First Circuit Holds No Equitable Lien for Lender Where Home Equity Line of Credit Debtor Was Not Actual Owner of Property, Proceeds Used to Buy Another Property

The United States Court of Appeals for the First Circuit recently reversed a District Court decision and held that a creditor was not entitled to an equitable lien arising from a Home Equity Line of Credit (HELOC) when the debtor did not actually own the property and used the proceeds from the loan to buy another property.  See Wilmington Sav. Fund Soc'y, FSB v. Collart, 980 F.3d 210 (1st Cir. 2020).  In 1999, Defendant acquired a piece of property in Harwichport, Mass., holding a 1/3rd tenant-in-common interest through an individual trust, with her mother and father holding equivalent interests through similar individual trusts. Following the death of her mother, Defendant’s father took out a $500,000 HELOC from a lender (who later assigned the loan to Plaintiff) against the property in his own name, although the property was actually owned by the three individual trusts. The father then used the proceeds from the HELOC to buy another property. Defendant eventually gained control of each of the family’s individual trusts and transferred the Harwichport property to her own name. She then asked the assignee to discharge the HELOC since her father “did not hold legal title to the property when it was created.” The assignee then brought suit, claiming, among other things, that it was entitled to an equitable lien on the property. The trial court found in favor of the lender/assignee, granting them a lien.

On appeal, the First Circuit reversed. Applying Massachusetts law, the Court held that in order for a creditor to obtain an equitable lien on a property, “a transactional nexus must exist between the property and the events giving rise to the equitable lien.” Because the proceeds from the HELOC were used to purchase a different property rather than “enhance or maintain” the property pledged as collateral, the court found that there was no connection in that respect. Additionally, the court held that an equitable lien could not “arise solely out of an express agreement of a debtor to pay a creditor out of a specific fund” where, as here, the debtor did not have the authority to pledge the property in the first instance. Lastly, the court rejected the assignee’s argument that the individual’s possession of the property was enough to establish the requisite transactional nexus to establish an equitable lien. The court held that while ownership without possession would be sufficient to do so, mere possession without ownership was not. “The lenders here . . . could and arguably should have taken steps to assure the validity of any HELOC they wished to grant. They did not do so.” Under those facts and given the law as set forth by the court, “the grant of the [equitable lien]” to the lender could not stand.

For a copy of the decision, please contact Michael O’Donnell at, Michael Crowley at, or Andrew Raimondi at