Debtor Not a Borrower under Reverse Mortgage

Posted by NCBRC - April 23, 2019

The debtor, who had only a remainder interest in her mother’s property and was not a signatory to her mother’s reverse mortgage, was not a “borrower” entitled to remain in the residence after her mother’s death without paying the underlying debt. Reverse Mortgage Solutions v. Nunez, No. 18-22204 (S.D. Fla. March 21, 2019).

Aleida Nunez’s mother borrowed $531,000 secured by a reverse mortgage on her residence. The loan was memorialized in a Home Equity Conversion Note (Note) and a Home Equity Conversion Loan Agreement (Loan Agreement). The Note stated that the loan was secured by property described in a Security Instrument. While Ms. Nunez’s mother was the only signatory to the Note and Loan Agreement, Ms. Nunez was listed on the Security Instrument as having a “remainderman interest,” and she signed the document as “remainderman.” After her mother died, Ms. Nunez filed for chapter 13 bankruptcy and proposed a plan under which she would be treated as a borrower under the reverse mortgage, allowing her to cure tax and insurance defaults on the residence while continuing to live in the house without paying off the underlying loan. RMS objected to the plan, arguing that Ms. Nunez was not a borrower and that her mother’s death rendered the debt due.

The bankruptcy court reviewed the many documents surrounding the reverse mortgage but ultimately relied on the Security Instrument to find that Ms. Nunez was a borrower along with her mother on the loan. It confirmed her plan. On RMS’s motion for reconsideration, the court found the Security Instrument to be unambiguous and reached the same conclusion.

On RMS’s appeal, the district court found that in order to determine the intent of the parties to a transaction, Florida applies a “doctrine of mutual construction” requiring that when there are multiple documents executed at the time of the transaction, they should all be taken into consideration. The district court found guidance in a recent case out of Florida, Onewest Bank, FSB v. Palmero, 2018 W L 1832326 (FIa. 3d DCA 2018), where the mortgage and many other documents executed contemporaneously with the subject transaction were signed by the husband as “borrower.” The wife signed only the mortgage as a borrower, and on that document she was described as having an interest in the property as one of three remaindermen. The Palmero court found that, taking all the documents into consideration, only the husband was the “borrower.”

In this case, the court noted that Ms. Nunez’s mother was the sole signatory on eight documents relating to the reverse mortgage, including the Note, the Loan Agreement, the Residential Loan Application for Reverse Mortgages, a Borrower’s Certificate, and the Settlement Statement for the Reverse Mortgage. Significantly, the Note listed only Ms. Nunez’s mother as the borrower on the reverse mortgage. The court reasoned that treating Ms. Nunez as a borrower on the reverse mortgage based on the Security Instrument would nullify the terms of the Note, whereas the reverse was not true. The district court therefore found that the bankruptcy court erred in relying solely on the Security Instrument when it concluded that Ms. Nunez qualified as a borrower under the reverse mortgage.

Holding that Ms. Nunez was not a borrower, the court reversed and remanded.

Nunez SD Fla March 2019


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