Judge: Contract Trumps Banker’s Bad Reverse Mortgage Advice

A federal judge in Massachusetts this week ruled that bad advice from a banker doesn’t prevent a non-borrower from facing foreclosure after the death of a reverse mortgage holder.

Back in 2009, a Bank of America employee told John Consolo that if his mother took out a reverse mortgage on her Boston home, he could continue living in an apartment on the property after she died. Armed with power of attorney, Consolo signed the Home Equity Conversion Mortgage paperwork on her behalf.

The banker’s statement wasn’t true, and when Mary Consolo died three years later, Bank of America and Nationstar Mortgage moved to foreclose on the property. John Consolo fought back with a lawsuit claiming that because he relied on banker Tim Keough’s erroneous advice, the foreclosure represented a breach of contract.

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That’s all according to this decision — found by the Boston news blog Universal Hub — from U.S. District Judge Denise J. Casper, who ruled against Consolo and granted Nationstar and Bank of America’s request to dismiss the case yesterday. Citing a variety of legal precedents, Casper decided that Consolo had multiple opportunities to realize the residency implications of his mother’s HECM, but elected not to probe the matter any further after consulting with Keough.

Consolo, 61 at the time his 94-year-old mother took out the HECM, was listed in mortgage documents as a “remainderman,” a term that simply signifies that he and his brother Gaetano, a fellow remainderman, stood to inherit the property from their mother once she died. According to Consolo, however, Keough took a more literal approach when describing the term, telling him that it meant “exactly what it says, remain … once your mother passes, you [and your brother] remain in the house.”

Such a statement would have been incorrect both in 2009 and at present, as only named borrowers — and, after 2014, non-borrowing spouses in most cases — may remain in the home after the death of the last remaining HECM mortgagor, not children. In addition, Consolo was not eligible to be considered a borrower at the time, as he was a year shy of the HECM program’s age requirement of 62. But according to the court, Consolo took Keough at his word and signed on the dotted lines.

And for Consolo, that was a big problem. Casper laid out a swath of legal precedent that puts the onus on the person entering the contract to fully understand the ramifications of the deal; in other words, as long as no one prevented Consolo from reading and comprehending the text of the mortgage on his own, he can’t claim he was legally fooled just because he declined to poke through the fine print or question his bank’s counsel.

“Viewed in this light, the Court cannot find Consolo’s reliance on Keough’s statements to be reasonable,” Casper wrote in her decision.

Consolo also argued that the mortgage document listed him and his brother as “mortgagors,” a fact that the court did not dispute. But all other paperwork associated with the transaction, including the note itself, listed only his mother as a mortgagor.

“Because the Court must view the Mortgage in conjunction with the other Loan documents including the Note, the Court holds that the contract may not be viewed as ambiguous since the clear intent was that Mary Consolo was the borrower for the Loan transaction,” Casper wrote.

Written by Alex Spanko