Court Deems Reverse Mortgage Payments Can Be Garnished In Lawsuit

A New Jersey court case has determined that reverse mortgage proceeds can be legally garnished in order to satisfy a personal injury judgment.

In the case, 85-year-old reverse mortgage borrower Roy Ewing was sued by Charles and Christine Cameron for personal injuries as a result of a car accident. Ewing, the driver, was not insured, and a judgment was entered against him, determining he owed $400,000 to the defendants.

Ewing had previously taken a reverse mortgage with Wells Fargo that paid him $959 per month over the course of the loan.

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The reverse mortgage payments, initially determined to be off-limits by a trial court in the case, were found in the recent appellate court decision to be garnished as payment in the lawsuit.

“The trial court determined the payments were beyond the reach of the judgment creditors, and denied their motion to compel the mortgagee to comply with a writ of execution,” the appellate court documents state. “We reverse, reasoning the mortgagee’s obligation to make monthly payments to defendant, the judgment debtor, is properly construed to be a ‘debt’ against which plaintiffs, the judgment creditors, may obtain an order directing execution and garnishment.”

Reportedly, Wells Fargo raised arguments asserting that reverse-mortgage payments should be kept beyond the reach of creditors, but the court rejected those arguments.

View the court decision. Read legal analysis on the case by Ohio Lawyer Pat Murphy.

Written by Elizabeth Ecker

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    • dduck12,

      Are annuity payments protected from garnishment by a court?  Why would a tenure payout be different?  Upon its contractual required payout, it is nothing more than another asset subject to the claims of creditors.

      The real question is whether the mortgagor has lost the right to stop the tenure payout.

  • Just like the old saying “robbing Peter to pay Paul”.  It’s appears as though the court is viewing the reverse mortgage proceeds as income and garnishing it – like from an employer.  Not sure I fully understand the thinking behind this one.

    I am no expert in these matters, but I wonder if there is any case law where a court required a younger borrower to go out and borrow money on their HELOC, so that it could be garnished to pay off a judgment.  Maybe there is a precedent there, however I just can’t believe that would be the case.

    • ReverseGuy,

      It is impossible for a court to garnish income.  They can only garnish the asset which that income creates.  

      For example, an employer acknowledges an employee is working and earning income.  At the time for payout, the employer is in bankruptcy and has no assets, what can satisfy the garnishment requirement?  Income is not the same as an asset.

      Here the HECM is paying out an asset, cash.  It is this asset which the court is garnishing at its source.

      If a defendant takes proceeds from a HELOC line of credit, any court can place a lien on those funds.  The difference between a HELOC payout and a tenure payment is on a HELOC payout, the lender cannot pay anything out unless the borrower specifically requests it.  On a tenure payout once demanded, it must continue until the borrower demands they stop.

      The real question is whether the borrower has lost the right to stop the tenure payout.

  • It took me a bit to find it, but I finally found Cameron v. Ewing.  (http://tinyurl.com/7dfe82n )   After reading the appellate court’s decision, I think it is correct under NJ law.  Further, I think it is morally correct.  Mr. Ewing caused an accident where the Cameron’s were injured.  He had no insurance.  He agrees to a $400k judgment against him in arbitration, but he doesn’t have $400k.  His major asset is his home, which, just two months prior to agreeing to a settlement, he gets a reverse mortgage on.  A mortgage that would ultimately see the Cameron’s unlikely to recover much of their $400k, while simultaneously allowing Mr. Ewing to utilize much of that money to his own benefit.

    Following the somewhat tortured reasoning of the Court, I think they are correct under NJ law.  They are not treating the reverse mortgage as income, they are treating it as a debt from Wells Fargo that the Camerons can reach and apply to their judgment of $400k.  The long and short of it is that while Mr. Ewing is borrowing the money, the note and mortgage obligate Wells Fargo to making certain payments and that obligation is a debt under NJ law.

    • Mr. Kautz,

      I see the issue much more differently.  

      Forget the source of the cash coming to the senior, it is the cash payout they are garnishing.  The court is not raiding the line of credit; it is taking an asset upon its contractual release by the payor.  If the borrower declares bankruptcy, the cash payouts are required to be suspended under the contract.  What control would the court have over that?

      There is no statutory protection for HECM payouts.  Upon the contractual requirement of payout, they are assets subject to the claims of creditors like any other asset.  The defendant may want to make a defense that the payouts are protected due to their source but that legal argument is not novel or particularly brilliant.  Such thought is nothing more than another HECM myth.

      The real issue is whether or not the senior has lost the right to stop all payouts?  That is the next step the borrower should take.  What could the court garnish at that point?

      • >>The real question is whether the borrower has lost the right to stop the tenure payout.

        That’s what I was wondering … does the Judge know the distribution method can be revised?

    • It seems likely, from the timing, that the borrower deliberately took out the RM in an attempt to protect his equity from the judgment, and that the court is telling him that won’t work. The judge’s opinion suggests that he does not understand that the monthly tenure payments can be stopped or reduced by the borrower at any time.   If the borrower now directs WF to stop the tenure payments, I wonder if the
      plaintiffs would be able to insist that the LOC be accessed to pay the
      judgment.  If a judgment can only be placed against assets, then presumably the LOC would be safe from the judgment, but the borrower would not be able to spend it. 

  • In California a debtor’s income is protected up to I believe $2,000 per month.  What is NJ law and what is debtor’s monthly income?  Perhaps they argued the right avenue of defense but the fall back position may be to argue for income exemption.

    • cwmcsr,

      But this is not income.  It is simply cash inflow.  What California law are you referencing?  Is the definition of “income” broad enough to cover debt proceeds especially since all payouts are elective?

      Is it clear that the proceeds being garnished are not in excess of any New Jersey exemption amount?

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