Florida Court Rules in Favor of Bank in Non-Borrowing Spouse Case

A Florida appeals court ruled in favor of a reverse mortgage lender in a foreclosure case, signaling an industry victory in the state over the often tricky issue of non-borrowing spouses.

The case involved Roberto and Luisa Palmero, a Florida couple that took out a reverse mortgage with Value Financial Mortgage Services in December 2006. At the time, only Roberto Palmero signed the Home Equity Conversion Mortgage paperwork as the borrower, and not his wife. When he died two years later, the lender moved to foreclose on the property, but Luisa Palmero argued that she could remain in the home as a non-borrowing spouse.

A trial court found in favor of Palmero, but lender OneWest Bank — which had taken on the loan from Value Financial — won a reversal on appeal last week.

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Florida’s Third District Court of Appeal repeatedly notes that only Roberto Palmero was listed on the loan as the borrower, having signed the note, the loan application, and the loan agreement on his own. The Palmeros also jointly signed a non-borrowing spouse ownership interest certification, in which Luisa Palmero acknowledged that she may be required to leave the property if her husband died before her and the sale of the home was required to pay the debt.

While the original trial court ruled that Luisa Palmero was not a borrower, it also found that federal law regarding HECM foreclosures — specifically the passage that states, “the repayment of a reverse mortgage loan is deferred until the death of both the borrowing homeowner and the homeowner’s spouse” — overrode the fact that she was not formally listed as a borrower.

In finding for OneWest, the court focused on the fact that Luisa Palmero was not listed as a borrower on multiple pieces of paperwork involved in the origination of the loan.

“To the extent there was any confusion or inconsistency in the mortgage, it was cleared up by the note, loan application, loan agreement, and non-borrower spouse certification, which unequivocally provided that Mrs. Palmero was not the borrower for the reverse mortgage and defined Mr. Palmero as the borrower,” the court wrote in the decision, officially known as OneWest Bank, FSB v. Palmero.

The judges also determined that because neither Luisa Palmero nor OneWest cited federal law in the original case, a court could not determine that the statute overrode the contract; in other words, she lost the right to benefit from that point because she did not bring it up during the original trial.

The decision was a “significant victory” for the reverse mortgage lending industry in the Sunshine State, lawyers James W. Wright, Jr. and R. Aaron Chastain wrote in an analysis for the firm of Bradley Arant Boult Cummings — which initially reported on the case.

Palmero demonstrates that a lender may demonstrate that the surviving spouse is not a ‘borrower’ under the mortgage by introducing the other documents at the time the loan is originated,” Wright and Chastain wrote.

Written by Alex Spanko