Massachusetts Homeowners Prevail Against Lender Seeking to Reform Their Mortgage

The Appeals Court of Massachusetts found in favor of homeowners who were sued by their mortgage company after it failed to obtain the signature of the borrower’s spouse on the paperwork. In Salem Five Mortg. Co., LLC v. Lester (Mass. App. Ct. Oct. 13, 2016), the defendant filed a complaint against the plaintiffs, seeking to reform the parties’ residential mortgage. The superior court judge granted summary judgment in favor of the defendant, which was reversed on appeal.

In Salem Five Mortg. Co., LLC, the plaintiffs, a married couple, took title to property as tenants by the entirety in a quitclaim deed in 2008. Although the plaintiffs took title jointly, the husband obtained the loan for the property in his name alone, and only he signed the mortgage document encumbering the property. In 2012, the defendant brought suit, seeking relief on four legal theories:  reformation of the mortgage on the ground of mutual mistake, reformation of the deed on the ground of mutual mistake, equitable subrogation of the wife’s interest to prevent unjust enrichment, and imposition of an equitable mortgage. The lower court held that the reformation of the mortgage was justified on the basis of mutual mistake and granted summary judgment.

In cases of mutual mistake in Massachusetts, reformation may be available when the other party knew or had reason to know of the mistake. The defendant, as the party seeking recovery for a unilateral mistake, must present full, clear, and decisive proof that a mistake occurred and that the other party knew or had reason to know of the mistake.

On appeal, the court reviewed the record, finding ample evidence that the defendant’s failure to insist that the wife be included as a borrower was an error rather than an intentional decision by the defendant to accept less than a full title interest as collateral. The defendant also claimed that it understood prior to the closing that the husband intended to take title in his own name, without any joint tenant. However, there was also testimony that the defendant’s attorney approved a draft of the deed listing the plaintiffs as joint tenants before the closing, and the plaintiffs had told the defendant that they intended to take title jointly.

The court went on to explain that, if the plaintiffs can show at trial that the defendant knew in advance of the closing that the plaintiffs planned to take title jointly, this may provide circumstantial evidence that the defendant acted deliberately, instead of mistakenly, in closing the deal on the terms provided. Accordingly, the court found that the defendant was not entitled to summary judgment on the ground of mutual mistake. The court also concluded that a genuine issue of material fact existed with respect to the defendant’s expectations in advancing the funds, thereby preventing judgment against the plaintiffs on the theory of unjust enrichment.

In many cases, hiring an experienced attorney can help protect your rights in mortgage and foreclosure disputes. At Pulgini & Norton, our real estate attorneys provide trustworthy and practical legal advice to individuals involved in property cases, foreclosures, zoning and building permit issues, and other transactions. If you would like to learn more from a qualified attorney at Pulgini & Norton, schedule a consultation by calling (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 Bank’s Mistake Has Significant Consequences in Reverse Mortgage Case, Massachusetts Real Estate Lawyer Blog, published September 12, 2016

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