A recent reverse mortgage court decision in Florida could have an impact on loans in other states. The court’s determination that a loan can be called due and payable at the maturity date rather than upon the death of the borrower has the potential to drive decisions in other states, an attorney tells RMD. It all comes down to a contract’s language.

In Hayes v. Reverse Mortgage Solutions, Inc., the Court ultimately decided in November of 2018 that acceleration of a reverse mortgage loan based on the borrower’s death was optional as it was written, which does not automatically amount to a justification of Florida’s statute of limitations as a borrower’s heir contended in an attempt to avoid foreclosure.

The possibility for this scenario to repeat itself in other states makes the details of this case worthy of attention.

Case particulars

At issue was a clause in a reverse mortgage contract that gave two possible scenarios that would allow the borrower to accelerate the debt: the borrower’s death, or a transfer of the property’s title.

In this instance and upon the borrower’s death in 2008, the borrower left the property to her daughter, who then moved into the home. A foreclosure action was filed the following year by the holder of the reverse mortgage, Bank of America, which would later say that the case was closed in 2013. Bank of America exited the reverse mortgage origination business in February 2011.

By September 2014, Reverse Mortgage Solutions had become the holder of the reverse mortgage and filed an instant foreclosure action that month, and the borrower’s heir moved to dismiss that action in court on account of Florida’s statute of limitations, since the death of the borrower and transfer of the property’s title had occurred over five years earlier. When the trial court ruled in favor of foreclosure, the heir appealed.

Ultimately, the Court decided to affirm the foreclosure decision, with the reasoning being that the death of the borrower makes for an optional acceleration, which does not trigger the statute of limitations. In the summary of the decision, the judge included various examples of precedent from cases involving forward mortgages, but found enough similarity to view those prior decisions as guidance in this instance.

“Correct interpretation”

“It appears to me that the Court in this case correctly interpreted the contract before it,” said Cathy Welker, an attorney at Bryan Cave Leighton Paisner, LLC based in New York, N.Y. Welker was tasked with summarizing the findings of the case on her law firm’s website.

“Where mortgage contract language makes clear that acceleration is optional at the mortgagee’s election, a definitive statement is necessary to accelerate the debt,” Welker told RMD. “Here, the Court refused to find an acceleration based on the default of the borrower because that is not how the mortgage contract in this case was written.”

As for whether or not this case could have broader ramifications to the larger reverse mortgage industry outside the state of Florida, Welker stated that while she couldn’t say for certain, the decision in this case could be examined if a similar legal issue comes up in another jurisdiction and could serve to guide a future determination.

“The laws of the different states vary greatly on issues of statute of limitations,” Welker said. “Application of this decision out of state depends on whether that state addresses acceleration in a manner similar to Florida. If it does, then this decision also may be persuasive although not binding. It may therefore, provide some guidance in jurisdictions outside of Florida where the law is unsettled or is similar to Florida.”

What reverse firms can learn

Welker added that the bottom line for reverse mortgage firms is that they should stay on top of their possible foreclosures, as well as all of the governing laws around them to avoid an expiration that will be subject to a statute of limitations.

“The best strategy is to proactively manage foreclosures so that the statute is not in danger of expiration and develop servicing guidelines that keep track of the statutes of limitations and how they are interpreted in each state,” she said. “That being said, it appears that in Florida servicers and investors are better protected from SOL claims by a mortgage contract that states acceleration is optional at the mortgagee’s election.”

This may not be the case in other jurisdictions, so firms should take note of the legal realities in other territories and proactively manage how a territory’s law interacts with the languages found in loan contracts.