A divided Florida Supreme Court ruling will allow foreclosure on the non-borrowing spouse of a reverse mortgage holder who failed to redeem the property after the note became due.
The case, WMVF v. Palmero, centered on discrepancies between the promissory note and the mortgage document. Prior Florida Supreme Court rulings for forward mortgages dating back nearly 100 years stated that in those cases, the note takes priority over the mortgage. This decision extends that to reverse mortgage legal proceedings.
The ruling sends the case back to the trial court, which is expected to approve the foreclosure motion, said William McCaughan, the lead counsel for WMVF, who argued the case before the Florida Supreme Court.
The foreclosure against Luisa Palmero was first filed in 2010, and even though the loan is a Federal Housing Administration Home Equity Conversion Mortgage, because the case predates
"We're disappointed in the results since Mrs. Palmero, who signed the [reverse] mortgage as a borrower, believed that the lender could not foreclose until her death," said Jeffrey Hearne of Legal Services of Greater Miami, which represented her in the appeal.
The Department of Housing and Urban Development in 2015 created a program that would allow the non-borrowing spouses in those older loans to remain in their homes, and the lender should have availed itself of using this program, said AARP Foundation Litigation Sr. Attorney Julie Nepveu, who filed an amicus brief in the case supporting Luisa Palmero.
Roberto Palmero was the borrower on a reverse mortgage originated by OneWest Bank (WVMF Funding is the successor in interest to OneWest). He was listed as the sole borrower on four of the five documents, except the mortgage, where Luisa Palmero is also listed as a borrower.
After Roberto Palmero's death, the reverse mortgage became due for repayment. When that didn't occur, OneWest started foreclosure proceedings.
The initial trial court ruled that Luisa Palmero was not a co-borrower and halted the foreclosure under the 2014 federal rules.
But Florida's Third Circuit rejected that approach because it was not used as an affirmative defense by her attorney at the time. Instead, a majority relied on its own past rulings in two cases involving Reverse Mortgage Solutions, and said the mortgage unambiguously listed Luisa Palmero as a borrower.
In a 5-2 decision, the Florida Supreme Court stated that the approach in all three cases was wrong, quashing the Third Circuit's ruling.
"It is true that Mrs. Palmero also joined in the mortgage — as would have been required for the lender to have a valid security interest because the mortgaged property was her homestead, and that she did so by signing her name in the 'Borrower' signature block," Justice Alan Lawson wrote in the majority opinion. "However, contrary to the Third District's holding, the location of Mrs. Palmero's signature on the mortgage did not unambiguously and as a matter of law, make her a co-borrower under the mortgage."
Florida has a homestead provision that protects a homeowner's property rights.
"Spouses often sign the mortgage when they're not a borrower to convey their homestead right," McCaughan added.
In his dissent, Justice Jorge Labarga argues that reverse mortgages should be treated differently. "The majority looks to a nearly one-hundred-year-old precedent which undoubtedly does not consider the intricacies of reverse mortgages, nor the incentives for the parties involved," Labarga wrote in the minority opinion.
That is the opinion that should have prevailed, Nepveu argued. The court should have relied on a federal case from 2013,
"It's not that they have to ignore the normal principles relating to forward mortgages and reading all the documents together, but in doing that they also have to consider that you have to construe these contracts in accordance with the intention of the parties," Nepveu said.
Florida, since 2015, has the second largest share of HECM originations in the country; between 2011 and 2014, it was third behind Texas. In 2009, Florida's share was almost equal to California, which all along has been the state with the most endorsements. In fiscal year 2020, which ended last Sept. 30, there were 41,819 FHA HECM endorsements nationwide, of which 8.3% were for properties in Florida.
