Federal Law Does Not Prevent Foreclosure Against Surviving Spouse of “Reverse-Mortgage” Borrower If Contractually-Authorized

The federal statute that prevents HUD from insuring a reverse mortgage that permits foreclosure while the borrower’s surviving spouse lives in the mortgaged property does not similarly prohibit the lender from foreclosing after the borrower’s death, as long as the foreclosure is otherwise permitted by the loan documents. Estate of Jones v. Live Well Fin., Inc., __ F.3d __, 2018 WL 4211452 (11th Cir. Sept. 5, 2018).

In 2014, Caldwell Jones (of basketball fame, as detailed in footnote 3 of the Eleventh Circuit’s opinion) obtained a “reverse mortgage” secured by the house he shared with his wife and their daughter. Jones’s loan agreement, which identified “Caldwell Jones, Jr., a married man” as the only borrower, included a provision authorizing the lender to “require immediate payment-in-full of all sums secured by this Security Instrument” if “[a] Borrower dies and the Property is not the principal residence of at least one surviving Borrower.”

Later in 2014, Jones died. The lender initiated non-judicial foreclosure proceedings. Jones’s wife, who continued to live in the house, brought suit in state court (on her own behalf and the Estate’s) seeking to enjoin the foreclosure. She argued that the foreclosure was prohibited by the public policy embodied in 12 U.S.C. § 1715z-20(j), which provides that the HUD Secretary “may not insure” a reverse mortgage unless the mortgage defers repayment until the property is sold or both the borrower and the borrower’s spouse have died. After the state court entered a temporary restraining order, the lender removed the case to federal district court. That court granted the lender’s motion to dismiss, and the Estate appealed.

The Eleventh Circuit, in an opinion written by Judge Newsom and joined by Judge Wilson and Judge Vinson visiting from the Northern District of Florida, affirmed. The court first noted that the lender had a right to foreclose under Georgia law and the terms of the loan agreement; Jones’s wife conceded that she was not a “borrower” as that term was defined in the loan documents. The court also assumed, without deciding, that HUD should not have insured the mortgage because of the prohibition included in § 1715-20(j). But “[section] 1715z-20(j)’s plain language applies only to HUD and speaks only to what the Secretary can and cannot do. . . .Section 1715z-20(g) says nothing about private contractual obligations one way or the other, and thus cannot be read to alter or affect the enforceability of the mortgage contract or its terms.”

 

Posted by:  Valerie Sanders

 

 

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