borrower” as “any person who at the end of this note sign “. . “

On this special form – even in the presence of a certificate confirming the participation of the non-borrowing spouse – the name of Mr Palmero is the only one who is signed on the slip himself. The certificate also lists the husband as the sole borrower, according to the court’s judgment based on the examination of the relevant documents.

Mr. and Mrs. Palmero both signed the reverse mortgage contract themselves, which bears the same date as the promissory note and which also identifies Mr. Palmero as the sole borrower of the mortgage. Until Mr Palmero’s death in 2008, regular payments were made on the loan by the lender, after which the loan was accelerated into the due and payable status. When the loan was not repaid, the then lender – OneWest Bank – attempted foreclosure, but Ms. Palmero and her adult children argued in court that she was a co-debtor and not subject to foreclosure while she was still in her home as her primary residence.

“After a bank process, the court ruled that Ms. Palmero was not a contributor,” says the court opinion. “However, it refused foreclosure on the basis of federal law regulating the insurability of reverse mortgages by the Secretary of the Department of Housing and Urban Development.”

That ruling was upheld by the Third District Court of Appeals and went a step further by saying the court was wrong in stating that Ms. Palmero was not an accomplice. The third district also did not allow foreclosure to continue. This panel, which has now reached the Florida Supreme Court, has ruled that Ms. Palmero is, in fact, not a complicit due to the importance of the promissory note in defining borrowers under the agreement.

“The Third District Holding not only ignores the fact that the mortgage expressly defines Mr. Palmero as a ‘borrower’, but also ignores that the precedent of this court must read the mortgage along with the secured note,” the decision said in part .

However, the court also notes that at the time the loan was granted, the Palmeros indicated that more loan proceeds would have been possible if Ms. Palmero’s name had been removed from the loan.

“However, we note that all other documents consistently show that the parties intended that Mr. Palmero should be the only ‘borrower’ and the records show that Mr. Palmero ‘qualified – and received an amount greater than the amount would be paid if Ms Palmero had been a contributor ‘”, the report says, citing documents from a previous court.

Dissent, difference between forwards and backwards

One of the Florida Supreme Court justices wrote in a dissenting opinion that Mr. Palmero was “legally” the only borrower in this case, according to Judge Jorge Labarga, who endorsed Judge Ricky Polston.

“While I agree that under both [cited precedents] the grade prevails in the conventional mortgage context, there is no authority that requires the same result in the reverse mortgage context, ”wrote Judge Labarga. “With confidence [the cited precedents], the majority fall back on precedents nearly a century old, which no doubt take into account neither the intricacies of reverse mortgages nor the incentives for the parties involved. Besides, because [the cited precedents] are not reverse mortgage cases; they do not involve the same federal concerns [the law]. “

The precedents cited are respectively from 1907 and 1934, decades before the first American reverse mortgage was taken out in 1961. The modern Home Equity Conversion Mortgage (HECM) program was initiated by the signing of the Housing and Community Development Act of 1987, which came into effect in February 1988 after President Ronald Reagan came into effect.

This was a core element of the argumentation of the Palmeros in their case against the successor company of the OneWest Bank. The court’s final decision contradicted this claim, as the note is equally important in both traditional forward and reverse mortgage deals.

NBS problems

The case in this case highlights some of the persistent issues related to reverse mortgage loans that arose prior to the introduction of stricter non-borrowing spouse protections (NBS) in 2014. Additional rules to protect eligible NBS continue to exist in the area of ​​reverse mortgages, the most recent of which was given by the Joe Biden government in Mortgage Letter (ML) 2021-11.

These guidelines include four new primary protections for eligible NBS in a reverse mortgage transaction, including the expansion of the criteria starting a deferral period for HECM loans with case numbers assigned on or after August 4, 2014, including for a scenario where the primary borrower has lived in a healthcare facility for more than 12 consecutive months, but the NBS has stayed at home.

It also included expanded assignment criteria as well as expanded definitions of who is considered an eligible NBS. The National Reverse Mortgage Lenders Association (NRMLA) recently asked the HUD for guidance to provide additional clarity on the new NBS regulations.