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Eleventh Circuit Interprets Federal Statute Regarding Mortgage Insurance Program for Reverse Mortgages

In Estate of Caldwell Jones, Jr. v. Live Well Financial, Inc., the Eleventh Circuit Court of Appeals opined on whether 12 U.S.C. § 1715z-20 could be construed to prevent foreclosure under a reverse mortgage contract that, by its terms, permits the lender to demand repayment immediately following a borrower’s death, even if his or her non-borrowing spouse continues to live in the mortgaged property.  The Court ultimately determined that the statute could not be so broadly construed, because the statute addresses the types of mortgages that HUD may insure, but does not alter or affect the rights that a lender possesses under a reverse mortgage contract.

In this matter, borrower Caldwell Jones obtained a reverse mortgage, which was immediately assigned to Live Well Financial, Inc. (“Live Well”).  The mortgage was secured by a home that Jones shared with his wife and daughter.  The mortgage was covered by 12 U.S.C. § 1715z-20, which authorizes the Secretary of the Department of Housing and Urban Development (“HUD”) to establish a mortgage insurance program designed to encourage lenders to offer reverse mortgages.  Section 1751z-20 outlines the conditions that a reverse mortgage must meet to be insurable under the program.  The condition relevant to this matter “prohibits HUD from insuring a reverse-mortgage contract that permits foreclosure while either the borrowing homeowner or his or her spouse continues to reside in the mortgaged property.” 

By the terms of the mortgage contract, the “Borrower” was defined as “Caldwell Jones, Jr., a married man.”  Jones’s wife was not designated a “Borrower” and did not meet the minimum age to qualify for a reverse mortgage. Jones died shortly after obtaining the reverse mortgage, at which point Live Well asserted a right to immediate repayment in full, a term that was set out under the mortgage contract.  When the loan was not repaid, Live Well initiated non-judicial foreclosure proceedings.  In response, Jones’s wife, individually and on behalf of both the Estate of Caldwell Jones and her minor daughter (collectively, “the Estate”), filed a petition in state court seeking injunctive relief to prevent the foreclosure sale arguing that 12 U.S.C. § 1715z-20(j) prohibited Live Well from foreclosing on the property at issue while she lived in the home because even though she was not a “Borrower” under the terms of the mortgage contract, she was nonetheless a “homeowner” protected by the statute.  A state court judge granted a temporary restraining order and enjoined the foreclosure.  Live Well then removed the case to federal court and filed a motion to dismiss.  The district court granted that motion, concluding that “§ 1715z-20(j) addresses only HUD’s authority to insure loans and does not affect Live Well’s contractual right to foreclose.”  An appeal to the Eleventh Circuit followed.

On appeal, the Estate argued that the Eleventh Circuit should reverse the District Court’s order dismissing the action to enjoin the foreclosure because it was “contrary to public policy and Congress’s express intent to protect the non-borrowing surviving spouse of a [r]everse [m]ortgage [b]orrower from displacement from their residential home.”  The Court disagreed with the Estate’s contention.  First, the Court found that the Lender had a right to foreclose under state law and the terms of the mortgage contract.  The mortgage contract authorized the sale of the property to recover the balance due if “[a] Borrower dies and the Property is not the principal residence of at least one surviving Borrower.”  Second, under the plain terms of the mortgage contract, the Court determined that the lender clearly had authority to foreclose upon the death of Jones, the sole borrower.

The Estate further argued that irrespective of the contract terms, 12 USC § 1715z-20(j) protected Jones’s wife because of Congress’s purported intent in enacting the statute, which limits the insurability of a reverse mortgage under HUD to mortgage contracts that defer a homeowners’ loan obligations beyond the homeowner’s death until his spouse either dies or sells the property.   Under the Estate’s argument, the federal law effectively superseded the mortgage contract’s contrary terms.

The Court found that, irrespective of whether HUD insured Jones’s mortgage contract in violation of 12 USC § 1715z-20(j), “the mortgage contract here created and embodies an independent legal relationship between Live Well and Caldwell. Section 1715z- 20(j) 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.”  Therefore, the Court concluded, 12 U.S.C. § 1715z-20(j) did not alter or limit Live Well’s right to foreclose under the terms of its valid mortgage contract.  As a result, the Court found that the district court properly granted Live Well’s motion to dismiss.

  • Heather  Stern

    Heather is a Partner with PIB Law and focuses her practice on the representation of financial institutions in connection with financial services-related litigation matters. 

    Prior to joining PIB Law, Heather was a Partner at Kralik ...

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