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Jason Cornell Jan. 6, 2019

A reverse mortgage allows older homeowners to receive monthly payments from a lender based on the homeowners’ equity in their home. In a typical scenario, a lender makes monthly payments to the homeowner and the homeowner’s obligation to repay the lender comes due only when the homeowner dies or moves from the home. See Smith v. Reverse Mortgage Solutions, Inc., 200 So.3d 221 (Fla. 3d DCA 2016). Unfortunately, sometimes lenders improperly seek to foreclose on the mortgage after the death of one homeowner, even though the other homeowner is still alive and living in the home. This is what a lender allegedly did in Smith v. Reverse Mortgage, which the Third District Court of Appeal found was improper and violative of both state and federal law.

Many reverse mortgages are insured through HUD under 12 USC § 1715z-20.  Under 12 USC § 1715z-20(j), the federal government protects homeowners from losing their home while they are still living.  That section provides in relevant part:

The Secretary [of HUD] may not insure a home equity conversion mortgage [i.e. a “reverse mortgage”] 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.

This section defines homeowners to include the spouse of the homeowner: “[f]or purposes of this subsection, the term ‘homeowner’ includes the spouse of a homeowner.”  Id. The clear purpose of 12 USC § 1715z-20 is to protect elderly homeowners from losing their home when one spouse dies, however, the other spouse remains in the home.  Smith v. Reverse Mortgage Solutions, Inc., 200 So.3d at 227.

In Smith, the lender foreclosed on a reverse mortgage after one spouse passed away, even though the second spouse was still alive. The surviving spouse alleged she was a signed borrower on the mortgage, yet the lender still sought to foreclose. The trial court held a bench trial and entered judgment awarding foreclosure. On appeal, the Third Circuit reversed, holding that the surviving spouse was a co-borrower under the mortgage. Because she was a co-borrower, the Third District concluded that a condition precedent to the lender’s ability to foreclose had not been met. Id. at 223-24.

The Smith decision highlights how Florida courts may protect homeowners under a reverse mortgage. Unfortunately, lenders sometimes improperly foreclose on homeowners with traditional or reverse mortgages.  Under either scenario, it is important that borrowers who are faced with foreclosure make sure their rights are protected. The Third District in Smith rejected the lender’s wrongful foreclosure and instead enforced federal regulations designed to protect older homeowners.