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Estate of Jones v. Live Well Financial, Inc.

United States District Court, N.D. Georgia, Atlanta Division

September 19, 2017

THE ESTATE OF CALDWELL JONES, JR., et al., Plaintiffs,


          THOMAS W. THRASH, JR. United States District Judge.

         This is an action seeking temporary and permanent injunctive relief to prevent the foreclosure sale of the Plaintiffs' home by the Defendant. It is before the Court on the Plaintiffs' Petition for Temporary Restraining Order and Preliminary Injunction [Doc. 1-5], and the Defendant's Motion to Dismiss [Doc. 2]. For the reasons stated below, the Defendant's Motion to Dismiss [Doc. 2] is GRANTED and the Plaintiffs' Petition for Temporary Restraining Order and Preliminary Injunction [Doc. 1-5] is DENIED as moot.

         I. Background

         The Plaintiffs in this case are the Estate of Caldwell Jones, Jr., Vanessa Jones in her individual capacity as the surviving spouse of Caldwell Jones, Jr., Vanessa Jones in her representative capacities as the Executrix of the Estate and guardian of her minor-child Leah Grace Jones, and Leah Grace Jones.

         On July 28, 2014, Caldwell Jones, Jr. executed a Reverse Mortgage Deed (the “Reverse Mortgage”) for his home located at 625 Edgecombe Drive, Stockbridge, Georgia 30281 (“the Property”), which he shared with his wife, Vanessa Jones, and minor child, Leah Grace Jones.[1] Mr. Jones executed the Reverse Mortgage with American Nationwide Mortgage Company, Inc., which later assigned it to the Defendant.[2] Vanessa Jones was not a “borrower” on the Reverse Mortgage.[3]

         A Home Equity Conversion Mortgage, commonly referred to as a “reverse mortgage, ” allows older homeowners to convert their accumulated home equity into liquid assets.[4] In a reverse mortgage, the borrower receives either a lump sum, periodic payments, or a line of credit from a lender based on this accumulated equity.[5]It is the reverse of a traditional mortgage because the borrower receives these payments, and need not repay the loan until certain triggering events occur, such as the death of the borrower or the sale of the home.[6]

         Reverse mortgages are typically non-recourse loans, meaning that if the borrower defaults on the loan, and the sale of the home is insufficient to cover the balance of the loan, the lender cannot go after any of the borrower's other assets.[7]Congress, worried that this risk would deter lenders from entering the reverse mortgage market, created a mortgage-insurance program, administered by the Department of Housing and Urban Development (“HUD”), as an incentive for lenders to provide reverse mortgages.[8] This insurance program protects lenders from financial loss if certain conditions are met.[9]

         On September 21, 2014, Mr. Jones passed away.[10] The terms of the Reverse Mortgage stated that the lender could “require immediate payment-in-full of all sums secured by this Security instrument” if, among other things, “[a] Borrower dies and the Property is not the principal residence of at least once surviving Borrower . . . .”[11]After Mr. Jones's death, the Defendant declared the loan to be in default, and ran a Legal Notice of Default and Notice of Sale Under Power.[12] Vanessa Jones and Leah Grace Jones still reside at the Property.[13]

         On June 23, 2017, the Plaintiffs filed this action in state court, seeking emergency temporary and permanent injunctive relief to prevent the Defendant from foreclosing. On July 3, 2017, the Superior Court of Henry County granted the Plaintiff's request for a temporary restraining order and enjoined the Defendant from proceeding with the foreclosure sale.[14] On August 16, 2017, the Defendant removed the case to this Court, and now moves to dismiss.[15]

         II. Motion to Dismiss Standard

         A complaint should be dismissed under Rule 12(b)(6) only where it appears that the facts alleged fail to state a “plausible” claim for relief.[16] A complaint may survive a motion to dismiss for failure to state a claim, however, even if it is “improbable” that a plaintiff would be able to prove those facts; even if the possibility of recovery is extremely “remote and unlikely.”[17] In ruling on a motion to dismiss, the court must accept the facts pleaded in the complaint as true and construe them in the light most favorable to the plaintiff.[18] Generally, notice pleading is all that is required for a valid complaint.[19] Under notice pleading, the plaintiff need only give the defendant fair notice of the plaintiff's claim and the grounds upon which it rests.

         III. Discussion

         A. Violation of 12 U.S.C. § 1715z-20(j)

         The Plaintiffs' primary argument[20] is that the Defendant violated 12 U.S.C. § 1715z-20(j) by declaring the loan balance due and beginning foreclosure on the Property while Ms. Jones, the non-borrowing surviving spouse, still resided in it.[21]The Plaintiffs argue that, under § 1715z-20(j), a reverse mortgage cannot become due and payable while a surviving spouse still resides in the property.[22]

         The Defendant responds that § 1715z-20(j) only governs HUD's authority to insure the loan, and does not implicate the Defendant's independent contractual right to foreclose under the terms of the loan agreement.[23] The Court agrees. 12 U.S.C. § 1715z-20(j) provides that:

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.[24]

         Section 1715z-20(j) prohibits HUD from insuring a reverse mortgage that fails to protect a non-borrowing spouse who still resides in the home.[25] It does not, however, speak to the independent contractual relationship between the lender and borrower. Instead, it only concerns the insurability of the loan by HUD.[26] The statute “[b]y its terms . . . does not apply to lenders and does not affect the validity or enforceability of the terms of contracts between lenders and borrowers.”[27] It does not govern the rights of parties under a valid mortgage contract, or provide HUD with the power to alter the terms of an existing private agreement.[28] It only regulates HUD's administration of the insurance program. Furthermore, the statute provides no private cause of action for a borrower against a lender.[29]

         Here, the Defendant had the right under the terms of the Reverse Mortgage to require immediate payment of the loan balance if a “Borrower” dies and “the Property is not the principal residence of at least one surviving Borrower.”[30] Once Mr. Jones, the sole borrower, passed away, the Defendant had the contractual right to declare the entire loan balance due. Whether the Reverse Mortgage complied with the requirements of HUD's insurance program is a separate question. Even if the Reverse Mortgage is uninsurable under § 1715z-20(j), the Defendant still has the right to enforce the terms of the agreement. Holding otherwise would interfere with the parties' freedom of contract. Therefore, this claim is dismissed.

         B. Bennett v. Donovan

         Furthermore, the Plaintiff contends that the Defendant's actions “[v]iolate[] Bennett v. Donovan . . . .”[31] However, the decision in Bennett v. Donovan[32] is inapplicable here because it only addresses HUD's mortgage-insurance program, and not the independent contractual rights of a lender to foreclose under the terms of a loan agreement.

         In Bennett, the surviving spouses of deceased reverse mortgage holders sued HUD, arguing that the agency's regulations implementing 12 U.S.C. § 1715z-20(j) violated the Administrative Procedure Act.[33] Specifically, they argued that a HUD regulation, which authorized HUD to insure reverse mortgages that became due and payable if a mortgagor died, was inconsistent with § 1715z-20(j), which only permitted HUD to insure reverse mortgages that became due and payable after the death of both the mortgagor and the spouse of the mortgagor.[34] The court agreed, holding that the HUD regulation was invalid as applied to the plaintiffs of that case.[35]

As explained above, whether the reverse mortgage here is insurable by HUD is not at issue. Instead, the enforceability of the terms of the Reverse Mortgage are at issue. Bennett v. Donovan simply addressed the validity of a HUD regulation implementing the mortgage-insurance program. Therefore, it is not relevant.

         C. Mortgagee Letter 2014-07

         Finally, the Plaintiffs cite HUD's Mortgagee Letter 2014-07.[36] The Plaintiffs argue that:

Upon finding that the HUD regulation violated the HECM statute, HUD issued a mortgagee letter revising the terms of revising the terms of reverse mortgages post August 4, 2014. In the interest of public policy and justice, the effect of the mortgagee letter required HUD to implement “Hold Election” for non-surviving spouses. The “Hold Election” allows the loan servicer the ...

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