In a recent case, the Massachusetts Land Court ruled on whether a bank could reform an existing mortgage it held with the defendant. In JP Morgan Chase Bank, N.A. v. Niakaros (Mass. Land Ct. Dec. 13, 2016), the defendant had sought a personal loan in 2007 to pay off an existing mortgage on property owned by his trust, without having to grant a new mortgage on the property. The bank agreed to the personal loan, and at the closing, the defendant confirmed to the closing attorney that he did not intend to grant a mortgage. The mortgage was never recorded.
The bank failed and was placed in receivership in 2008, and the loan was eventually sold to the plaintiff. Realizing that both the note and the mortgage on the property were given to the defendant individually, rather than by the trust that owns the property, and that the mortgage was never registered, the plaintiff brought an action to reform the mortgage to name the trust as mortgagor and have it registered. The primary issues for the land court were whether there was a mutual mistake in the naming of the defendant personally as mortgagor, and whether the defendant would be so unjustly enriched that the mortgage should be reformed.
In Massachusetts, a court has broad power to reform, rescind, or cancel written instruments, including mortgages, on grounds such as fraud, mistake, accident, or illegality. A reformation based on a mistake will only be allowed if there is full, clear, and decisive proof that the mortgage failed to express the intent that both parties had in making it. In JP Morgan Chase Bank, the land court ruled that the plaintiff failed to establish that the bank and the defendant made a mutual mistake in executing the mortgage from the defendant individually. The court credited the testimony of the defendant, in that he communicated his intent to acquire a personal loan and not encumber his trust’s rental property to representatives of the bank as well as the closing attorney. The court also noted that the note and the mortgage were consistent with the defendant’s description of an individual loan.