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Fla. Supreme Court Holds Note Prevails Over Mortgage in Event of Conflict

The Supreme Court of Florida recently held that a mortgage and note must be read together, and in the event of a conflict, the note prevails, quashing the decision of the Third District Court of Appeal because it conflicted with the Court’s established precedent.

A copy of the opinion in WVMF Funding v. Palmero is available at:  Link to Opinion.

Husband and wife applied for a loan as co-borrowers secured by a reverse mortgage on their home, but they did not close on that loan. Instead, a few months later, husband applied for the same type of loan, but as sole borrower.

Although only the husband signed the note, both he and his wife signed a “non-borrower spouse ownership interest certification,” which identified the husband as the “Borrower” and the wife as the “non-borrower spouse.”

Both parties signed the reverse mortgage. Although the mortgage defined the husband as the “Borrower,” it also contained signature lines for both parties at the end “that were preprinted with their names and the word “Borrower.”

The husband died, which “[a]s with a typical reverse-mortgage loan, … [triggered] acceleration of the debt prior to the repayment date identified in the note and mortgage.”

The mortgagee at the time then filed a mortgage foreclosure action.  In response, the wife and her two adult children argued that since she continued to reside at the property as her principal residence, the mortgage could not be foreclosed because “both the note and mortgage conditioned enforcement of the debt on the following: “A Borrower dies and the [mortgaged] Property is not the principal residence of at least one surviving Borrower.”

The case went to trial and although the trial court ruled that the wife “was not a co-borrower[,] … it denied foreclosure based on a federal statute that governs the insurability of reverse mortgages by the Secretary of the Department of Housing and Urban Development.”

On appeal, Florida’s Third District Court of Appeal held, “on rehearing en banc, that the trial court erred by relying on the federal statute to deny foreclosure because the statute’s application ‘was neither raised as an affirmative defense … nor litigated by the consent of the parties at the bench trial.”

However, the Third District then went on to hold “as a matter of law” that the wife was a co-borrower, disagreeing with the trial court on that issue, but nevertheless “affirmed the trial court’s denial of foreclosure based on its conclusion that [the bank] failed to establish the occurrence of a condition precedent to its right to foreclose, i.e., that the subject property is not the principal residence of [the wife], a surviving co-borrower under the instant reverse mortgage.”

The Florida Supreme Court “accepted jurisdiction to resolve the express and direct conflict between the Third District’s decision and its prior decisions dating from 1907 and 1934. Reviewing the Third District’s decision under the de novo legal standard because the interpretation of notes and mortgages are pure questions of law, the Court concluded that the wife was not a co-borrower “[b]ecause proper application of our precedent establishes that she is not” and reversed the appellate court’s ruling.

The Supreme Court reasoned that “over one hundred years ago,” it “explained why, in foreclosure actions the general rule is that a mortgage should be construed together with the note that it secures….” Simply put, because they were signed as part of the same transaction, the note and mortgage must be read together.

The Court went on, reasoning that it has “also long explained that ‘[t]he general rule is that, if there is a conflict between the terms of a note and mortgage, the note should prevail.’”

The Supreme Court pointed out that both the note and mortgage defined the husband as the “Borrower” and the wife only joined in the mortgage because it “would have been required for the lender to have a valid security interest because the mortgaged property was her homestead,” before disagreeing with the Third District’s holding that the location of the wife’s signature on the mortgage “unambiguously and as a matter of law, … ma[de] her a co-borrower under the mortgage.”

Because, the Court concluded, “[t]he Third District’s holding ignores not only that the mortgage expressly defines [the husband] as the ‘Borrower,’ but it also ignores that this Court’s foreclosure precedent requires courts to read the mortgage together with the note it secures, . . . and to look to the note to resolve any conflict, …” it was error to look beyond “the note and mortgage to the other documents that were part of the same transaction to determine, as a matter of law, how the parties intended to define the term ‘Borrower.’”

Finally, disagreeing with the dissent, the Supreme Court explained that it didn’t matter that the Court’s foreclosure precedent dealt with “traditional mortgages and therefore should not apply to the reverse mortgage at issue” because “first principles—i.e., the reason for the documents at issue—tell us why we should read a mortgage together with the note it secures regardless of the type of mortgage being foreclosed: ‘[T]he promissory note, not the mortgage, is the operative instrument in a mortgage loan transaction, since ‘a mortgage is but an incident to the debt, the payment of which it secures, and its ownership follows the assignment of the debt.’”

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Hector E. Lora manages the firm’s Florida office and has substantial experience in all phases of complex commercial litigation, including bench and jury trials as well as appellate practice. Hector represents lenders, servicers, debt collectors and debt buyers in complex mortgage foreclosure actions, quiet title actions, federal TILA, RESPA, TCPA, and FDCPA actions and Florida FCCPA actions brought by borrowers or debtors. He also represents creditors in bankruptcy litigation, purchasers of accounts receivable or factoring companies that provide revenue-based financing to small and mid-sized businesses in collection actions, and landlords in commercial and residential evictions. Hector’s broad litigation experience includes over a decade of defending civil enforcement actions filed by the Federal Trade Commission as well as real estate contract disputes and partition actions, contested mortgage foreclosure and condominium lien foreclosure actions and the foreclosure of UCC Article 9 security interests. Hector also has advised a variety of types of businesses regarding their compliance with applicable federal and state consumer protection laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act (TCPA), the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida. For more information, see

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