Note prevails over mortgage in case of conflict – finance and banking



United States: Note prevails over mortgage in case of conflict

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The recent decision of the Florida Supreme Court (“Florida Supreme Court”) in Funding of the WVMF against Louise Palmero et al. (Fl. S. Ct.; SC19-1920, 24 June 2021) ruled that while the bill and the mortgage are to be read together, in the event of a conflict between them, the terms of the bill will prevail.

Roberto and Louise Palmero, a married couple, originally applied as co-borrowers for a mortgage loan to be secured by a reverse mortgage on their primary residence, but ultimately did not close out on such a loan. However, a few months later, Roberto Palmero’s husband applied as the sole borrower for the same type of reverse mortgage loan (“Mortgage Loan”). In connection with the mortgage loan, Mr. Palmero prepared five basic documents: (1) a loan application, (2) a conversion loan agreement for the purchase of home equity, (3) a note, (4) a certificate of ownership of a non-spouse the borrower, and (5) a reverse mortgage. The note, loan application and loan agreement were signed only by Mr. Palmero and indicated that he is the only borrower under them. Both he and his wife signed a certificate of ownership of the non-borrower spouse, in which Mr. Palmero was identified as the “Borrower” and Ms. Palmero as “the non-borrower spouse”. Both spouses also signed a reverse mortgage in which Roberto Palmero was identified as the “Borrower”, but also included a signature box at the end that printed the names of each of them and the word “Borrower”.

Similar to other reverse mortgages, the death of the borrower will cause the mortgage to accelerate to the maturity date specified in the note and mortgage. Following Mr Palmero’s death and the failure of his property to pay off the mortgage, OneWest Bank, the FSB, the applicant’s predecessor, began foreclosure proceedings.

In response, Ms. Palmero and her children argued that since she still resided in the property that secured such a mortgage as her primary residence, the mortgage cannot be foreclosed because “and the bill, and the mortgage caused the performance of the debt on the following: “The borrower dies, and [mortgaged] The Property is not the primary residence of at least one surviving Borrower. ‘”(OneWest Bank, FSB v. Palmero, 283 So. 3d 346, 364 (Fla.3d DCA2019))

Although the trial court ruled that the wife “was not a co-borrower,” it still refused to transfer the foreclosure to the lender under federal law governing mortgage reverse insurance by the Secretary of the Department of Housing and Urban Development. On appeal, the Florida Third Circuit Court of Appeals (“Third Circuit”) rejected the trial court’s appeal to the federal statute not to foreclose, but upheld the refusal to foreclose, finding that Ms Palmero was the mortgage borrower as ” matter of law “(Identifier. at 350) and ruling that the creditor “was unable to establish the existence of a condition preceding his right to foreclosure, those.that the property is not the primary residence of Ms Palmero, the surviving instant reverse mortgage co-borrower “(Identifier. at 347)

Florida Supreme Court overturns Third Circuit ruling de novofinding that the Third Circuit failed to follow a well-established precedent dating back to the decisions of 1907 and 1934, finding that “[t]General rules for foreclosure [is that] in the event of a conflict between the terms of the bill and the mortgage, the bill shall prevail. ” The Florida Supreme Court also disagreed with the Third Circuit ruling that the location of the wife’s signature on the mortgage “is unambiguous and in accordance with the law, … ma[de] she is the co-borrower on the mortgage. ” The Florida Supreme Court instead ruled that both the bills and the mortgage designated the husband as the “Borrower” and the wife joined the mortgage only because “the lender was required to have a valid security interest because the mortgaged property was her estate.” The Florida Supreme Court also ruled that the Third Circuit did not need to look beyond “promissory notes and mortgages to other documents that were part of the same transaction to determine, as a matter of law, how the parties intended to define the term“ borrower ”as“ the Court’s precedent for foreclosure requires the courts to read the bond along with the note it provides … and refer to the note to resolve any conflict. “

But the Florida Supreme Court split in its decision, and two justices disagreed. The dissenting judges agreed that bills of exchange should prevail over mortgages, but that there was no body that required the same result in the context of a reverse mortgage, since “a regular mortgage is different from a reverse mortgage because in a reverse mortgage the borrower is not personally liable … mortgage. “But the Florida Supreme Court explained that it didn’t matter that the Florida Supreme Court precedent dealt with traditional mortgages and not reverse mortgages, because“ the fundamentals are those., the reason for the documents in question – tell us why we should read the mortgage along with the note it provides, regardless of the type of mortgage that is being foreclosed: ‘[T]A promissory note, not a mortgage, is a powerful tool in a mortgage loan transaction because “a mortgage is just an incident with a debt that it pays off, and ownership follows an assignment of debt.” The Florida Supreme Court ruled that such a precedent applied to reverse mortgages, and the case was sent back to the trial court.

The content of this article is intended to provide general guidance on the subject. You should seek professional advice regarding your specific circumstances.

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