Ever wonder if a defendant’s reverse-mortgage payments can be garnished to satisfy a personal injury judgment? A New Jersey court decided just last week that they can.
“[T]he mortgagee’s obligation to make monthly payments to the defendant, the judgment debtor, is properly construed to be a ‘debt’ against which the plaintiffs, the judgment creditors, may obtain an order directing execution and garnishment,” concluded the New Jersey Appellate Division in Cameron v. Ewing.
This novel issue was addressed in the context of a run-of-the mill auto accident case. Charles and Christine Cameron sued Roy Ewing for injuries arising from a car crash. Ewing agreed to settle the case for $400,000, and a judgment was entered against him in that amount in April 2009.
Ewing was an 85-year-old uninsured driver, so collecting the judgment was going to be a problem. The elderly man’s primary asset was his home in Lambertville. Complicating matters, Ewing entered into a reverse mortgage with Wells Fargo Bank two months before he settled his case with the Camerons.
Under the terms of the reverse mortgage (formally called a “home equity conversion mortgage”), Ewing gave Wells Fargo a mortgage on his house in an amount “up to” $360,000. In exchange, Wells Fargo agreed to pay Ewing $959 a month for as long as he lived and resided in his house. Whatever funds were advanced to Ewing during his lifetime would be repaid to Wells Fargo when the home was sold upon his death.
In seeking to garnish the reverse-mortgage payment stream, the Camerons argued that Wells Fargo’s obligation to pay Ewing $959 a month was a “debt due” within the meaning of New Jersey’s garnishment statute.
Under the statute, in the case of regular, recurring payments, a creditor is entitled to a garnishment order “upon a debt due or accruing to the judgment debtor from a third person.”
The trial court determined that Ewing’s reverse-mortgage payments were beyond the reach of the judgment creditors and denied the Camerons’ motion to compel Wells Fargo to comply with a writ of execution.
The New Jersey Appellate Division on Thursday reversed the trial court’s decision, concluding that the monthly reverse-mortgage payments due from Wells Fargo were properly deemed debts owed Ewing.
“Although the payments are not earned income,” the court explained, “they are a regular and recurring obligation of Wells Fargo. It is of no moment that [Ewing] also is indebted to Wells Fargo and he or his estate is ultimately liable to repay the monies received to the extent repayment may be generated from sale of the property. Wells Fargo remains obliged to make periodic installment payments to [Ewing] pursuant to the terms of its Loan Agreement and Mortgage.”
The court rejected several arguments raised by Wells Fargo in its efforts to establish that reverse-mortgage payments should be kept beyond the reach of creditors.
In particular, Wells Fargo contended that garnishment was precluded by an anti-assignment clause in Ewing’s loan agreement.
But the court explained that “the nonassignability rule does not extend so far that it shields from execution and garnishment payments from a source the judgment debtor created. …
“We are unaware of any federal or state law or regulation that expressly limits assignment or execution against the payments under a Home Equity Conversion Mortgage, nor have the parties cited one to us.”
Instead, the court likened a reverse mortgage to a line of credit, for which there is some authority for allowing execution.
Just as the recipient of a line of credit is indebted to the financial institution extending it, [Ewing] is indebted to Wells Fargo as he receives payments, drawing down credit against his overall payment limit. Nonetheless, the financial institution that has agreed to provide its customer a line of credit is obligated to honor drafts against the line, making the financial institution indebted to its customer, and subjecting to execution the exercised line of credit. Likewise, the monthly payments Wells Fargo is obligated to make are subject to execution.
– Pat Murphy