Reverse mortgages are becoming a popular source of income for aging Massachusetts residents who have accrued equity in their home. These homeowners borrow against their home equity in exchange for liquid assets to help pay for daily living expenses. A home equity conversion mortgage is one of these loans available to homeowners over the age of 61 under which payments are made to the owner as a line of credit. These are either provided in a lump sum or in monthly payouts. The loan does not become due until the borrower dies or no longer lives in the home, with interest and fees typically paid by the sale of the home. With a reverse mortgage, the borrower is usually not personally liable for the repayment of the debt. The lender looks solely at the mortgaged property for repayment. This means upon the owner’s death or choice to live elsewhere, the entire loan and fees come due, and it is up to the heirs to repay the loan by selling the home. Failing to do so may mean the lender can foreclose on the mortgage and sell the home.
The Massachusetts Supreme Court recently issued an opinion (SJC-12325) dealing with three Massachusetts foreclosure actions initiated by a lender, which chose to pursue actions in Land Court against each borrower or the executors of their estate, seeking a declaratory judgment to foreclose on the respective homes through the statutory power of sale. The language of the reverse mortgage in this case stated the lender may invoke the power of sale and other remedies allowed by applicable law in the event of a default. The court felt the central question was whether or not Massachusetts G. L.c. 183, § 21 allowed the lender to foreclose in such a manner.
The reverse mortgage form in this lawsuit gave the lender the power to require immediate payment in full if the borrower dies or the property is no longer the borrower’s principal residence. Under this agreement, the borrower held no personal liability for repayment of the debt, and the lender could not pursue a deficiency judgment against them in the event of a foreclosure. The only means of enforcement was through the sale of the property.