B-Ball Player’s Reverse Mortgage Overrides Federal Law

September 11, 2018

When it comes to HUD-insured reverse-mortgages, should federal law trump contrary contract terms? This is a question recently decided by the 11th Circuit Court of Appeals in Estate of Jones v. Live Well Fin., Inc., No. 17-14677, 2018 WL 4211452, (11th Cir. Sept. 5, 2018). In a unanimous decision, the court answered that question in the negative.

The circumstances giving rise to this lawsuit are as follows. In 2014, former Philadephia 76er basketball player, Caldwell “Pops” Jones, obtained a home equity conversion mortgage (“reverse mortgage”) on his Georgia home, which he shared with his wife, Vanessa Jones, and their minor child. Id at *2. The deed defined the borrower as “Caldwell Jones, Jr., a married man.” Id. Vanessa was not named as a borrower on the reverse mortgage, nor had she attained the age of 62 years old, which is the minimum age of eligibility for a reverse mortgage. Id. The original lender assigned the reverse mortgage to defendant Live Well Financial (“Live Well”). Id. Shortly thereafter, Caldwell passed away and, per the terms of the reverse mortgage contract, Live Well sought immediate repayment of the loan disbursements made to Caldwell. Id. When they were not repaid, Live Well commenced non-judicial foreclosure proceedings. Id.

Vanessa, individually and as executrix of the estate and as guardian of the minor child (“Estate”) filed suit in state court where she sought an injunction to prevent the foreclosure, which was granted. Id. Live Well subsequently removed the case to federal court and filed a motion to dismiss, which was also granted. Id. Vanessa appealed to the 11th Circuit.

The dispute at hand centers around 12 USC §1715z-20(j), which does not allow HUD to insure a reverse mortgage if the reverse mortgage contract allows for the property to foreclosed upon if either the borrower or the borrower’s spouse is residing in the property:

(j) Safeguard to prevent displacement of homeowner. 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 subjection, the term “homeowner” includes the spouse of a homeowner.  §1715z-20(j).

The Estate relied on this provision in obtaining an injunction from the state court, however, when the federal district court granted Live Well’s motion to dismiss, it held that §1715z-20(j) pertains only to HUD’s authority to insurance the reverse mortgage and has no impact on Live Well’s right to foreclose per the terms of the reverse mortgage contract. 2018 WL 4211452 at *2.

The relevant term of the reverse mortgage contract allowed Live Well to “require 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.”  Id.

To try and overcome this language, the Estate argued that the legislature intended to protect surviving spouses, like Vanessa, by enacting §1715z-20(j). Id. at *4. The 11th Circuit agrees with the Estate on this point, but goes on to imply, without deciding the issue, that perhaps the problem is that HUD should not have insured the reverse mortgage in the first place.  Id.

Despite the court’s agreement with the Estate’s position on the legislative intent of §1715z-20(j), they ruled in favor of Live Well and affirmed the district court’s granting of their motion dismiss. Id. The plain and unambiguous language of §1715z-20(j) applies only to HUD and governs the action or inaction of its secretary. Id. It does not apply to private contractual obligations and therefore Live Well had a right to foreclose pursuant to the terms of the reverse mortgage contract. Id.

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