Recent Court Decision Provides Lenders The Ability To Foreclosure On Reverse Mortgages

By: Lance T. Denha, Esq.

Over the last several years there has been a battle brewing between lenders (i.e. mortgagees) and borrowers of reverse mortgages. A Florida appellate court in the Eleventh Circuit has ruled that a Home Equity Conversion Mortgage (“HECM” and more commonly known as Reverse Mortgages) permits Mortgagees to foreclosure on HECM Loans when the borrower has passed but leaves a surviving spouse. Put another way, a non-borrowing spouse under a reverse mortgage, or HECM, is not protected from foreclosure by the statute authorizing the HECM program.

Oftentimes, a married couple assumes that they can occupy the house without fear of losing the house after the death of one of the spouses. That was usually the conventional thinking until the recent decision in Estate of Jones v. Live Well Financial, Inc. which concluded after many court appeals that a lender under a HECM loan would be permitted to foreclose on a home upon the death of the sole borrower and despite leaving a surviving spouse and not having the signature of a surviving spouse on the reverse mortgage loan.

This decision impacts many elderly homeowners in the Eleventh Circuit because many of these elderly homeowners are under the impression that the surviving spouse can remain in the home after the death of the first spouse without any fear of foreclosure. Well, based on the marketing of these products, many elderly homeowners would not have been wrong, until now in this particular court.  In fact, the implied intent of Congress was to protect the non-borrowing surviving spouse of a reverse mortgage from displacement from their residential home.

While acknowledging that Congress’ intent was indeed used to protect a surviving spouse of homeowner’s from foreclosure, the Congressional Statute that the homeowners argue would be favorable to this issue, the Judge in the Eleventh Circuit “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”. This opinion states that HECM’s are a private contract, and that once this contract is breached, it would be subject to foreclosure proceedings.

This ruling makes it imperative that elderly couples understand the importance of making sure both spouses are considered “Borrowers” for purposes of a HECM loan. Based upon this decision it is highly advisable moving forward to seek out the proper guidance in knowing both spouses rights on loans that have only one spouse on the security deed, as this one court has now concluded that surviving spouse is considered a non-borrower and lenders have the right to foreclose on these types of reverse mortgages.