The Eleventh Circuit recently rejected a defense to foreclosure based on a federal statute governing insurance of reverse mortgages by the Department of Housing and Urban Development (“HUD”).

HUD administers a mortgage-insurance program designed to induce lenders to offer reverse mortgage loans to elderly homeowners.  If the loan meets certain conditions, HUD insures against any outstanding balance owed on the loan.  One condition, contained in 12 U.S.C. § 1715z-20(j), provides:

The Secretary may not insure a home equity conversion 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. For purposes of this subsection, the term “homeowner” includes the spouse of a homeowner.

Borrowers and their estates have argued the statute prevents lenders from seeking repayment of a loan subject to a reverse mortgage until either the sale of the home, or the death of both the borrower and his or her non-borrowing spouse – even if the loan documents provide to the contrary.   The Court in Estate of Caldwell Jones, Jr. v. Live Well Financial, Inc., No. 1:17-cv-03105-TWT (decided Sept. 5, 2018) rejected this argument.

In Estate of Caldwell Jones, Jr., former NBA star, Caldwell Jones, Jr., obtained a reverse mortgage secured by his home.  Jones lived in the home with his wife and his minor daughter, until he passed away in 2014.  Jones’s wife was not a co-borrower.

When Jones passed, the lender demanded repayment-in-full, citing a provision that required “‘immediate payment-in-full of all sums secured by this Security Instrument’” if “’[a] Borrower dies and the Property is not the principal residence of at least one surviving Borrower.’”  The Estate refused to repay the loan, maintaining that section 1715z-20(j) deferred repayment until both spouses had passed or the home had sold.  Live Well Financial commenced nonjudicial foreclosure.

In response, the Estate filed a petition seeking an injunction based on section 1715z-20(j).  A state court judge granted a temporary restraining order.  Live Well Financial then removed the case to federal court, and moved to dismiss, arguing that the statute only restricted HUD’s Secretary from issuing insurance on certain mortgages, and did not affect the rights of the parties under contract.  The District Court agreed with Live Well Financial, dismissing the action.  The Estate appealed.

The Eleventh Circuit upheld the dismissal.  The Court held: the statute’s “plain language applies only to HUD and speaks only to what the Secretary can and cannot do.”  “[E]ven assuming that HUD insured Caldwell’s mortgage in violation of § 1715z-20(j), Live Well still had a private contractual right—independent of the statute—to demand immediate payment and, if necessary, pursue foreclosure. “ (emphasis added).

In dismissing the Estate’s defense based on section 1715z-20(j), the Eleventh Circuit joins a host of other courts that have similarly concluded that the statute does not supersede, or render unenforceable, contract provisions that contradict the statute’s terms.  (See Jeansonne v. Generation Mortg. Co., 644 F. App’x 355, 357 (5th Cir. 2016) (“[W]hile HUD may have violated § 1715z-20(j) by insuring a reverse mortgage that failed to protect … the non-borrowing spouse … this would not affect [the lender’s] right to foreclose under the terms of the contract it executed with [the borrower].”); In re D’Alessio, 2018 WL 2972340, at *5 (Bankr. D. Mass. June 11, 2018) (“While § 1715z-20(j) speaks to the circumstances under which HUD should properly insure a reverse mortgage, nothing in the statute speaks to when a lender is allowed to foreclose.”) (internal quotations omitted); Pikaart v. Fin. Freedom, 2017 WL 5624747, at *4 (W.D. Mich. Oct. 31, 2017) (lender was entitled to foreclose against non-borrowing spouse under the terms of the mortgage contract, and § 1715z-20(j) did not affect that right); Fed. Nat’l Mortg. Ass’n v. Takas, 2017 WL 3016785, at *5 (D. Utah July 14, 2017) (“By its terms, Section 1715z-20(j) does not apply to lenders and does not affect the validity or enforceability of the terms of contracts between lenders and borrowers.”); Harris v. Castro, 2015 WL 13547618, at *3 (N.D. Ga. Nov. 19, 2015) (denying request for TRO because the lender “ha[d] a separate security deed which is not contingent upon the validity or [e]ffect of” § 1715z-20(j) or its implementing regulations); Bombet v. Donovan, 2015 WL 1276555, at *5 (M.D. La. Mar. 19, 2015) (“[W]hile HUD may have violated 12 U.S.C. § 1715z-20(j) when it insured [the] reverse mortgage, this did not render the mortgage contract … legally unenforceable or invalid.”); Aldi v. Wells Fargo Bank, N.A., 2015 WL 3650297, at *7 (D. Conn. Feb. 17, 2015) (“[T]he Court agrees with defendants that 12 U.S.C. § 1715z-20(j) governs HUD’s insurance of reverse mortgages, not the independent contractual relationship between mortgagors and mortgagees.”); Kizler v. Liberty Reverse Mortg., 2014 WL 12561056, at *7 (C.D. Cal. May 5, 2014) (“Despite Plaintiff’s arguments to the contrary, 12 U.S.C. § 1715z-20(j) does not strip lenders of the right to foreclose.”)).

The Eleventh Circuit opinion in Estate of Caldwell Jones, Jr. v. Live Well Financial, Inc. can be located here.