N.C. Court of Appeals: In re Clayton- Surviving Spouse not a Borrower under Reverse Mortgage

Summary: Melvin Clayton obtained a reverse mortgage, granting a Deed of Trust against his home. His wife, Jackie, was ineligible for the reverse mortgage (presumably because she was not old enough), so did not sign the note, but did sign the Deed of Trust. The note included a provision that accelerated the debt upon his death, unless a “surviving borrower” continued to reside in the home. Upon Melvin Clayton’s death, Wells Fargo sought to foreclose. The Court of Appeals held that as N.C.G.S. § 53-257(2) defines a borrower in a reverse mortgage to be 62 years of age or older, Jackie Clayton was not a “surviving borrower”, the acceleration was proper. (But cruel.) Commentary: The provisions in the Dodd-Frank Act and regulations promulgated by the CFPB regarding successors in interest would have precluded this acceleration of the note, except that reverse mortgages are not covered by such. Ms. Clayton could, nonetheless, file a bankruptcy to halt the foreclosure, as, pursuant to Johnson v. Home State Bank, 501 U.S. 78 (1991), the home would be an asset of her estate and Wells Fargo would have a claim, despite her not being a borrower or liable on the debt personally. She would likely have to satisfy the entire mortgage during her plan, making Chapter 11 (which does not have a 60 month limitation) perhaps the better option. For a copy of the opinion, please see: In re Clayton- Surviving Spouse not a Borrower under Reverse Mortgage