Black v. Financial Freedom Senior Funding Corporation

Charles and Corinne Black (plaintiffs) entered into a reverse mortgage with Freedom Investment Fund, Inc. (Freedom Investment) (defendant), a nonfederally chartered housing creditor. The reverse mortgage was secured by a deed of trust on the Blacks’ home. Pursuant to the reverse mortgage, the Blacks received approximately $300,000 and Freedom Investment received an interest rate equal to 70.75 percent of the maturity value of the home, which was defined as the value of the home as of the maturation of the reverse mortgage. The reverse mortgage would mature and come due for repayment upon the earlier of the Blacks’ death or the sale of the home. The Blacks were promised they would retain 25 percent of the home’s maturity value after repayment of the reverse mortgage; however, it was not made clear that any increase in value of the home would cut into that percentage because Freedom Investment was entitled to 70.75 of the home’s maturation value. The applicable interest rate for repayment was 3.75 percent if the Blacks lived out their combined life expectancy of 24.4 years; however, the applicable interest rate would be higher if the Blacks either died early or sold the home. The loan-repayment projections Freedom Investment provided to the Blacks used only the 3.75 percent interest rate. The Blacks ultimately sued Freedom Investment, along with several other lenders, for elder abuse, fraudulent concealment, and negligent misrepresentation, arguing that Freedom Investment violated California law by engaging in deceptive marketing and misrepresenting the Blacks’ ability to receive guaranteed monthly income while retaining 25 percent of their home’s maturation value. Freedom Investment moved for summary judgment, arguing that federal law preempted state law on the regulation of nonfederally chartered housing creditors. The trial court granted summary judgment, and the Blacks appealed.