Benefits of Both Spouses Being the Borrower on a Mortgage
Nationstar Mortgage LLC d/b/a Champion Mortgage Company v. Carey C.A. No. 9274-MA (November 26, 2014)
Nationstar (the “Plaintiff”) sought an equitable foreclosure on real property that was owned by the decedent. The heir of the decedent’s estate, acting as the personal representative, opposed the foreclosure due to alleged deficiencies in the complaint.
The decedent solely owned the real property. In 2009, the Plaintiff issued the decedent a loan and attached a mortgage to the property. The decedent died in 2013. Both the note and mortgage stated that the lender is entitled to immediate payment in full upon the death of the borrower, provided that the property is not the principal residence of at least one surviving borrower.
Among other things, the personal representative argued that the Plaintiff was in violation of federal law in its attempt to accelerate the note before the surviving spouse died or sells the property, and that the language in the mortgage permitting such acceleration was invalid.
The Court of Chancery held that while the personal representative was a surviving spouse, she was not a surviving borrower, and that the federal case cited by the personal representative did not affect the private contract at issue in this case. The federal case stated that that a federal statute allowed the Department of Housing and Urban Development ( “HUD”) to insure only reverse mortgages that came due after the death of both the homeowner-mortgagor and the spouse of that homeowner, regardless of whether that spouse was also a mortgagor. The federal court concluded that the federal regulation permitting HUD to insure reverse mortgages, like the one in this case, was invalid because they stated that the loan balance would be due and payable in full if the mortgagor died and the property was not the principle residence of at least one surviving mortgagor.
Following the federal court’s decision, HUD issued Mortgage Letter 2014-07 which provided that “for loans [initiated after August 4, 2014,], where there is a sole borrower who was married at the time of loan origination (and the spouse was not on the loan), the HECM documents will contain a provision deferring the due and payable status of the loan until the death of the non-borrowing spouse.” But, the Court of Chancery noted that the federal court also made clear that pursuant to the private contract between the mortgagee and mortgagor, the mortgagee may still choose to foreclose on the non-borrower surviving spouse, despite the fact that as a result of Mortgagee Letter 2014-07, HUD will no longer insure contracts that fail to protect a surviving spouse. And since the loan at issue in this case was issued in 2009, nothing in the federal case cited by the personal representative or in Mortgage Letter 2014-07 precluded the Plaintiff from seeking foreclosure against the personal representative, a non-borrower surviving spouse.
