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Reverse Mortgage Foreclosure

Posted by 15789465 on

On June 30, 2011, the Alabama Court of Civil Appeals announced its decision in Cooper v. Federal National Mortgage Association. That's Fannie Mae.  The case concerned a foreclosure of a reverse mortgage. Mason Cooper was the father of Edith Cooper.  On November 24, 2003, Mason took out a reverse mortgage on his home.  The mortgage ultimately came to be owned by Fannie Mae.  There was nothing in the court decision to indicate whether Edith knew about the mortgage or not. On April 10, 2008, Mason quitclaimed his home to Edith, but continued to live there as his principal residence.  He died a month later. Afterwards, Edith lived in the home.  On January 1, 2009, Fannie Mae foreclosed on the home after declaring a default due to Mason's death.  Reverse mortgages are repayable in full when the borrower stops living in the home as their principal residence, or when they die. The first that Edith knew about the foreclosure was in April 2009, when Fannie filed a lawsuit to have her tossed off the property. Edith claimed the foreclosure was defective because Fannie never gave notice to Mason's executor, his heirs (Edith) and did not even send a notice to the property address.   The court said none of that was necessary and the foreclosure was proper. To read the entire decision, click HERE. It's been a LOOOONGGGG time since I had constitutional law in schoo, but I'm wondering how this is not a violation of Edith's rights to due process of law, which requires notice before taking someone's property.  Does anyone out there know? It seems to be that when people borrow money on a reverse mortgage, there is an extremely high likelihood they will die without anyone even knowing about the mortgage.  If someone knew, they might be able and willing to pay off the mortgage.  This way, they just lose Mom or Dad's property, possibly their childhood home, possibly the most valuable asset in the estate, without any way to avoid it.  How can this be fair?

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  • That is why recording and title insurance is so important. Recording legally gives “notice to the world” that there is an outstanding mortgage on that specific piece of the world. The Quit Claim deed may or may not have been recorded but it would have been subject to the existing mortgage. A bonded title insurance company would surely have picked that up but if they did not and issued a title policy omiting the outstanding mortgage, Edith would have a claim against the title co. for the house which they would have to settle with Fannie Mae to provide her the house free and clear.

    Bill Fowler on
  • Great advice Bill, Even if you are getting just a quitclaim deed from a relative, ALWAYS get title insurance. The cost is minimal. I think it’s $3.50 per $1,000 of coverage up to a certain amount, with a minimum fee, but well worth the money. Not getting title insurance is like not having home insurance or car insurance because you think “probably nothing bad will happen.” Until it does….

    Denise L. Evans on

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