WVMF Funding v. Palmero

• Decision Date: 24 June 2021
• Docket Number: No. SC19-1920,SC19-1920
• Citation: 320 So.3d 689
• Parties: WVMF FUNDING, as Successor to OneWest Bank, FSB, Petitioner, v. Luisa PALMERO, et al., Respondents.
• Court: Florida Supreme Court

320 So.3d 689

WVMF FUNDING, as Successor to OneWest Bank, FSB, Petitioner,

v.Luisa PALMERO, et al., Respondents.

No. SC19-1920

Supreme Court of Florida.

June 24, 2021

William P. McCaughan of Law Office of William P. McCaughan, Key Biscayne, Florida; Joshua H. Threadcraft of Burr & Forman LLP, Birmingham, Alabama; and Jonathan B. Morton, Mallory M. Cooney, and Joshua C. Carpenter of K & L Gates LLP, Miami, Florida, for Petitioner

Jeffrey M. Hearne and Maxine M. Long of Legal Services of Greater Miami, Inc., Miami, Florida; Jacqueline C. Ledón of J. Muir & Associates, P.A., Miami, Florida; and Juan M. Carrera of Carrera & Amador, P.A., Miami, Florida, for Respondents

Lynn Drysdale of Jacksonville Area Legal Aid, Inc., Jacksonville, Florida; and Julie Nepveu of AARP Foundation, Washington, District of Columbia, for Amici Curiae AARP, AARP Foundation, and Jacksonville Area Legal Aid, Inc.

LAWSON, J.

The decision on review presents the legal questions of whether, in a foreclosure action, the terms of the mortgage and note must be construed together and, if so, in the event of a conflict between the two documents, which prevails. We answered both of these questions long ago, holding that the mortgage must be read alongside the note it secures and that the note prevails in the event of a conflict. See Graham v. Fitts , 53 Fla. 1046, 43 So. 512, 513-14 (1907) (requiring joint construction of note and mortgage in foreclosure actions); Hotel Mgmt. Co. v. Krickl , 117 Fla. 626, 158 So. 118, 119 (1934) (setting forth the "general rule" for foreclosure actions that "if there is a conflict between the terms of a note and mortgage, the note should prevail"). Because the Third District Court of Appeal in OneWest Bank, FSB v. Palmero , 283 So. 3d 346 (Fla. 3d DCA 2019), failed to follow our precedent and instead looked solely at the location of a signature on a mortgage to hold that the term "Borrower" means something different than both the mortgage and the note define it to mean, we granted review based on express and direct conflict with our decisions in Graham and Krickl , see art. V, § 3(b)(3), Fla. Const., and now quash the Third District's decision.

BACKGROUND

Roberto Palmero and his wife, Respondent Luisa Palmero, initially applied as co-borrowers for a loan that was to be secured by a reverse mortgage on their primary residence and homestead. See Palmero , 283 So. 3d at 347. Several months later, however, the Palmeros changed course, and Mr. Palmero applied for the same type of loan, only this time, as the sole borrower. See id.¹

Five documents relate to Mr. Palmero's loan: (1) a residential loan application; (2) a home equity conversion loan agreement; (3) an adjustable rate note; (4) a non-borrower spouse ownership interest certification; and (5) a reverse mortgage. See id. at 347-48 ; see also id. at 356-57 (Emas, C.J., dissenting).

The first three documents, all signed on the same date, identified Mr. Palmero as the sole borrower and were signed only by him. Id. at 347. Of these three documents, the note is of primary importance, and it defines "Borrower" as "each person signing at the end of this Note." Id. at 357 (Emas, C.J., dissenting). Mr. Palmero is the only person whose signature appears at the end of the note. Id. (Emas, C.J., dissenting).

Both Mr. and Mrs. Palmero signed the fourth document, the non-borrower spouse ownership interest certification. Id. at 348. Although the date on the certification is illegible, like the three documents signed solely by Mr. Palmero, the certification identified Mr. Palmero as the borrower. Id. at 357 (Emas, C.J., dissenting). The certificate also identified Mrs. Palmero as the "Non-Borrower Spouse." Id. at 348.

Finally, to secure the note, Mr. and Mrs. Palmero both executed the fifth document, the reverse mortgage. Id. at 347. The mortgage bears the same date as the note, and it expressly refers to the note, including defining the mortgage as a "Security Instrument" given to "secure[ ] to Lender ... the repayment of the debt evidenced by the Note." Consistent with the other documents, the mortgage defined the "Borrower" as "Roberto Palmero, a married man." Id. at 348. The signature block of the mortgage provided that "BY SIGNING BELOW, Borrower accepts and agrees to the terms contained in this Security Instrument and in any rider(s) executed by Borrower and recorded with it." Id. at 357 (Emas, C.J., dissenting). Both Mr. and Mrs. Palmero signed their names on lines beneath this sentence that were preprinted with their names and the word "Borrower." Id. at 348.

As with a typical reverse-mortgage loan, certain events would trigger acceleration of the debt prior to the repayment date identified in the note and mortgage. See generally Estate of Jones v. Live Well Fin., Inc. , 902 F.3d 1337, 1338-39 (11th Cir. 2018) (explaining reverse-mortgage loans). As relevant here, the triggering event was Mr. Palmero's death. See Palmero , 283 So. 3d at 349.

Following Mr. Palmero's death, when his estate did not repay the loan, Petitioner's predecessor, OneWest Bank, FSB (OneWest), sought to foreclose the mortgage that secured the loan. Id. Respondents, Mrs. Palmero and her two adult children, defended against the foreclosure action by arguing that Mrs. Palmero, who continued to principally reside in the mortgaged property, was a co-borrower under the mortgage. Id. Mrs. Palmero's status (or not) as a co-borrower was critical because both the note and mortgage conditioned enforcement of the debt on the following: "A Borrower dies and the [mortgaged] Property is not the principal residence of at least one surviving Borrower." Id. at 364 n.23 (Miller, J., dissenting).

Following a bench trial, the trial court ruled that Mrs. Palmero was not a co-borrower. Id. at 350. However, it denied foreclosure based on a federal statute that governs the insurability of reverse mortgages by the Secretary of the Department of Housing and Urban Development. See id. (citing 12 U.S.C. § 1715z-20(j) ).

On appeal, the Third District held, on rehearing en banc, that the trial court erred by relying on the federal statute to deny foreclosure because the statute's application "was neither raised as an affirmative defense ... nor litigated by the consent of the parties at the bench trial." Id. However, the Third District disagreed with the trial court's factual finding that Mrs. Palmero was not a co-borrower, ruling instead that, "as a matter of law," id. at 350, the mortgage unambiguously defined her as a "Borrower." See id. at 350-52. Accordingly, the Third District affirmed the trial court's denial of foreclosure based on its conclusion that "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." Id. at 347.

In support of its holding, the Third District relied on its prior decisions in Smith v. Reverse Mortgage Solutions, Inc. , 200 So. 3d 221 (Fla. 3d DCA 2016), and Edwards v. Reverse Mortgage Solutions, Inc. , 187 So. 3d 895 (Fla. 3d DCA 2016), where the district court had "considered reverse mortgages identical to the [Palmeros’] reverse mortgage and determined that, as a matter of law, the surviving spouse is a co-borrower." Palmero , 283 So. 3d at 353 (emphasis omitted). The Third District looked to these prior decisions to construe the loan documents at issue over strong dissents arguing that the court should instead apply longstanding foreclosure precedent that governs the construction of notes and mortgages. See id. at 361 (Emas, C.J., dissenting) (identifying, among other failings in the majority's decision, that it "ignores the fact that the contemporaneously executed note contains only Mr. Palmero's name and signature as borrower"); see also id. at 362 (Miller, J., dissenting) ("[I]n addition to failing to mutually construe the contemporaneously executed documents, the majority dispenses with a body of well-reasoned, established jurisprudence, the controlling provisions of the promissory note, and the express terms of the mortgage in determining that the inclusion of Mrs. Palmero's unnotarized signature on the mortgage renders her a ‘Borrower,’ as a matter of law.").

We accepted jurisdiction to resolve the express and direct conflict between the Third District's decision and our decisions in Graham and Krickl . See art. V, § 3(b)(3), Fla. Const.

ANALYSIS

We review de novo the Third District's legal conclusion that Mrs. Palmero is a co-borrower. See Bank of New York Mellon v. Withum , 204 So. 3d 136, 137 (Fla. 4th DCA 2016) ("[C]onstruction of notes and mortgages are pure questions of law subject to de novo review."). Because proper application of our precedent establishes that she is not, we quash the district court's decision.²

Over one hundred years ago, we explained why, in foreclosure actions, the general rule is that a mortgage should be construed together with the note that it secures:

The note and mortgage were executed at the same time in one transaction relating to the same subject, and the mortgage refers to the note. Therefore they should be considered together in determining their meaning and effect. By construing them together as parts of one contract, the provisions of the principal note as to when it shall become due and payable, when taken with the provision of the mortgage that it is given to secure the payment of the note, with interest, "according to the true intent and meaning of said note," it is clear that the provisions of the note control. The note constitutes the written evidence of the indebtedness, and the terms of its payment are stated therein. The mortgage was given to secure the payment "according to the true intent and meaning of the note."

Graham , 43 So. at 513-14 (citations omitted); see also Flinn v. Lisenby , 102 Fla. 777, 136 So. 599, 601 (1931) ("The note and mortgage was a single contract and...