OneWest Bank, FSB v. Palmero

• Decision Date: 24 April 2019
• Docket Number: No. 3D14-3114,3D14-3114
• Parties: ONEWEST BANK, FSB, Appellant, v. Luisa PALMERO, et al., Appellees.
• Court: Florida District Court of Appeals

283 So.3d 346 (Mem)

ONEWEST BANK, FSB, Appellant,

v.Luisa PALMERO, et al., Appellees.

No. 3D14-3114

District Court of Appeal of Florida, Third District.

Opinion filed April 24, 2019.

ON MOTION FOR REHEARING EN BANC

SCALES, J.

We grant rehearing en banc , withdraw the panel opinion in OneWest Bank, FSB v. Palmero, 43 Fla. L. Weekly D827, ––– So.3d –––– (Fla. 3d DCA Apr. 18, 2018), and substitute the following opinion in its stead.

OneWest Bank, FSB ("OneWest"), the plaintiff below, appeals from a final judgment entered in favor of the defendants below, Luisa Palmero ("Mrs. Palmero"), Idania Palmero and Rene Palmero, after a bench trial on OneWest's action to foreclose on a reverse mortgage. We affirm because OneWest failed to establish the occurrence of a condition precedent to its right to foreclose, i.e., that the subject property is not the principal residence of Mrs. Palmero, a surviving co-borrower under the instant reverse mortgage. See Smith v. Reverse Mortg. Sols., Inc., 200 So.3d 221 (Fla. 3d DCA 2016).

I. Factual Background and Procedural History

A. The underlying facts

In August 2006, Roberto and Mrs. Palmero ("the Palmeros"), as husband and wife, completed a form residential loan application for an adjustable rate line of credit to be secured by a home equity conversion mortgage (commonly referred to as a reverse mortgage¹ ) on their primary residence. It is not disputed that the Palmeros' residence is their homestead property. The August 2006 loan application reflects that: (i) the Palmeros represented that they owned their primary residence in fee simple; (ii) the Palmeros applied for the loan as co-borrowers; and (iii) the Palmeros had conducted a face-to-face interview with a counselor from the prospective lender.

Despite their representation, the Palmeros did not own their primary residence in fee simple when they completed the August 2006 loan application. In fact, the record depicts a series of quitclaim deeds transferring ownership interest in the subject property back and forth between the Palmeros and their adult children, Idania and Rene Palmero, prior to that time. Consequently, on October 20, 2006, Idania and Rene executed a quitclaim deed on the subject property, granting a life estate to their father, Roberto Palmero, with the remainder to their mother, Mrs. Palmero, and to themselves.

On December 20, 2006, Roberto Palmero signed and executed, by himself: (i) a second, form residential loan application with the same lender, wherein Roberto stated that he held a life estate in the Palmeros' primary residence and that he was the only borrower on the loan; (ii) a home equity conversion loan agreement, which defined Roberto as the borrower; and (iii) an adjustable rate note, which identified Roberto as the borrower. The note provides that the lender is entitled to demand immediate payment in full if, among other things, "[a] Borrower dies and the Property is not the principal residence of at least one surviving Borrower." As is the case with such loans that are secured by reverse mortgages, however, the note also provides that "Borrower shall have no personal liability for payment of the debt," and that "Lender shall enforce the debt only through the sale of the Property covered by [the reverse mortgage]."

That same day, December 20, 2006, to secure the note, both of the Palmeros signed and executed a reverse mortgage encumbering their primary residence. Consistent with the note, the reverse mortgage provides that: (i) the lender is entitled to demand immediate payment in full on the note if "[a] Borrower dies and the Property is not the principal residence of at least one surviving Borrower"; (ii) "Borrower shall have no personal liability for the payment of the debt" secured by the mortgage; and (iii) "Lender may enforce the debt only through the sale of the Property" secured by the mortgage.

The first paragraph of the reverse mortgage defines the "Borrower" as "[t]he mortgagor," and further describes the "Borrower" as "Roberto Palmero, a married man reserving a life estate unto himself with the ramainderman [sic] to Luisa Palmero, his wife, Idania Palmero, a single woman, and Rene Palmero, a single man." Later in the mortgage document, the "Borrower" covenants that "Borrower is lawfully seised of the estate hereby conveyed and has the right to mortgage, grant and convey the Property and that the Property is unencumbered."² The "Borrower" further pledges to defend title to the property.

At the end of the mortgage, immediately before the signature block, the document states: "BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this Security Instrument and in any rider(s) executed and recorded with it." Below this statement, Roberto and Mrs. Palmero placed their signatures on the separate lines above their pre-printed names as "Borrower."³ The⁴ mortgage was recorded in the Miami-Dade County public records on January 12, 2007; no other loan documents were recorded.

At the trial, over the defendants' objection, OneWest introduced a document the Palmeros signed, labeled "Non-Borrower Spouse Ownership Interest Certification." Mrs. Palmero signed this document as the "Non-Borrower Spouse" directly below a statement – contradicting the reverse mortgage's condition precedent – "acknowled[ing] that should [her] spouse predecease [her] ... and unless another means of repayment is obtained, the home where [she] reside[s] may need to be sold to repay Reverse Mortgage debt incurred by [her] spouse." Further, the document states, "[i]f the home where [she] reside[s] is required to be resold, [she] understand[s] that [she] may be required to move from [her] residence." The date this document was executed is illegible. No signature appears on the line designated for the closing agent/witness and the document is not notarized. The record reflects that this document was made part of the lender's closing file, but it was not recorded with the mortgage. Critically, the subject reverse mortgage does not include any of the language from the Non-Borrower Spouse Ownership Interest Certification purporting to qualify Mrs. Palmero's designated status as "Borrower" in the reverse mortgage.

The lender issued regular payments on the note until Roberto Palmero passed away on August 18, 2008. Thereupon, the lender sent a notice letter to the Palmeros' residence, addressed only to Roberto, expressing sympathy to Roberto on his death, as well as to his friends and family. Therein, the lender accelerated the loan and declared all outstanding principal and interest due and payable. When Mrs. Palmero did not pay the balance declared due, on January 19, 2010, the lender filed the instant foreclosure action against Mrs. Palmero, Idania Palmero and Rene Palmero in the Miami-Dade County Circuit Court. During the pendency of this action, the reverse mortgage was assigned to OneWest, which was then substituted as the plaintiff in these proceedings.

B. The litigation proceedings

The lender's single-count complaint against the defendants sought only to foreclose on the reverse mortgage. While the complaint generally alleged that all conditions precedent to foreclosure had occurred, the complaint specifically alleged that "the basis for this default is the death of Roberto Palmero." Copies of the note and mortgage, and nothing else, were attached to the pleading.

Mrs. Palmero, Idania Palmero and Rene Palmero filed an answer denying the general allegation that all conditions precedent to initiating the action had occurred. The defendants also raised the affirmative defense that the plaintiff could not foreclose on the reverse mortgage because: (i) the mortgage expressly identifies Mrs. Palmero as a co-borrower; and (ii) Mrs. Palmero "is a surviving Borrower, whose principal residence is the subject property."

The matter proceeded to a bench trial, held on March 17, 2014. The primary issue considered at trial was whether Mrs. Palmero is a "Borrower" as that term is used in the reverse mortgage. To this end, OneWest argued in its closing brief that, despite OneWest's foreclosure action being premised exclusively on the reverse mortgage, the trial court should consider all of the other documents executed by the Palmeros as part of the instant transaction (i.e., the loan applications, note, loan agreement, and Non-Borrower Spouse Ownership Interest Certification) to determine the meaning of the word "Borrower" in the reverse mortgage. According to OneWest, these documents showed that, notwithstanding the contrary language in the reverse mortgage, Roberto Palmero is the sole "Borrower" on the mortgage, as well as the note.

The defendants responded in their closing brief that because the "plain language of the mortgage ... clearly identified Luisa Palmero as a named borrower," the trial court should not "delve into the subjective intent of the parties by looking outside the four corners of the mortgage instrument."

On September 11, 2014, the trial court entered a final judgment in favor of the defendants, declining to grant OneWest foreclosure on the reverse mortgage. Therein, notwithstanding its finding that Mrs. Palmero is not a co-borrower under the reverse mortgage, the trial court concluded that OneWest could not foreclose because of the federal statute governing the required contents of a reverse mortgage, like this one, which is insured by the federal Department of Housing and Urban Development ("HUD"). In relevant part, that statute expressly prevents HUD from insuring a reverse mortgage unless the mortgage prevents foreclosure until the homeowner and the homeowner's spouse die or sell the home. See 12 U.S.C. § 1715z-20(j) (providing that "[t]he Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides the homeowner's obligation to satisfy the loan obligation is deferred until the homeowner's death, sale of the home, or occurrence of other events specified in...