Florida Supreme Court Overrules 3rd District Finding Spouse Not a Reverse Mortgage Co-Borrower

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The Florida Supreme Court recently held that a reverse mortgage borrower’s surviving spouse, who remained in the home as her principal residence following the borrower’s death, is not a borrower and quashed the Third District Court of Appeals’ decision permitting foreclosure of the mortgage.

The borrower initially applied for a reverse mortgage loan with the spouse as co-borrowers, but then withdrew the application and re-applied for the same FHA-insured loan as a sole borrower.  The spouse did not sign the note, or the loan agreement, which defined the primary borrower as the sole borrower, but the spouse did sign the mortgage, along with the children of the borrower, above signature lines that were preprinted with their names and the word “Borrower.”  The documents executed at closing included a Non-Borrower Spouse Certification, pursuant to which the spouse acknowledged she is not a borrower under the loan.

The primary borrower died, triggering acceleration of the debt.  The estate did not repay the loan, and the lender sought to foreclose.  The surviving spouse defended against the foreclosure action arguing that she was a co-borrower under the mortgage.  Language in the mortgage conditioned enforcement of the debt on the following:  “A Borrower dies and the Property is not the principal residence of at least one surviving Borrower.”  The trial court explicitly found the spouse was not a borrower but nonetheless denied foreclosure based on a federal statute governing the insurability of reverse mortgages by HUD.  On appeal the Third District held, upon rehearing en banc, that the trial court erred by relying on the federal statute to deny foreclosure, but disagreed with the trial court’s finding that the spouse was not a co-borrower, ruling that, “as a matter of law” the mortgage defined her as a “Borrower.” 

The Florida Supreme Court reversed the Third District’s ruling, finding that the court did not properly apply nearly one hundred year-old precedent.  It noted the general rule in foreclosure actions is that a mortgage should be construed together with the note it secures.  Under the court’s precedent, where there is a conflict between the terms of the note and the mortgage, the note prevails.  Because the note expressly defined the primary borrower as the sole “borrower,” the court found that his death satisfied the conditions of the note, and foreclosure was available to the lender.

The dissenting opinion of one Justice noted that the court’s precedent only involved traditional mortgages, not considering the intricacies of reverse mortgages.  It argued that conventional mortgages are distinguishable from reverse mortgages, so the court need not rely so heavily on traditional mortgage precedent. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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