The Florida Third District Court of Appeal recently reversed a judgment foreclosing a reverse mortgage, holding that the surviving spouse was a “borrower” under the terms of the mortgage, and thus the lender could not meet the condition precedent of her death in order to foreclose.

A copy of the opinion is available at: Link to Opinion.

In 2008, husband and wife signed a promissory note secured by a “home equity conversion mortgage,” commonly known as a “reverse mortgage.” The wife signed the mortgage, but not the promissory note.

After the husband died in 2009, the lender sued to foreclose, alleging that he was the sole borrower and that his death triggered the acceleration clause in the mortgage.

In her answer, the wife denied that all conditions precedent to acceleration and foreclosure had been met or had occurred.

After a bench trial, the court entered a final judgment of foreclosure in the lender’s favor, which contained no findings of fact or adjudication as to whether all conditions precedent had occurred.

The wife appealed, arguing that she was a co-borrower under the mortgage and that acceleration was unlawful under the federal statute governing insurability of reverse mortgages,12 U.S.C. 1715z-20(j). Under this statute, the surviving spouse argued, the mortgage could not be foreclosed until she died or no longer lived in the property as her principal residence.

The Appellate Court noted the issue was whether the trial court erred in construing the reverse mortgage and determining that the wife was not a “borrower” as defined therein, and that all conditions precedent to foreclosure had impliedly occurred.

The Court noted that it is settled Florida law that “in a mortgage foreclosure action, the plaintiff must plead and prove the occurrence of all conditions precedent.”  The Court noted that, because the husband’s death was the only basis for acceleration and foreclosure, if the wife was a “borrower” under the mortgage, then a condition precedent to the lender’s right to foreclose had not occurred and foreclosure was improper.

After analyzing the plain language of the mortgage, including that it clearly reflected that both husband and wife were the “borrower,” as well as the paragraph in the mortgage that reflected the condition precedent required by federal law in order to insure reverse mortgages, i.e., that the lender can accelerate only if a borrower dies and the property is not the principal residence of the surviving borrower, the Court concluded that the wife was a co-borrower under the mortgage and, thus, a condition precedent to foreclosure had not occurred.

The Appellate Court went on to add that, although its analysis could end there, its conclusion was buttressed by the Florida Constitution, which requires a spouse’s signature in order to create a security interest against homestead property.  Also, the Court noted that the mortgage contained a covenant that the “borrower” had the right to mortgage, grant and convey the property, which would be meaningless and inaccurate since the husband, could not, by himself, encumber or convey the property.

Finally, the Appellate Court reasoned that its conclusion was clearly supported by the federal law governing “home equity conversion mortgages” insured by the Department of Housing and Urban Development (HUD).

The parties conceded at oral argument that the reverse mortgage at issue was a “home equity conversion mortgage” insured by HUD, and the applicable statute prohibits the HUD Secretary from insuring a reverse mortgage unless the obligation to repay is deferred until the “homeowner’s” death, the sale of the home, or other events specified by regulation. Moreover, the statute expressly defines “homeowner” as including the homeowner’s spouse.

Even though the federal statute only imposed obligations on the HUD Secretary and requires certain provisions in reverse mortgages, the Court reasoned that because under applicable Florida case law it must construe a contract in accordance with the statutes that regulate and govern the contract, and the clear purpose of the statute is to protect against displacing elderly homeowners, it would be rendered meaningless if a mortgagee could foreclose while a “homeowner,” as defined by the statute, still lives in the property as his or her principal residence.

The Court concluded, as a matter of law, that the wife was a “borrower” under the reverse mortgage and that the lender was required to establish, as a condition precedent to foreclosure, that (a) the wife had died, or (b) as of the date of trial, the property was not her principal residence.

Because the appellate record did not reflect whether the property was the wife’s principal residence on the date of trial, the foreclosure judgment was reversed and the case remanded for a new trial only on the issue of whether the encumbered property was the wife’s principal residence on the date of trial.