In Davis v. Reverse Mortgage Solutions, No. 2:20-cv-632-CWB, 2023 U.S. Dist. LEXIS 42496 (M.D. Ala. Mar. 14, 2023), the United States District Court for the Middle District of Alabama, Northern Division (“the Court”) recently granted summary judgment to the holder of a reverse mortgage who asserted claims for reformation of both the mortgage and a subsequent foreclosure deed on the grounds of mutual mistake.
In the case, Plaintiff Adina Davis (“Plaintiff”) was the owner of property in Chilton County, Alabama (“the Property”). The Property was originally owned by Plaintiff’s parents, who acquired title to the portion of the Property containing their residence in September 1973, and later, in December 1993, acquired title to a surrounding portion of the Property which they used for a yard and swimming pool. These two portions were subsequently merged into a single tax parcel, with title then passing to Plaintiff’s father upon her mother’s October 2009 death.
In February 2015, Plaintiff’s father applied for a reverse mortgage against the Property with Defendant Reverse Mortgage Solutions (“RMS”), which was executed on July 2, 2015. While it was not discovered until later, the metes and bounds description contained in the reverse mortgage described only the portion of the Property obtained in December 1993 and failed to include the September 1973 portion containing the residence.
In November 2018, Plaintiff’s father died, with the reverse mortgage loan subsequently falling into default and RMS conducting a foreclosure sale at which RMS was the highest bidder. Consistent with the reverse mortgage, the metes and bounds description contained in the Foreclosure Deed encompassed only the December 1993 non-residence portion of the Property. On July 6, 2020, Plaintiff asserted an ownership claim to the September 1973 portion of the Property and filed suit with the Court seeking a declaration of her ownership.
Specifically, Plaintiff contended that she was the fee simple owner of the September 1973 portion of the Property, citing the metes and bounds descriptions in both the reverse mortgage and foreclosure deed. In response, RMS asserted a counterclaim seeking, among other things, to have the reverse mortgage and Foreclosure Deed reformed to describe both sections of the Property and accurately reflect the parties’ agreement and intent.
The Court’s Decision
Ultimately, RMS moved for and prevailed on summary judgment. In granting RMS’s motion, the Court noted that it was “authorized to reform real estate documents in circumstances where—due to a mutual mistake—the executed documents fail to reflect the true intentions of the parties,” further observing that in doing so “[t]he burden lies with the party seeking reformation to prove such a mutual mistake by ‘clear, convincing, and satisfactory evidence.’” The Court held that this burden had been met, as the reverse mortgage loan application, verification of occupancy executed therewith, appraisal, and resulting mortgage documents all included the residence in their description of the Property and stated that the reverse mortgage was intended to encumber the entirety of the Property.
In holding this burden had been met the Court also considered the fact that the type of FHA-insured reverse mortgage loan at issue was only available when secured by a borrower's principal residence. Thus, based on the cumulative impact of these materials, the Court held that it had been clearly and convincingly shown that there was a mutual mistake regarding the exclusion of the September 1973 portion of the Property from the reverse mortgage, and that the documents should be reformed to include this portion of the Property.
As to the foreclosure deed, the Court found that it too should be reformed, relying upon precedent issued in Federal Land Bank of New Orleans v. Williams, a case in which the Alabama Supreme Court granted reformation of a mortgage when a survey discovered that the mortgage did not properly describe the parcel on which the borrower resided. 186 So. 689, 691 (Ala. 1938). Therein, when the borrower raised the argument that “reformation should be confined to the mortgage, and should not embrace the foreclosure deed,” the Williams court confirmed that the mortgagee was entitled “to a decree of reformation both as to the mortgage and the foreclosure deed.” Accordingly, citing to this decision, the Court held that the same result was appropriate and that, like the reverse mortgage, the foreclosure deed should also be reformed to include the September 1973 portion of the Property.
The primary takeaway from this case is that the Davis Court took a common-sense approach to determining whether the reverse mortgage should be reformed. In determining whether the parcel on which the residence sat should have been included in the reverse mortgage’s description of the Property, the Court looked to the surrounding circumstances and documentation which clearly indicated that the parties were all aware that the portion of the Property containing the residence was to be encumbered. Further, the Court looked to precedent that, in a very similar factual situation, the deed which relies upon a mortgage requiring reformation should likewise undergo corresponding reformation of its own.
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