Florida Supreme Court Quashes Third District Holding: Note Supersedes Mortgage if Conflict Arises

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In WVMF Funding v. Palmero, the Supreme Court of Florida quashed the Third District Court of Appeals’ holding in OneWest Bank, FSB v. Palmero, 283 So. 3d 346 (Fla. 3d DCA 2019) that Mrs. Palmero was a “borrower” under a mortgage “as a matter of law.” In its holding, the Court emphasized that, pursuant to Graham v. Fitts and Hotel Mgmt. Co. v. Krickle, the “mortgage must be read alongside the note it secures” and “the note prevails in the event of the conflict.”

In this case, the Mr. Roberto Palmero and Mrs. Luisa Palmero signed five documents related to a reverse mortgage on their primary residence and homestead: (1) a residential loan application; (2) a home equity conversion loan agreement; (3) an adjustable-rate note; (4) a nonborrower spouse ownership interest certification; and (5) a reverse mortgage.

The loan application, home equity conversion loan agreement, and note were signed solely by Mr. Palmero and identified him as the sole borrower. Of particular significance, the note defined “borrower” as “each person signing at the end of this Note.”

Both Mr. and Mrs. Palmero signed the nonborrower spouse ownership interest certification and the reverse mortgage. Although the certification identified Mrs. Palmero as the “nonborrower spouse,” and both the certification and mortgage defined the “borrower” as Roberto Palmero, Mrs. Palmero signed the mortgage document beneath a sentence in the mortgage stating, “BY SIGNING BELOW, Borrower accepts and agrees to the terms contained in this Security Instrument and in any rider(s) executed by Borrower and recorded with it.”

Mr. Palmero subsequently passed away — triggering the acceleration of the debt prior to the repayment date. When his estate did not repay the loan, OneWest (predecessor in interest to WVMF Funding) attempted to foreclose. Mrs. Palmero and her two children (Respondents) argued that Mrs. Palmero was a co-borrower under the mortgage, and thus, the property could not be foreclosed upon. They cited to the following language contained in the note and mortgage regarding conditions on enforcement of the debt: “A Borrower dies and the [mortgaged] Property is not the principal residence of at least one surviving Borrower.”

The trial court held that Mrs. Palmero was not a “co-borrower,” but denied foreclosure “based on a federal statute that governs the insurability of reverse mortgage by the Secretary of the Department of Housing and Urban Development.” On appeal, the Third District held that the trial court erred in denying foreclosure based upon the relevant federal statute. However, it held that the Third District erred in finding that Mrs. Palmero was not a “co-borrower” — holding, “as a matter of law,” that the mortgage defined her as a “borrower.” The Supreme Court accepted jurisdiction to resolve “the express and direct conflict between the Third District’s decision and our decisions in Graham and Krickl.” It quashed the Third District Court of Appeals’ holding that Mrs. Palmero was a “borrower” under a mortgage “as a matter of law.”

The Supreme Court reasoned that Mrs. Palmero’s signature on the mortgage did not make her a “co-borrower” under the mortgage as a matter of law. Emphasizing its holdings in Graham and Krickl, the Court held that courts should read the mortgage and the note together and should “look to the note to resolve any conflict.” Here, it found that both the note and mortgage defined Mr. Palmero as the “borrower.” Thus, is held that the note’s definition of Mr. Palmero as the sole borrower resolved the conflict between Mrs. Palmero’s signature on the mortgage and the definition of “borrower” in the note. It found the Respondents’ argument (and the argument from dissenting justices) that precedent set in Graham and Krickl only applies to “traditional mortgages” unpersuasive.

Accordingly, it quashed the Third District’s holding that Mrs. Palmero was a “surviving co-borrower,” and noted disapproval of the Third District’s decisions in Smith v. Reverse Mortgage Solutions, Inc. and Edwards v. Reverse Mortgage Solutions, Inc., to the extent they are inconsistent with the Court’s holding.

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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