In re Doar
28 Misc. 3d 759 (2009)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
When an elderly person enters into a reverse mortgage, the burden of proving that the mortgagor understood the agreement, or that the mortgagee was unaware of the mortgagor's incapacity, shifts to the mortgagee, which must demonstrate that it knew or could have known of the incapacity through reasonable fulfillment of its statutory counseling obligations.
Facts:
- In 1974, Hermina Brunson purchased a one-family home and held the property individually.
- From December 2000, Ms. Brunson suffered from chronic schizophrenia, paranoid type, experiencing cognitive impairment, memory loss, delusions (including fear of losing her home and voices), and anxiety regarding her brother, Joseph Brunson.
- On October 12, 2001, Ms. Brunson signed a deed transferring her property to herself and her brother Joseph Brunson as joint tenants with the right of survivorship.
- On December 30, 2001, Ms. Brunson and Joseph Brunson executed a first reverse mortgage for $300,000 with Financial Freedom Senior Funding Corp.
- On June 20, 2003, Ms. Brunson and Joseph Brunson executed a second reverse mortgage for $375,000 with Financial Freedom, which paid off the first mortgage.
- Ms. Brunson frequently claimed her brother was mistreating her and not feeding her, which her treating psychiatrist, Dr. Pierre Lewis, witnessed, leading him to refer the matter to Adult Protective Services.
Procedural Posture:
- In March 2008, the New York City Commissioner of Social Services submitted a petition pursuant to Mental Hygiene Law article 81 for the appointment of a guardian for Hermina Brunson.
- Dimas Salaberios was appointed temporary guardian for Ms. Brunson.
- A hearing in the guardianship proceeding commenced on February 28, 2009, and continued on various dates until May 8, 2009.
- As part of the guardianship proceeding, the petitioner sought to establish Ms. Brunson's incapacity from the year 2000 forward and requested that the deed transferring property to her brother and the subsequent reverse mortgage agreements with Financial Freedom be vacated.
- Financial Freedom appeared in the action, claiming Ms. Brunson had sufficient capacity for the mortgage agreements and was entitled to repayment if the mortgages were voided.
- A foreclosure action on Ms. Brunson’s home had been stayed pending the conclusion of the guardianship proceeding.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an incapacitated person's reverse mortgage agreement become voidable if the mortgagee failed to reasonably fulfill its statutory counseling obligations, thereby putting it in a position to know of the mortgagor's incapacity, even if direct knowledge of the incapacity cannot be proven?
Opinions:
Majority - Charles J. Thomas, J.
Yes, an incapacitated person's reverse mortgage agreement can be voided if the mortgagee failed to reasonably fulfill its statutory counseling obligations, thereby putting it in a position to know of the mortgagor's incapacity. The court found that Ms. Brunson suffered from a mental illness since 2000 that rendered her incapable of understanding the reverse mortgages and their implications. While historically, a party seeking to void a contract due to incapacity had to prove the other party's knowledge of that incapacity (as in Ortelere v Teachers’ Retirement Bd. of City of N.Y.), the enactment of Mental Hygiene Law article 81, Section 81.29 (d), permits a court to revoke a contract made while the person was incapacitated. Furthermore, recognizing the unique vulnerabilities associated with reverse mortgages, which are designed for the elderly and require specific counseling under federal law (National Housing Act, 24 CFR 206.41), the court shifted the burden of knowledge. In these cases, it is sufficient for the mortgagee to have known or could have known of the incapacity by reasonably fulfilling its statutory obligations. Financial Freedom failed to substantiate the details or effectiveness of the required counseling for Ms. Brunson, providing only a certificate with limited information about a 45-minute phone call, without evidence of Ms. Colarte's qualifications or what information Ms. Brunson specifically received or understood. Given Ms. Brunson's documented mental illness and her brother's influence, any responsible counselor should have identified her lack of capacity. Therefore, the court concluded that Ms. Brunson was incapable of understanding the agreements, and Financial Freedom was in a position to know of her incapacity, thus rendering the June 20, 2003, mortgage void. However, the court also ruled that Financial Freedom should be reimbursed for funds used to benefit and protect Ms. Brunson’s ownership rights, such as taxes, water charges, and prior liens.
Analysis:
This case significantly impacts contracts, especially reverse mortgages, by shifting the burden of knowledge regarding a party's incapacity. It highlights the judiciary's role in interpreting legislative intent, particularly concerning vulnerable populations like the elderly. The ruling emphasizes that compliance with statutory counseling requirements for reverse mortgages is not merely perfunctory but serves as a critical safeguard, placing a higher duty on lenders to ensure true understanding by mortgagors. Future cases involving contracts with incapacitated individuals, particularly in specialized areas with specific statutory protections, may see courts applying a similar 'could have known' standard.
