Deutsche Bank National Trust Company v. Manuel J. Perez et al. (2012)

MEMORANDUM OF DECISION

The plaintiff, holder of a mortgage, brings this action in two counts, the first seeking reformation of that mortgage and the second seeking foreclosure.   The equitable remedy of reformation is sought because the mortgage in question was signed by the defendant Manuel J. Perez (“Perez”) only when the plaintiff maintains that it should also have been signed by the defendant Janet Shaw (“Shaw”), the wife and co-owner of the property that purports to secure the mortgage loan.   The trial revealed the following facts.

On May 11, 2006 Perez applied for a mortgage loan on property known as 47 Pine Point Road, Rowayton, Connecticut (“the property”).   At that time Perez owned the property jointly with Shaw by virtue of a quitclaim deed from Perez to himself and Shaw dated November 4, 2005.   On the same date both joint tenants executed a mortgage deed on the property in favor of MERS (Mortgage Electronic Registration Systems, Inc.) as nominee for Chevy Chase Bank, FSB as lender, thereby conveying a security interest in that property in favor of the lender.   On January 19, 2006, without an intervening conveyance of Shaw's one-half interest back to him, Perez executed a second mortgage on the property in his name only in favor of National City Bank. On May 11, 2006 the same day as the above mentioned loan application, Perez by himself, executed a mortgage note and deed on the property in favor of MERS as nominee for American Brokers Conduit as lender in an amount sufficient to pay off both the Chevy Chase and National City Bank mortgages.   Because Shaw did not join in this mortgage, the plaintiff's security is incomplete in that it encompasses only one-half of the title to the property.

The plaintiff argues that a mutual mistake was made because MERS, the original mortgagee intended American Brokers Conduit to obtain a mortgage from all of the property owners and Perez intended to give the mortgagee whatever was required for him to obtain the loan.   Defendants on the other hand direct their argument not to Perez's intent but rather Shaw's lack of intent to participate, basing the argument on the evidence which showed Shaw had nothing to do with the transaction from the beginning.   Defendants point to the fact that Shaw did not join in the loan application, never agreed to encumber her interest and had no knowledge that Perez was “taking the loan.”

“A cause of action for reformation of a contract rests on the equitable theory that the instrument sought to be reformed does not conform to the real contract agreed upon and does not express the intention of the parties and that it was executed as the result of mutual mistake, or mistake of one party coupled with actual or constructive fraud, or inequitable conduct on the part of the other.  Moffett, Hodgkins & Clarke Co. v. Rochester, 20 S.Ct. 957 [1900];  Patalano v. Chabot, 139 Conn. 356, 359 [1952];  Home Owner's Loan Corporation v. Stevens, 120 Conn. 6, 9, [1935];  27 Am.Jur.2d 555, Equity, § 33;  45 Am.Jur., Reformation of Instruments, 584 § 2, 621 § 62;  76 C.J.S. 375, Reformation of Instruments, § 30.”  Greenwich Contracting Co. v. Bonwit Construction Co., 156 Conn. 123, 126, (1968);  see also Rodie v. National Surety Corporation, 143 Conn. 66, 69, (1955).  “We have held that this also applies to actions for reformation of a deed;  Patalano v. Chabot, 139 Conn. 356, 359 (1952);  Milford Yacht Realty Co. v. Milford Yacht Club, Inc., 136 Conn. 544, 548 (1950);  Home Owners' Loan Corporation v. Stevens, 120 Conn. 6, 10 (1935);  the function of which is ‘merely to pass title to land, pursuant to the agreement of the parties.’  Patalano v. Chabot, supra, 360;  see also Cohen v. Holloway's, Inc., 158 Conn. 395, 409 (1969).  ‘Reformation is not granted for the purpose of alleviating a hard or oppressive bargain, but rather to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties ․ Equity evolved the doctrine because an action at law afforded no relief against an instrument secured by fraud or as a result of mutual mistake.’  George Backer Management Corporation v. Acme Quilting Co., 46 N.Y.2d 211, 219 (1978).”  (Alternate citations omitted.)  Lopinto v. Haines, 185 Conn. 527, 531–32 (1981).

“The evolution of the equitable doctrine of reformation providing, as it does, relief where none was provided at law against an instrument secured by fraud and mistake has properly been said to require “evidence of a very high order” to overcome what the New York Court of Appeals calls ‘the heavy presumption that a deliberately prepared and executed written instrument manifested the true intention of the parties.’  George Backer Management Corporation v. Acme Quilting Co., supra;  see also 66 Am.Jr.2d.   Reformation of Instruments § 123;  6A Powell Real Property (1980) § 894.   We have stated the standard of proof for reformation in different ways but all with the same substantive thrust;  ‘evidence should be clear, substantial and convincing ․’ “ Corticelli Silk Co. v. Slosberg, 101 Conn. 44, 50, 124 A. 818 (1924);  Reiner v. Maier, 96 Conn. 566, 567 114 A. 657 (1921);  Snelling v. Merritt, Bonwit Construction Co., supra, 126–27 (convincing evidence).

“The phrase ‘clear, substantial and convincing evidence’ fairly characterizes that degree of belief that lies between the belief that is required to find the truth or existence of the issuable fact in an ordinary civil action and the belief that is required to find guilt in a criminal prosecution.   See also Dacey v. Connecticut Bar Assn., supra, 536–37.   In cases such as this which require such a showing of proof, the burden of persuasion is sustained if the evidence “induces in the mind of the trier a reasonable belief that the facts asserted are highly probably true, that the probability that they are true or exist is substantially greater than the probability that they are false or do not exist.”   See Dacey v. Connecticut Bar Assn., supra, 537;  see also McBaine, ‘Burden of Proof:  Degrees of Belief,’ 32 Cal. L.Rev. 242, 246–47, 254, 262–64 (1944).   This is the quality of the evidence required in cases of this type.”  (Alternate citations omitted.)  Lopinto v. Haines, Id., at 533–35.

The following additional facts are pertinent to the court's adjudication.

Perez took title to the property in 2001.   Between 2003 and 2005 Perez engaged in a series of conveyances of the property back and forth to and from the Manuel J. Perez Revocable Trust and on November 4, 2005, while title stood only in his name, conveyed a one-half interest to Shaw. Shaw testified that she had been aware of her one-half interest since that time although she had not seen the deed until about two weeks before trial.   She also stated that she never told anyone that she owned an interest in the property.   Her knowledge of her ownership interest is confirmed by the fact that on the very day she acquired the one-half interest she signed her name to the above referenced Chevy Chase Bank FSB mortgage on two separate pages and affixed her initials to the instrument 18 different times.   Similarly, on May 19, 2006 just eight days after the present mortgage, Shaw joined Perez in placing a second mortgage on the property in favor of National City Bank in which her signature was designated as that of a “co-borrower” and she was identified with her husband on the first page of the instrument as “husband and wife as joint tenants.”   At trial there was no evidence of the purpose of second mortgage proceeds.   It strains credulity to ask the court to believe that while Perez and Shaw knew that Shaw's signature was needed on the National City Bank second mortgage eight days after they believed that it was not needed on the present mortgage.

According to Perez, the purpose of the mortgage loan was to finance the cost of care and treatment for his teenaged son who was then suffering from a serious drug addiction.   Because Shaw was not the son's mother he did not wish to involve her in his personal problems.   In his own words, his son's condition placed him in a “state of anxiety most of the time.”   How title to the property was held “was not an issue” for him.   In fact, he testified that because of his state of anxiety he was confused about who actually owned the property.   The court finds that Perez was in a state of confusion at the time, that his mind was preoccupied with his son and thus it never occurred to him that his wife's signature was required on the mortgage.   His mental state caused him to complete all of the essential steps without giving any thought to how title to the property stood and the need for his wife's signature.   This is confirmed by the fact that he failed to include his wife's one-half interest on the loan application and “certified” to its truthfulness under penalty of federal crime (Ex. # 17).¹

When the closing was held on the property Shaw was not present.   All of the loan documents were prepared at the instigation of the lender, American Broker's Conduit but it is unclear by whom they were actually drafted.   Perez was not represented by counsel.   In fact, no attorney was present.   Included in the closing package of documents which the closing agent brought to the closing was defendant's Exhibit 1 which is a title insurance commitment designed to cover the mortgage, issued by General American Corporation and dated March 3, 2006.   The commitment clearly specifies that a “proper mortgage” be obtained from “Manuel J. Perez and Janet Shaw, husband and wife.”   Notwithstanding this information, the mortgage was prepared by or for the lender for Perez's signature only and the instructions to the closing agent erroneously reflected that Perez was the sole applicant and borrower.  (Ex. 15.)   There is no evidence which explains the lack of conformity of the mortgage instruction to the title commitment.   On the other hand, the instructions specified that “all non borrowing title holders must sign signature page of mortgage” and that the closing agent was authorized to add any such missing names “as necessary.”   In the face of the title commitment it is apparent that the lender's document preparer either ignored or was unaware of the contents of the title commitment and prepared the loan documents for Perez's signature only.   While it did not appear in the evidence, a possible though plausible explanation for the error is the fact that the loan application (Ex. 13) erroneously states that Perez was the sole owner although it is noted that the document is dated May 11, 2006, the same date as the closing.   The court further notes that the title commitment was addressed to General American Corporation, the lender's closing agent.   There is no evidence of whether the closing agent was given a copy of the title commitment as part of the closing package.   In any event it is abundantly clear that a mistake was made.

The court must now determine what the parties to the mortgage intended.²  As in Wells Fargo Bank v. Pampoukidis, 2011 WL 6934588 (Conn.Super.), 53 Conn. L. Rptr. 71, and Wells Fargo Bank, NA v. The Maidstone Trust, 2011 WL 49091 (Conn.Super.), the intent of the parties clearly was that the lender have a valid security interest in the property.   There was no evidence that Perez intended anything less.   Thus, the court finds by clear and convincing evidence that the lender and borrower made a mutual mistake.   The court does not ascribe fraud or improper motives to Perez but he is presumed to know that his wife was a co-owner of the property regardless of his mental state at the time.   In an analogous factual context it has been consistently held that in managing their real estate notice to one joint tenant is notice to the other.  Katz v. West Hartford, 119 Conn. 594, 600–01 (1983).   Perez's previous experience as a co-mortgagor with Shaw charges him with knowledge of the need for the signature of all owners.   See Katz v. West Hartford, 191 Conn. 594, 601 (1983).

“Where instead of actual fraud, there is merely such knowledge, actual or imputed by law, as makes it inequitable for the purchaser [mortgagor] to retain his advantage ․ the court will deal as summarily with that inequitable position of the party, as in the other case with his fraud.”  Essex v. Day, 52 Conn. 483, 496 (1885).   Moreover, in any equitable proceeding either a forfeiture or a windfall should be avoided if possible.  Farmers and Mechanics Savings Bank v. Sullivan, 216 Conn. 341, 354 (1990).   If Perez's position were to prevail the following inequitable consequences would ensue:  the plaintiff (i) would be unable to satisfy the mortgage debt out of Shaw's one-half interest;  (ii) would find no market for Perez's one-half interest should a judgment of foreclosure by sale be entered;  (iii) would be forced to negotiate with Shaw to acquire her interest, if title is gained through strict foreclosure;  or (iv) the plaintiff would be relegated to a partition action.   Each of these gives Perez an advantage which neither party contemplated and to which he is not entitled in equity.³

In view of the foregoing, the court orders that the mortgage deed for Manuel J. Perez to Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for American Brokers Conduit dated May 11, 2006 and recorded in the Norwalk Land Records in Volume 6214 at page 84 be and hereby is reformed by adding the name of Janet Shaw as borrower and by including therein her undivided one-half interest in the mortgage premises with the same effect as if she had joined in the execution of the mortgage ab initio.

The plaintiff has filed a post-trial motion for leave to amend the complaint in order to add an allegation to both counts that there was no delivery and acceptance of the quitclaim deed from Perez to Shaw and therefore Shaw never acquired the half-interest in the property.   In view of the above analysis there is no need to adjudicate this motion.

A judgment of foreclosure may enter forthwith.   The particular form of judgment must await future determination.   The plaintiff shall file the appropriate foreclosure documents so that a hearing may be held for that purpose on June 5, 2012 at 9:30 a.m. before the undersigned.

BY THE COURT

A. WILLIAM MOTTOLESE, J.T.R.

FOOTNOTES

FN1. The court notes that Perez repeated this practice on Nov. 11, 2011 when he omitted Shaw's one-half interest from the bankruptcy petition that he filed in the Bankruptcy Court (Ex 19)..  FN1. The court notes that Perez repeated this practice on Nov. 11, 2011 when he omitted Shaw's one-half interest from the bankruptcy petition that he filed in the Bankruptcy Court (Ex 19).

FN2. Defendants' concentration on Shaw's intent rather than that of the parties to the mortgage is misplaced.   The innocent third party principle discussed in Wesley v. Schaller Subaru, Inc., 277 Conn. 526, 539 n.15 applies to assignees of a contract or purchasers for value without notice.   Shaw is neither of these.   Also, the claim that National City Bank will lose a priority which it unwittingly gained over the subject mortgage thereby become an affected innocent third party is equally meritless.   The court notes that paragraph 5 of that instrument expressly acknowledges the existence of a prior security interest..  FN2. Defendants' concentration on Shaw's intent rather than that of the parties to the mortgage is misplaced.   The innocent third party principle discussed in Wesley v. Schaller Subaru, Inc., 277 Conn. 526, 539 n.15 applies to assignees of a contract or purchasers for value without notice.   Shaw is neither of these.   Also, the claim that National City Bank will lose a priority which it unwittingly gained over the subject mortgage thereby become an affected innocent third party is equally meritless.   The court notes that paragraph 5 of that instrument expressly acknowledges the existence of a prior security interest.

FN3. The defendants' reliance on Mortgage Electronic Registration Systems, Inc. v. Liskiewicz, CV 040 409667, Jud. Dist. Ffld., September 25, 2006 (Rodriguez, J.), is misplaced.   In that case the evidence clearly showed that the lender required that as a precondition to making the loan, title to the property be in the husband's name only.   Not only is there no corresponding evidence in the present case but as stated above, the title commitment unambiguously specified that for a “proper mortgage” both Perez's and Shaw's signatures were needed..  FN3. The defendants' reliance on Mortgage Electronic Registration Systems, Inc. v. Liskiewicz, CV 040 409667, Jud. Dist. Ffld., September 25, 2006 (Rodriguez, J.), is misplaced.   In that case the evidence clearly showed that the lender required that as a precondition to making the loan, title to the property be in the husband's name only.   Not only is there no corresponding evidence in the present case but as stated above, the title commitment unambiguously specified that for a “proper mortgage” both Perez's and Shaw's signatures were needed.

Mottolese, A. William, J.T.R.