Properly executing each document is crucial to each Mortgage transaction – even an innocent mistake can spell doom for a well-intentioned lender.  Execution errors will prevent lenders from acquiring proper security.  This issue was recently litigated in the Florida Court of Appeals case Smith v. Reverse Mortgage Solutions, Inc., where a lender could not foreclose an HECM because the debtor’s wife had signed the mortgage.

In order to enter an HECM, Mr. Smith executed and signed a Note in favor of Reverse Mortgage Solutions (RMS), and Mr. and Mrs. Smith signed the Mortgage.  When Mr. Smith died, RMS attempted to foreclose on that basis. However, the Court of Appeals disagreed.  Because Mrs. Smith signed as a Borrower and the mortgage provided that the lender could seek payment if the property is not the principal residence of a remaining borrower, the Court held that RMS could not seek payment while Mrs. Smith kept the property as her principal residence.  Although Mr. Smith was the only person specifically referred to as “Borrower,” and Mrs. Smith had not executed the Note, the Court held that Mrs. Smith’s signature was enough to establish her status as a borrower under the Mortgage.

The Court’s majority also noted that Federal law may require HECMs insured by HUD to follow this procedure, and defer the repayment obligation until the property is sold or the homeowner or homeowner’s spouse dies. Although the dissent in the case discussed the Secretary of HUD’s recent attempts to downplay the import of that statutory language, the Majority nonetheless used the law to support its holding that the mortgagee could not seek repayment solely upon the death of the debtor.

Secure and proper execution can make a world of difference for transactions big and small, and proper counsel can help ensure that expectations meet results.