In 1999 Susan Mani and her husband George purchased a building lot in South Hadley. The Manis took title to the property as joint tenants and planned to construct a home on the site. To finance construction, the couple obtained a United Bank loan. The application for the loan and all the bank underwriting documents identified Susan as the sole title holder to the property. On the day the mortgage was executed, George deeded his ½ interest in the property to Susan and she, in fact, became the sole title holder (consistent with the underwriting documentation). It is undisputed that both George and Susan executed the mortgage to United Bank.
At the time the South Hadley property was mortgaged, George was involved in a number of commercial ventures which were also financed with loans by United Bank. As part of the securitization of these business loans, George entered into agreements which contained standard pledges collateralizing after-acquired real and personal property. The agreements also included a right of set-off against all George's funds in the "possession, custody or control of the bank."
At some point the Manis ran into financial difficulties. George was in default on his commercial loan obligations and the mortgage on the South Hadley property was also in default.
In July 2006 United Bank foreclosed on the South Hadley property. The foreclosure sale yielded an amount exceeding the Mani's obligations under the mortgage (resulting in a surplus).
United Bank had George's signature on the foreclosed mortgage of the South Hadley property and possession of the surplus funds. The lender thought that it could exercise its rights under the commercial loan agreements and utilize the foreclosure surplus as payment toward the defaulted business loans.
In a Hampshire Superior Court suit, the presiding judge issued a ruling that split the proceeds 50/50 between the parties. Both sides were unsatisfied and appealed.
The Appeals Court first set forth the controlling statute, G.L. c. 183 § 27, which provides in pertinent part:
The holder of a mortgage of real estate, or his representatives, out of the money arising from a sale under the power of sale shall be entitled to retain all sums then secured by the mortgage, whether then or thereafter payable, including all costs, charges or expenses incurred or sustained by him or them by reason of any default in the performance or observance of the condition of the mortgage or of any prior mortgage, rendering the surplus, if any, to the mortgagor, or his heirs, successors or assigns, unless otherwise stated in the mortgage....(Emphasis added.)
United Bank argued that because George executed the mortgage he was a "mortgagor" under the statute and was therefore entitled to receive the surplus proceeds. Also, if George was entitled to the surplus proceeds, the bank was entitled to exercise its right of set-off and apply the funds to his other obligations.
Susan argued that her husband was not entitled to receive any of the surplus proceeds because he had no interest in the property and therefore could not be considered a "mortgagor" under the statute.
The Appeals Court sided with Mrs. Mani and held that George was not a "mortgagor" under the statute.
The requirement that a mortgagor have an interest in the property that secures the loan is firmly rooted in the common law. 'The substance of the contract of mortgage is, that if the debt is not paid, the mortgagee shall have the interest in the land, which his mortgagor had'....There is no indication that the drafters of G.L. c. 183, § 27, intended to depart from the long-understood common meaning of the term 'mortgagor' as one holding an equity of redemption and a right of possession of the property. (Internal citations omitted.)
The Court found that there was no support for a claim that George had any interest in the property at the time of the foreclosure sale. Additionally the decision characterized George's signature on the United Bank mortgage as having "neither equitable nor legal consequence." The opinion also noted that even if George had conveyed his interest to Susan after the mortgage had been executed "the deed [to Susan on the day the mortgage was executed] divested him of his equity of redemption (and right of possession)." With those elements missing, George could not be deemed a "mortgagor" under the definition articulated by the Court.
The judgment of the Superior Court (a 50-50 split of the surplus) was vacated and the entirety of the surplus proceeds was awarded to Susan
If you are facing foreclosure and want to prevent the loss of your home or ensure that your are treated fairly by the bank please contact the Law Office of Isaac J. Mass for a free consultation.