Determining Who is a Borrower Under a Reverse Mortgage

Westlaw Journal

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As attorneys representing the financial services industry well know, the financial crisis of 2007-2008 resulted in a wave of foreclosures across the country as borrowers struggled to make payments on their mortgages.

The sudden increase in the volume of foreclosures required courts in many states to address an issue that had not been fully resolved or explained in more prosperous periods: How do you determine whether a lender (or the lender’s representative) has standing to pursue the foreclosure?

However, during litigation over whether the party claiming a right to foreclose was the proper party, litigants rarely questioned whether the foreclosure was brought against the right borrower.

Lenders generally understood that the person who signed the promissory note evidencing the mortgage debt was the “borrower” for that loan. If the borrower co-owned the mortgaged property with another person, then each owner would execute the mortgage and each owner would be subject to a foreclosure action brought by the lender if the loan went into default.

Over the past few years, litigation over reverse mortgages has revealed that the analysis may not be so simple. Beginning with two decisions by the Florida 3rd District Court of Appeal, courts have identified a lack of clarity as to who is the “borrower” under a reverse mortgage instrument.

That determination has significant consequences: Under the terms of a reverse mortgage, the lender has the right to accelerate the debt and enforce its security interest against the mortgaged property upon the death of the “borrower.”

Republished with permission. The complete article first appeared in Westlaw Journal Bank & Lender Liability on August 20, 2018.