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The Evolving Landscape of Florida Reverse Mortgage Jurisprudence

By Erin Hoskins, Esq.,

Law Clerk to the Honorable Peter D. Russin, U.S. Bankruptcy Court, Southern District of Florida

Florida state and federal courts have increasingly been asked to interpret the terms of reverse mortgage documents to decide whether documents contemporaneously executed along with the mortgage can alter the defined terms of the mortgage.  The issues often arise in Chapter 13 bankruptcy proceedings where provisions of the mortgages allow the lending institution to require immediate payment of the amounts secured under the mortgage upon the death of the borrower, if the property is not the principal residence of at least one surviving borrower.  The lending institutions typically assert that only the borrower under the terms of the promissory note and other loan documents is the “borrower” under the terms of the mortgage.  This situation may prevent a borrower from curing the mortgage under a Chapter 13 plan since only a “borrower” may cure the mortgage under a Chapter 13 plan.

The parole evidence rule, a well-known legal principle, states that when a contract is unambiguous, additional evidence or documents may not alter the terms of the original document.  The salient argument when considering the reverse mortgage situation, however, is that under the mutual construction doctrine, when all the documents are executed contemporaneously, they should be considered together as one transaction.  See OneWest Bank, FSB v. Palermo (“Palmero”), 283 So. 3d 346, 358−59 (Fla. 3d DCA 2019) (Emas, C.J., dissenting).  The judges of the Florida District Courts of Appeals are divided on this issue.  See, e.g., Palmero, 283 So. 3d at 355−56 (en banc) (withdrawing panel decision that considered the additional documents); Palmero, 283 So. 3d at 356−61 (Emas, C.J., dissenting); Palmero, 283 So. 3d at 361−66 (Miller, J., dissenting); Nationstar Mortg. Co. v. Levine, 216 So. 3d 711 (Fla. 4th DCA 2017).

In Palmero, the Third District Court of Appeals (“Third DCA”), en banc, determined that because a mortgage document unambiguously defined the borrower’s surviving spouse as a borrower, and failed to incorporate the documents that were signed contemporaneously with the mortgage, it would not consider these additional documents and would not “graft inconsistent provisions contained in collateral loan documents on the reverse mortgage to alter those unambiguous provisions.”  Palmero, 283 So. 3d 346 (Fla. 3d DCA 2019) (withdrawing OneWest Bank, FSB v. Palmero, 2018 WL 1832326 (Fla. 3d DCA 2018)).  Notably, one of these documents was entitled “Non-Borrowing Spouse Ownership Interest Certification,” which was intended to qualify the surviving spouse’s status as a “borrower” under the terms of the mortgage.  Id. at 349.

The Third DCA found that two of its previous decisions controlled the determination, and both of those decisions had declined to consider documents other than the mortgage.  See id. at 351−52 (deciding that the Palmero case is controlled by Smith v. Reverse Mortg. Sols., Inc., 200 So. 3d 221(Fla. 3d DCA 2016) and citing to Edwards v. Reverse Mortg. Sols., Inc., 187 So. 3d 895 (Fla. 3d DCA 2016)).  In Smith, the Third DCA determined that “based on the plain and unambiguous language of the mortgage” both the husband and wife were “borrowers” under its terms.  Smith, 200 So. 3d at 226.  In Edwards, despite the fact that the surviving spouse had executed a quitclaim deed of the property to her husband prior to signing the mortgage, the Third DCA still determined that she was a “borrower” under the terms of the mortgage.  See Edwards, 187 So. 3d at 896−97.

The Fourth District Court of Appeals (“Fourth DCA”) reached the opposite conclusion in Levine, and decided that extrinsic evidence was required to determine whether the surviving spouse was a “borrower.”  216 So. 3d at 716.  It is important to note that the mortgage in Levine differed from the mortgages considered by the Third DCA, in that it contained an ambiguity by identifying the surviving spouse alternately as the “borrower” and the “non-borrowing spouse.”  See id.  Based on the “internal contradiction,” the Fourth DCA determined that additional evidence was required to resolve the issue.  Id.  How the Fourth DCA would have decided the issue under the circumstances presented to the Third DCA is unclear.

Florida’s federal courts have also issued opposing decisions when deciding whether to consider only the unambiguous mortgage or all of the documents executed contemporaneously with the mortgage.  See Reverse Mortg. Sols., Inc. v. Nunez, 598 B.R. 876 (S.D. Fla. 2019) (reversing In re Nunez, No. 17-21018-BKC-LMI, 2018 WL 1568524 (Bankr. S.D. Fla. Mar. 28, 2018); In re Hordatt, No. 19-2662-BKC-PGH (Bankr. S.D. Fla. Apr. 17, 2020).  However, the decision in Reverse Mortg. Sols., Inc. was based upon the panel decision in OneWest Bank, FSB v. Palermo, 2018 WL 1832326 (Fla. 3d DCA 2018) that was withdrawn by the Third DCA en banc decision referenced above.  See Reverse Mortg. Sols., Inc., 598 B.R. at 883.  The Third DCA en banc decision was entered the month after the Southern District of Florida’s decision.  See Palmero, 285 So. 3d at 346 (withdrawing the panel decision).

In a recent decision by a bankruptcy court on this issue, the Bankruptcy Court for the Southern District of Florida considered both the state and federal decisions and followed PalmeroSee In re Hordatt, No. 19‑2662-BKC-PGH.  In Hordatt, the creditor had filed a claim for the entire amount due under the mortgage and the debtor objected, asserting that she was only required to pay the taxes and insurance.  The court sustained the debtor’s objection based upon the Palmero en banc decision and distinguished Levine.  The bankruptcy court additionally noted that even upon consideration all of the loan documents as one transaction, nothing altered the term of “borrower” as defined by the mortgage.  In particular, the creditor’s claim was based upon the terms of the mortgage because the debtor was not a party to the other loan documents, and both the promissory note and the mortgage provided that the creditor’s ability to enforce the promissory note was based upon the sale of the property covered by the mortgage.  Therefore, even if an ambiguity existed by the conflicting definitions of “borrower” in the promissory note and the mortgage, the mortgage would control.  In re Hordatt, No. 19‑2662-BKC-PGH (citing Palmero, 283 So. 3d at 355).

Despite the multitude of conflicting decisions, the issue may soon be resolved because the Florida Supreme Court accepted jurisdiction of PalmeroSee OneWest Bank, FSB v. Palmero, No. SC19-1920, 2020 WL 2556369 (Fla. May 20, 2020).

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