Estate of Jones v. Live Well Fin., Inc.

Decision Date05 September 2018
Docket NumberNo. 17-14677,17-14677
Citation902 F.3d 1337
Parties The ESTATE OF Caldwell JONES, Jr., Executrix Vanessa Jones, Vanessa Jones, Surviving Spouse in her Individual Capacity and as guardian of Leah Grace Jones, Leah Grace Jones, Minor, Plaintiffs - Appellants, v. LIVE WELL FINANCIAL, INC., Defendant - Appellee.
CourtU.S. Court of Appeals — Eleventh Circuit

902 F.3d 1337

The ESTATE OF Caldwell JONES, Jr., Executrix Vanessa Jones, Vanessa Jones, Surviving Spouse in her Individual Capacity and as guardian of Leah Grace Jones, Leah Grace Jones, Minor, Plaintiffs - Appellants,
v.
LIVE WELL FINANCIAL, INC., Defendant - Appellee.

No. 17-14677

United States Court of Appeals, Eleventh Circuit.

September 5, 2018


902 F.3d 1338

Daniel R. Meachum, Daniel R. Meachum & Assoc., LLC, Atlanta, GA, for Plaintiffs - Appellants.

Steven James Flynn, Jimmy Thomas Howell, Jr., Gregory Scott Krivo, McCalla Raymer, LLC, Roswell, GA, for Defendant - Appellee.

Before WILSON and NEWSOM, Circuit Judges, and VINSON,* District Judge.

NEWSOM, Circuit Judge:

This case arises out of the foreclosure of a home-equity conversion mortgage—commonly called a "reverse mortgage." We are asked to interpret a federal statute, 12 U.S.C. § 1715z-20, which authorizes the Secretary of the Department of Housing and Urban Development to establish a mortgage-insurance program designed to encourage lenders to offer reverse mortgages and thereby alleviate some of the financial pressures faced by elderly homeowners. Id . § 1715z-20(a). The particular provision at issue here states that the HUD Secretary "may not insure" a reverse mortgage unless it defers repayment obligations until the borrowing "homeowner" either dies or sells the mortgaged property—and importantly, expressly defines the term "homeowner" to include the borrower’s spouse. Id . § 1715z-20(j).

The question before us is whether § 1715z-20(j) can be read to do more—specifically, to prevent foreclosure pursuant to a reverse-mortgage contract that, by its terms, permits the lender to demand repayment immediately following a borrower’s death, even if his or her non-borrowing spouse continues to live in the mortgaged property. We hold that it cannot be construed so broadly. Because the statute addresses and limits only the Secretary’s authority—specifying the types of mortgages that HUD "may not insure"—it does not alter or affect the rights that a lender independently possesses under a reverse-mortgage contract.

I

A reverse mortgage is a financial instrument designed to allow older homeowners

902 F.3d 1339

to convert their home equity into liquid assets. Cf. Bennett v. Donovan , 703 F.3d 582, 584 (D.C. Cir. 2013). In the typical reverse-mortgage transaction, the borrower receives a loan—in either a lump sum, a series of periodic payments, or a line of credit—that is secured by a mortgage on his home. Id. at 584–85. Unlike a traditional mortgage loan, a reverse-mortgage loan generally needn’t be repaid until a specific "triggering" event occurs—usually, the borrower’s death or the sale of his home. Id . Upon the occurrence of that event, either (1) the estate will pay off the loan or (2) the lender will foreclose on the home to recover the money it lent.

Reverse mortgages are ordinarily "non-recourse" loans, meaning that even if a borrower or his estate fails to repay the loan when due and the sale of the home doesn’t cover the outstanding balance, the lender can’t go after any of the borrower’s (or his estate’s) other assets. Id. at 585. "This feature is, of course, favorable to borrowers but introduces significant risk for lenders—if regular disbursements are chosen, they can continue until the death of the borrower (like a life annuity), and the loan balance will increase over time, making it less and less likely that the borrower will be able to cover the full amount." Id. And "[i]f a borrower lives substantially longer than expected, lenders could face a major loss." Id.

Recognizing both the risks to lenders and the "special needs of elderly homeowners" facing rising costs of living on reduced income, Congress authorized the HUD Secretary to administer a mortgage-insurance program designed to induce lenders to offer reverse-mortgage loans. See generally 12 U.S.C. § 1715z-20 ("Insurance of home equity conversion mortgages for elderly homeowners"). This program "provide[s] assurance to lenders that, if certain conditions [are] met, HUD [will] provide compensation for any outstanding balance not repaid by the borrower or covered by the sale of the home." Bennett , 703 F.3d at 585.

Section 1715z-20 specifies several conditions that a reverse mortgage must meet to be insurable under the program. One such condition—central to this appeal—prohibits HUD from insuring a reverse-mortgage contract that permits foreclosure while either the borrowing homeowner or his or her spouse continues to reside in the mortgaged property:

The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term "homeowner" includes the spouse of a homeowner.

Id. § 1715z-20(j).

II

In 2014, Caldwell Jones obtained a reverse mortgage, which the original lender almost immediately assigned to Live Well Financial, Inc.1 The mortgage was secured

902 F.3d 1340

by the home that Caldwell shared with his wife Vanessa and their minor daughter, and was covered by HUD’s mortgage-insurance program. The reverse-mortgage contract (in mortgag-ese, the "security deed") expressly defined the "Borrower" to be "Caldwell Jones, Jr., a married man." Vanessa was not designated a "Borrower"—and indeed, at the time was not yet 62 years old, which is the minimum age to qualify for a reverse mortgage. Later that same year, Caldwell died.

Shortly thereafter, Live Well asserted a right to repayment under a provision of the mortgage contract authorizing it to "require immediate payment-in-full of all sums secured by this Security Instrument" if "[a] Borrower dies and the Property is not the principal residence of at least one surviving Borrower." When the loan was not repaid, Live Well initiated non-judicial foreclosure proceedings by running a "Legal Notice of Default and Notice of Sale Under Power" in a local newspaper.

In response, Vanessa, individually and on behalf of both the Estate of Caldwell Jones and her minor daughter...

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