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Massachusetts Bank’s Mistake Has Significant Consequences in Reverse Mortgage Case

The Appeals Court of Massachusetts recently decided a case stemming from a home equity conversion mortgage, also known as a reverse mortgage, between a homeowner and her lender. In Fin. Freedom Acquisition, LLC v. Laroche, 90 Mass. App. Ct. 1104 (2016), the bank sought a declaration from the court that the homeowner’s property was subject to the mortgage, despite the fact that it had been previously conveyed to her son. After a judge dismissed the bank’s claims, the bank appealed.reverse mortgage

In Fin. Freedom Acquisition, LLC v. Laroche, two years prior to executing the reverse mortgage, the homeowner had deeded the home’s fee simple interest to her son, retaining a life estate for herself, for estate planning purposes. Later, the homeowner began researching the possibility of supplementing her income through a reverse mortgage. Deciding to move forward, the homeowner acquired a reverse mortgage from the plaintiff, secured by her home. Prior to closing on the reverse mortgage, the plaintiff discovered that the property had been deeded to the homeowner’s son and noted in the closing documents that a re-conveyance back to the homeowner would be required to complete the transaction. Nevertheless, the closing proceeded without the re-conveyance, and the bank granted the homeowner a mortgage on the property while she received proceeds from the loan. Five years later, the bank again noticed that the property had not been re-conveyed and requested that the homeowner’s son transfer the fee simple back to the homeowner. When he refused to do so, the bank brought an action seeking a declaration that the son’s remainder fee simple interest was subject to the bank’s mortgage.

On appeal, the court held that, despite the son’s lack of knowledge about the conveyance until 2011, the homeowner effectively delivered the deed to her son, and the transfer of the property was valid. The question for the court then became whether the bank’s mortgage had any effect on the title when the mortgage was executed prior to the delivery of the deed to the son, but it was never recorded.

The court found that the evidence demonstrated that the bank had actual knowledge of the deed before closing on the loan, but it went forward with the transaction anyway. More fundamentally, there was no evidence to suggest that the bank accepted the homeowner’s mortgage with the understanding or assumption that the prior grant to her son was void. Instead, the information available to the bank from the record title indicated that the homeowner held only a life estate at the time of the loan closing. In short, the recording system served its precise purpose by warning the bank prior to the transaction of the prior grant to the homeowner’s son. And, since the son did not consent to bind his interest in the property, nor did he have any actual knowledge that it was potentially subject to the mortgage, there was no basis for the bank’s equitable subrogation and unjust enrichment claims.

If you have been notified of an impending foreclosure from your bank or mortgage company, a resourceful attorney can identify strategies that may allow you to keep your home. At Pulgini & Norton, our Massachusetts real estate attorneys are committed to helping individuals struggling with legal issues such as foreclosures, breach of contract, boundary disputes, zoning and building permits, and more. To schedule your consultation, call Pulgini & Norton at (781) 990-2200 or contact us online.

More Blog Posts:

Massachusetts Appeals Court Reviews Summary Process Action in Foreclosure Dispute, Massachusetts Real Estate Lawyer Blog, published May 23, 2016

Massachusetts Land Court Vacates Foreclosure Judgment on Basis of Health Issues and Due Process Rights, Massachusetts Real Estate Lawyer Blog, published August 1, 2016

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