{"id":357,"date":"2015-02-06T10:38:13","date_gmt":"2015-02-06T15:38:13","guid":{"rendered":"https:\/\/www.bowditch.com\/bowditchrealestateblog\/?p=357"},"modified":"2020-10-02T16:45:57","modified_gmt":"2020-10-02T16:45:57","slug":"a-lesson-for-granting-loans-and-encumbering-property","status":"publish","type":"post","link":"https:\/\/www.bowditch.com\/bowditchrealestateblog\/2015\/02\/06\/a-lesson-for-granting-loans-and-encumbering-property\/","title":{"rendered":"A Lesson for Granting Loans and Encumbering Property"},"content":{"rendered":"

Lender\u2019s beware. The case of Financial Freedom Acquisition, LLC v. Dorothy LaRoche<\/a> (Hampden Superior Court, Civil Action No. 2011-00403) demonstrates why lenders need the advice of legal counsel when granting loans and encumbering property.<\/p>\n

Financial Freedom Acquisition, LLC (\u201cFFA\u201d) provided a reverse mortgage to LaRoche, despite the fact that LaRoche only held a life estate interest in the property being mortgaged.\u00a0 Although FFA was aware of the title status prior to granting the loan, it nonetheless failed to require the remainderman to execute the mortgage or to insist the property be deeded back to LaRoche prior to issuing the loan, paying off an existing mortgage and advancing LaRoche funds.\u00a0 Moreover, while the mortgage would have only encumbered the life estate interest, FFA also failed to record it.<\/p>\n

FFA also failed to follow and adhere to HUD regulations governing the granting of reverse mortgages or to take the necessary steps to insure it received a priority interest in the premises securing its loan.\u00a0 This is especially important in the reserve loan situation as the Note is non-recourse against the principal. \u00a0Accordingly, the only recourse the lender has is against the collateral.<\/p>\n

The Court had no sympathy for FFA and declined to put FFA in a better position than the position in which it put itself. \u00a0It found that the violation of HUD requirements for qualification of a reverse mortgage made the reverse mortgage invalid.\u00a0 Accordingly, the only security for the Note was under the security instrument that encumbered the life estate held by LaRoche.\u00a0 FFA tried a number of different tactics to persuade the Court to secure its loan including:<\/p>\n