Mass. High Court Sides with Reverse Mortgage Lender in Foreclosure Case

The Supreme Judicial Court of Massachusetts ruled in favor of a reverse mortgage lender in a foreclosure case earlier this month, finding that mortgagees don’t have to explicitly spell out their legal right to foreclose in their paperwork.

The case involved James B. Nutter Company and three reverse mortgage borrowers, all of whom secured Home Equity Conversion Mortgages in 2007 and 2008. Within the span of a few years, two had died and the third became too ill to remain in the home; J.B. Nutter then moved to foreclose by bringing actions against the borrowers or their executors in local land court.

But the case was delayed due to an objection over the company’s ability to foreclose on homes under state law. In Massachusetts, the Supreme Judicial Court (SJC) wrote in its opinion, foreclosures can proceed without a judge’s confirmation as long as the mortgage itself gives the lender “the power of sale” in such situations.

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The problem stemmed from some imprecise language in J.B. Nutter’s standard reverse mortgage paperwork. The company informed borrowers that it “may invoke the power of sale and other remedies permitted by applicable law … At this sale, Lender or another person may acquire the Property. This is known as ‘foreclosure and sale.’ In any lawsuit for foreclosure and sale, Lender will have the right to collect all costs allowed by law.”

That wasn’t enough to prevent issues: The form language doesn’t directly refer to the “statutory power of sale,” which was insufficient to justify the lender’s power to foreclose after the death of a borrower or his departure from the property.

But despite the lack of legal specificity, the SJC found that “no reasonable borrower” could assume that a reverse mortgage lender didn’t have the power to sell his or her property in the event of a foreclosure.

“It matters that this is a contract for a reverse mortgage, rather than a traditional mortgage, where the borrower makes no monthly payments of principal or interest, where the lender cannot hold the borrower personally liable for the debt, and where the lender’s only recourse on default is to obtain repayment through a foreclosure sale,” the court wrote in its opinion.

“Without a power of sale, the only way that a lender can recover the principal of the loan, not to mention interest and fees, is through foreclosure by entry — a process that would take three years — or foreclosure by action, ‘a method rarely used’ in Massachusetts.”

The court also noted that J.B. Nutter would still have to abide by all other rules regarding foreclosures in the state.

Interestingly, the court had some words of praise for the reverse mortgage product in general — while also citing a controversial report from the Consumer Financial Protection Bureau that advised consumers against taking out the loans to delay Social Security payments.

“For many retirees, one of the most reliable potential sources of income in later life is the accrued equity in their homes,” the court wrote by means of introduction.

Written by Alex Spanko

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    • Ed,

      You are right that it is great to see things ultimately work out the way that they should but from a PR standpoint, having any mention of foreclosures with reverse mortgages is less than desirable.

  • The foreclosure cases seem to center on foreclosure procedure not the substance of the defaults according to the post above. Since Massachusetts has a procedure similar to the trustee sale in California (and several other states) when a default has ripened to the point of the trustee’s right of sale, it would seem this case was a matter of poor wording than anything else. While one could wage a newspaper war out of it, it seems the legal standard would be more of one of substance over form since in fact the interpretation and resulting actions of the lender(s) seem reasonable based on the wording in the mortgage documents and other relevant facts and circumstances.

    Finally, is the CFPB report really controversial? Google’s first definition of controversial is: “giving rise or likely to give rise to public disagreement.” Even though a very small number of reverse mortgage participants (far less than 3 million Americans) have reasonable grounds to dispute the CFPB conclusions, currently there is insufficient public disagreement to call the report controversial except for marketing purposes.

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