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Appellate Court Reviews Redemption Period on Reverse Mortgages

Posted By USFN, Tuesday, September 11, 2018
Updated: Friday, September 7, 2018

September 11, 2018

by Blair T. Gisi
SouthLaw, P.C. – USFN Member (Iowa, Kansas, Missouri)

The Kansas Court of Appeals recently offered a clear and unequivocal opinion regarding the proper redemption period on home equity conversion or reverse mortgages.

In Kansas, a defendant owner of a property may redeem any real property sold under execution within twelve months from the date of sale [K.S.A. §60-2414(a)]. However, lenders and servicers are often allowed to shorten that redemption period to three months under K.S.A. § 60-2414(m), which provides that if a default occurs “before 1/3 of the original indebtedness secured by the mortgage or lien has been paid, the court shall order a redemption period of three months.” In other words, if the unpaid principal balance is 2/3 or more of the original principal balance at the time the Petition to Foreclose is filed, the redemption period is three months.

Prior to the decision in Reverse Mortgage Solutions, Inc. v. Goldwyn, 2018 Kan. App. LEXIS 36 (Kan. Ct. App. July 6, 2018), the question often arose as to where reverse mortgages fell within the redemption period context. On the one hand (and without delving into the nature of a reverse mortgage as the court did in Goldwyn), borrowers are generally not making payments to reduce the principal balance, such that the three-month redemption period will nearly always apply. On the other hand, given the lack of clarity on the matter, the equitable nature of foreclosures in Kansas, a propensity for borrower-friendly courts, and the potential public relations or similar concerns, lenders and servicers often elected to forego asserting that the appropriate redemption period is three months — settling for the initial twelve-month redemption period.

In deciding Goldwyn, which involved the foreclosure of a reverse mortgage, the court took into account the various considerations mentioned above and flatly sided with the letter of the law. It addressed these concerns regarding how to assess the redemption period by very clearly stating, “since [the borrower] had paid back less than one-third of the original indebtedness, the redemption period was properly set at three months.” Goldwyn at 14. This ruling provides the basis to assert a shorter redemption period and to expedite the foreclosure process in the majority of foreclosures of reverse mortgages.

Of note, the court in Goldwyn made a less-than-subtle suggestion to the Kansas legislature that this issue may need to be re-evaluated with attention paid to the redemption period on reverse mortgages, given the equities involved. While this recent judicial clarification will prove to be useful for the time being, it will be interesting to see whether legislative action follows.

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Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

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