Mortgagees of Home Equity Conversion Mortgages (“HECMs,” more commonly known as reverse mortgages) obtained a significant victory in an important federal appellate court, which ruled last month that non-borrowing spouses are not protected from foreclosure by the statute authorizing the HECM program. In Estate of Jones v. Live Well Financial, Inc., the United States Court of Appeals for the Eleventh Circuit concluded that 12 U.S.C. § 1715z-20(j)’s safeguards do not limit a mortgagee’s “right to foreclose under the terms of its valid mortgage contract.” The Eleventh Circuit decision represents a significant development since the United States District Court for the District of Columbia determined in Bennett v. Donovan that HUD violated Section 1715z–20(j) by insuring reverse mortgages that permitted the loan obligations to come due upon the borrower’s death regardless of whether the non-borrowing spouse was still alive.

In 2014, Caldwell Jones acquired a reverse mortgage that was secured by his Stockbridge, Georgia, home and covered by HUD’s mortgage insurance program. Jones shared the home with his wife and daughter, though Jones was named the sole “borrower” under the security deed. Jones died in 2014. The assignee, Live Well Financial, Inc. (“Live Well”), subsequently initiated foreclosure proceedings. Jones’ wife, Vanessa Jones, petitioned for injunctive relief to prevent the foreclosure sale. The petition asserted that Section 1715z-20(j) prohibited Live Well from foreclosing while Vanessa Jones resided in the home. The Superior Court of Henry County, Georgia, enjoined the foreclosure sale proceedings, Live Well removed the case to federal court, and the district court granted Live Well’s motion to dismiss.

On appeal, Vanessa Jones and the Estate of Caldwell Jones argued that the district court’s dismissal violated Congress’s intent in Section 1715z-20(j) to “protect the non-borrowing surviving spouse of a [r]everse [m]ortgage [b]orrower from displacement from their residential home.” Section 1715z-20(j) provides, in excerpted part, that:

The Secretary may not insure a [HECM] under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term “homeowner” includes the spouse of a homeowner.

12 U.S.C. § 1715z-20(j) (emphasis added).

The court agreed that Section 1715z-20(j) reflected an intent to “safeguard widowed spouses like Vanessa” by including the spouse of a homeowner in its definition of “homeowner.” However, Judge Newsom reasoned: “[Section] 1715z-20(j)’s plain language applies only to HUD and speaks only to what the Secretary can and cannot do . . . . 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.” As with all standard HECMs, the mortgage at issue in Estate of Jones deferred foreclosure following a borrower’s death “only as long as a ‘surviving Borrower’ still lives in the mortgaged property.” Vanessa Jones was not designated a “borrower” under the mortgage contract. Thus, the Eleventh Circuit affirmed the district court’s dismissal, and Live Well’s “private contractual right” to demand payment.

The Eleventh Circuit’s jurisdiction over federal cases originating in Florida, a state of particular relevance to the reverse mortgage industry due to the number of HECM loans in the state, highlights the significance of Estate of Jones. Without deciding whether HUD should have insured the mortgage at issue, the Eleventh Circuit in Estate of Jones joins the Fifth Circuit’s unpublished Jeansonne v. Generation Mortgage Co. decision in rejecting the argument that Section 1715z–20(j) precludes a mortgagee’s contractual “right to foreclose under the terms” of a valid mortgage contract. In addition to Florida’s Third District Court of Appeal opinion in OneWest Bank, FSB v. Palmero, Estate of Jones should help reduce litigation against foreclosing HECM mortgagees where a surviving spouse is not a “borrower” under the mortgage contract.