Illinois Appellate Court finds Spouse of a Borrower is not a Borrower in Reverse Mortgage Case

On December 10, 2018, the Second District of the Appellate Court of Illinois upheld a trial court’s decision finding that the non-borrowing spouse of a reverse mortgage borrower was not a borrower under the terms of the mortgage and could not stop foreclosure on the home after her spouse died.

The Plaintiff in this case is a bank that filed a foreclosure suit against the defendants, a title and trust company and the wife of the borrower (Wife), after the borrower (Husband) passed away.  In 2007, the Husband applied and obtained a reverse mortgage.  The Husband was identified as the sole borrower on the two loan applications, the loan disclosure forms, and the note.  Proceeds of the loan were based solely on the Husband’s age at the time of the transaction.  The Husband and Wife executed a Non-Borrower Spouse Ownership Interest Certification in which they agreed that, after consultation with independent legal and tax experts, it was in their best interest to enter into a reverse mortgage with only one spouse having no ownership interest in the real property that would serve as collateral to the reverse mortgage.

However, the last page of the mortgage was signed by both the Husband and Wife on lines that listed them as borrowers.  The mortgage also contained language that stated that “[a]nyone who co-signs this Security Instrument as a Borrower but does not execute the [note] (i) is co-signing this Security Instrument only to mortgage, grant, warrant and convey that Borrower’s interest in the Property under the terms of this Security Instrument….”  Further, the mortgage provided that the non-borrower spouse released and waived all rights under the virtue of Illinois homestead exemption laws.  The Husband died in July 2013, and a complaint for foreclosure was filed by the bank.  The Wife filed a motion to dismiss arguing that she was a “borrower” under the meaning of the Illinois Banking Act, which defines it as any homeowner who is, or whose spouse is, at least 62 years of age.  The Husband was 76 years old and the Wife was 64 years old at the time of the transaction.  According to the Wife, since she alleged that she was a borrower, there was no triggering event which would allow for foreclosure on the mortgage as she was still occupying the home as her principal residence.

Finding that there was an issue of fact as to whether the Wife was a borrower, the trial court denied the Wife’s motion to dismiss.  The Wife subsequently raised several affirmative defenses which were dismissed by the trial court.   At a hearing, the Wife argued that she was a borrower on the note, or alternatively, that the mortgage was invalid because she received no consideration.  The trial court granted the bank’s motion for summary judgment.  The Wife appealed, arguing that the trial court erred on granting the summary judgment because the mortgage violated the state homestead exemption laws and federal regulations, and that the mortgage was not enforceable since it lacked consideration, did not accurately reflect the intent of the parties, and it did not properly reflect the borrowers’ identities.

The appellate court rejected these arguments, holding that the mortgage made clear that anyone who signed the mortgage but not the note was doing so to warrant and convey his or her interest in the property under the terms of the mortgage and therefore it was clear that Wife was in fact waiving her homestead rights.  Further, the appellate court found that the fact that federal law definition of “homeowner” is not relevant in the current case because the mortgage in this case was not a Home Equity Conversion Mortgage, which are offered by HUD and insured by FHA, and thus there was no violation of federal regulations.

The appellate court found that the consideration argument was without merit because the mortgage benefited the Husband, and a benefit to a third person constitutes sufficient consideration for a mortgage.  Additionally, the court noted that the mortgage also benefited the Wife because the proceeds of the note were used to pay off family liens and this too was consideration.

The appellate court also found that the plain language of the mortgage documents made clear that the Husband was the sole borrower.  Though the Wife argued that she was misled about the content of the mortgage documents, the appellate court held that she was bound by the documents as she had the duty to know the content of those documents before she signed them.

Finally, the court found that the Wife clearly conveyed her entire interest in the property through the Non-Borrower Spouse Certification.  Based on the foregoing, the appellate court found that the borrowers were properly identified and that the property was effective to encumber the property and that the Non-Borrower Spouse Certification was valid against Wife.

The full opinion may be found here.