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Addressing Reverse Mortgages After the Death of a Borrower

Lender OneWest Bank has won a victory in a recent foreclosure case involving deceased borrowers and non-borrowing spouses, with a Florida appeals court reversed an earlier ruling in the case.

The events surrounding the case of OneWest Bank, FSB v. Palmero began in December 2006 when Florida couple Roberto and Luisa Palmero took out a reverse mortgage with Value Financial Mortgage Services. After Palmero passed away two years later, the lender eventually attempted to foreclose on the property. Luisa Palmero fought the foreclosure, arguing that, since she was not a signatory on the original home equity conversion mortgage paperwork, she should be able to remain in the home as a non-borrowing spouse.

Previous rulings in Smith v. Reverse Mortgage Solutions, Inc. and Edwards v. Reverse Mortgage Solutions, Inc. had found that the surviving spouses of reverse mortgage borrowers also qualified as borrowers and thus would have the right to remain in the home after the death of the borrowing spouse. While Luisa Palmero won an initial victory in the case, Florida’s Third District Court of Appeal reversed that decision in favor of OneWest Bank, who had inherited the loan from Value Financial.

“To the extent there was any confusion or inconsistency in the mortgage, it was cleared up by the note, loan application, loan agreement, and non-borrower spouse certification, which unequivocally provided that Mrs. Palmero was not the borrower for the reverse mortgage and defined Mr. Palmero as the borrower,” the court wrote in the decision.

James W. Wright, Jr., Partner, Bradley Arant Boult Cummings, said, “Palmero demonstrates that a lender may demonstrate that the surviving spouse is not a 'borrower' under the mortgage by introducing the other documents executed at the time the loan is originated—most significantly, the non-borrower spouse ownership interest certification, in which the non-borrowing spouse expressly recognized the fact that the borrower’s death would allow the lender to accelerate the loan and proceed to foreclosure."

“It appears that the Third DCA ruled correctly, under the facts of the case,” said Michelle Garcia Gilbert, Managing Partner, Gilbert Garcia Group, P.A., “but it interesting that the loan documents in question required the surviving spouse to acknowledge that the property would be sold ‘unless another means of repayment [was] obtained.’ Given the new CFPB rules, effective April 19, 2018, requiring a confirmed successor-in-interest to be treated like a borrower, I wonder if this situation would turned out differently today, if the non-borrowing, surviving spouse were able to assume or refinance the loan, depending upon the type of reverse mortgage this was. Also, HUD may be reviewing these types of cases to see if changes to reverse mortgage products should be made.”

“The court actually dodges the most-significant issue—whether the federal reverse mortgage statute prohibits foreclosing a reverse mortgage on a surviving spouse still living in the mortgaged residence,” said Anthony Smith, Shareholder, Sirote & Permutt, PC. “Instead, it concluded that because the defendant did not properly raise the issue, the trial court could not rely upon the statute as the basis of its decision.”

“The appellate court’s decision is correct,” said Sonia H. McDowell, Associate Attorney at Quintairos, Prieto, Wood & Boyer, P.A. “The Palmeros received loan disbursements for over a year. Pursuant to the terms of the agreement, Mrs. Palmero agreed to move from the residence upon her husband’s passing, unless she found alternative means of repayment. Mr. Palmero passed in August of 2008 and based on the lower court case number, the foreclosure action was filed at some point in 2010. Mrs. Palmero continued to enjoy free use of property for the past 10 years, in spite of her agreement to the contrary. This opinion highlights the fact that neither the trial court, nor the appellate court, can rewrite the parties’ contract. Both parties agreed that Mrs. Palmero was a ‘non-borrower’ responsible for either repaying the debt or vacating the property upon her husband death. Having done neither, the bank’s foreclosure was proper.”

About Author: David Wharton

David Wharton, Editor-in-Chief at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has nearly 20 years' experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. He can be reached at [email protected].

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