Summer Readings, July 2021 – in case of conflict, note prevails over mortgage | Cadwalader, Wickersham & Taft LLP



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 did not ultimately 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 contained a signature box at the end, which 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 the death of Mr Palmero 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 was still living in the property that provided such a mortgage as her primary residence, the mortgage could not be foreclosed because “both the bill and the mortgage has conditioned 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 found that the wife “was not a co-borrower,” it still refused to transfer the mortgage foreclosure to the lender under federal law governing reverse mortgage insurance by the Secretary of the Department of Housing and Urban Development. On appeal, Florida’s Third Circuit Court of Appeals (“Third Circuit”) rejected the trial court’s appeal to federal law to deny foreclosure, but upheld the refusal to foreclose, finding that Ms Palmero was a mortgage borrower as “ a 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 novo, finding that the Third Circuit failed to follow the established precedent dating back to the decisions of 1907 and 1934, and found 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 prevails. ” The Florida Supreme Court also disagreed with the Third Circuit ruling that the location of the wife’s signature on the mortgage was “unambiguous and in accordance with the law … ma[de] she is a co-borrower on a mortgage. ” Instead, the Florida Supreme Court ruled that both the promissory note and the mortgage identified the husband as the “Borrower,” and the wife participated in the mortgage only because “the lender was required to have a valid security interest because the mortgaged property belonged to her. manor. “The Florida Supreme Court also found that the Third Circuit did not need to refer to“ a bill of exchange and mortgage on other documents that were part of the same transaction to determine from a legal point of view how the parties intended to define the term. ”The Borrower, as“ precedent foreclosure requires the courts to read the mortgage in conjunction with the note it provides … and refer to the note to resolve any conflict. “

But the Florida Supreme Court split in its ruling, and two justices disagreed. The dissenting judges agreed that the note should prevail over the mortgage, but that there was no authority that would require the same result in the context of a reverse mortgage, as “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 an effective tool in a mortgage loan transaction because “a mortgage is just a fraction of the debt it pays off, and ownership follows the assignment of the debt.” The Florida Supreme Court ruled that such a precedent applied to reverse mortgages, and the case was sent back to the trial court.


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