AMERICA'S WHOLESALE LENDER v. GARY GURINIAN and MAUREEN MERO

In this action, commenced in this court on July 23, 2007, the plaintiff mortgage lender seeks a judgment reforming, on the grounds of mutual mistake, two purchase money mortgages of residential property in Grafton, Worcester County, owned of record by the two defendants. The mortgages each conveyed only the male defendant’s interest in the locus, although both defendants acquired title as a result of the closing in which the plaintiff’s mortgages were executed and its loan proceeds were advanced to allow the defendants to buy the house as joint tenants. The mortgagee seeks equitable relief adding the female defendant to the mortgages, and subjecting her interest in the property to the mortgages, so that the mortgages will encumber the entire ownership interest of both defendants in and to the property. She contends that the mistake involved here was a unilateral one on the part of the lender and its closing attorney, and that reformation is thus unavailable to the plaintiff.

After trial, on all the evidence, applying the elevated standard of proof the law imposes, I find as a factual matter that a mutual mistake did occur, justifying the reformation requested by plaintiff.

After initial proceedings, the case came on to be tried before me on September 23, 2009. Plaintiff and defendant Maureen Mero were represented by counsel. Defendant Gary Gurinian appeared pro se. At the trial, two witnesses testified: Attorney Christopher M. Tully, plaintiff’s closing attorney, and defendant Maureen Mero. The court received sixteen exhibits in evidence, all by agreement of the parties. No court reporter was in attendance, but the proceedings were recorded using the Land Court’s digital CourtSmart system. At the close of the evidence, the parties had the opportunity to submit for the court’s consideration proposed findings of fact and rulings of law, and supportive briefs. They have done so, and I have reviewed their submissions.

On all of the testimony, exhibits, stipulations, and other evidence properly introduced at trial or otherwise before me, and the reasonable inferences I draw therefrom, and taking into account the pleadings, and the memoranda and argument of the parties, I find the following facts and I rule as follows:

1. The defendants, Gary Gurinian and Maureen Mero, purchased, as joint tenants, real estate known as 7 Windle Avenue, Grafton, Worcester County, Massachusetts on September 23, 2005 for the stated consideration of $300,000.00, by deed of four members of the Palmer family, recorded in the Worcester District Registry of Deeds (“Registry”) in Book 37387, Page 158. This deed is in evidence as Exhibit 4. As recorded, the deed appears to have been initially prepared to run to both Gurinian and Mero, but the words “as joint tenants” appear to have been inserted at some point different than the rest of the deed’s words, because those three words are in a typeface different from the rest of the instrument. There is in evidence a different version of this executed and acknowledged deed [Exhibit 16] which appears different only in that it lacks the words “as joint tenants” after the names of the grantees. The four grantors acknowledged the deed at different dates prior to the September 23, 2005 closing, the earliest being September 2, 2005, and the latest September 12, 2005.

2. Both Gurinian and Mero as buyers signed the Offer to Purchase in August, 2005 [Exhibit 1], and the Purchase and Sale Agreement, which was dated September 8, 2005 [Exhibit 2]. Both defendants initially approached the plaintiff’s representative together to borrow from the plaintiff money, to be secured by mortgages on the Grafton home, the proceeds to be used to fund the purchase. Mero’s credit was checked on behalf of the lender. Due to her unsatisfactory employment status, and unfavorable debt and credit rating issues, Mero was advised by the mortgage broker that, for the lender to approve and make the loan the two defendants had sought, she would need to be removed from the mortgage loan transactions as a borrower. Gurinian then applied and was approved for financing without Mero joining in the application.

3. The plaintiff made two purchase money loans to Gurinian in the amounts of $240,00.00 and $60,000.00, totaling $300,000.00, which represented one hundred percent of the purchase price of the property as recited on the recorded deed and shown on the settlement statements from the closing. The loans are secured by the two mortgages which are the subject of this action, and which were by the closing attorney, Mr. Tully, recorded, on the day of the closing, in the Worcester District Registry of Deeds in Book 37387, Page 163 [Exhibit 14] and Book 37387, Page 178 [Exhibit 15], respectively. The first recorded mortgage actually runs to MERS, as nominee for plaintiff, but no party has raised this as an issue, and I treat plaintiff as the true party in interest under the mortgages and in this litigation. The form of the mortgages were prepared by Mathew D. Sprinkel, an agent of the lender in Van Nuys, California, and the mortgages were marked to be returned to Van Nuys after recording. The way these two mortgages identify the mortgagor is notable. The “Borrower” in the first recorded mortgage, and the “Mortgagor” in the second both are said to be: “Gary J. Gurinian, as Joint Tenants.”

4. The closing took place at the office of Mr. Tully on Foster Street in Worcester on September 23, 2005. Attorney Tully earlier had reviewed and negotiated the Purchase and Sale Agreement on behalf of Gurinian and Mero in their dealings with the Palmers, and Tully was assigned by the plaintiff to close the loan. Both Gurinian and Mero were present at the closing, as was Tully. This was the first time either defendant had purchased a home. Gurinian and Mero were living together with their children at the time of their purchase of the Grafton property, and resided in it with their children after buying it.

5. A casualty insurance binder issued in connection with the closing, dated September 19, 2005, identified Gurinian and Mero as the insured owners of 7 Windle Avenue, and Countrywide Home Loans, Inc. as the additional insured first and second mortgagee. Plaintiff and Countrywide Home Loans, Inc. are affiliated. Prior to the date of closing, CATIC, a title insurance company, issued on September 14, 2005 a closing protection letter to the plaintiff, demonstrating that Tully was authorized to issue title insurance for the mortgagee in connection with this lending transaction. The closing protection lender showed the “Borrower” to be “Maureen Mauro [sic] and Gary Gurinian.” Tully issued a title insurance policy commitment drawn on CATIC. The commitment, dated September 8, 2005 listed the proposed insureds under the owner policy as “Maureen Mauro [sic] and Gary Gurinian,” and under the loan policy “Countrywide America’s Wholesale Lender.” The lender’s closing instructions issued to Tully, dated September 22, 2005, and calling for a closing on the following day, identified the Borrower as Gurinian. The settlement statements from the closing show Gurinian as the Borrower.

6. The deed presented at the closing by the seller listed as grantees “Gary Gurinian and Maureen Mero.” [Exhibit 16] A change to the deed took place at the closing, adding the extra words “as joint tenants.” Mero asked Tully if she could be “on the deed”, and Atty. Tully answered in the affirmative. There was a discussion between Mero and Tully about the type of tenancy under which the two defendants would hold their title, a joint tenancy or a tenancy in common, following which the words “as joint tenants” were typed onto the deed at the direction of the defendants, by Tully or at his request.

7. Tully proceeded to have Gurinian execute the loan documents, which included the two mortgages. The loan documents did not include Mero as a borrower, or otherwise. Mero was not asked by Tully at the closing to join in the mortgages or to execute them, and she did not. This was an error on Tully’s part; he was under instructions from the plaintiff to close the loan only if title stood in the name of the borrower, Gurinian. He was wrong to have proceeded with the closing where title under the deed came to both defendants as joint tenants, but the mortgages and other loan documents had Gurinian as the only borrower and mortgagor. I accept Tully’s testimony that on the day of closing this transaction and recording the papers, Tully was ill with the flu, and for this reason was not thinking as clearly as he should have been to conduct the closing.

8. Mero did testify at trial--and I accept her testimony on this point--that at the closing, and in connection with the borrowing of the funds she knew was necessary to pay the entire purchase price for the new house in which she, Gurinian, and their children would be living, she readily would have signed the mortgages, with her name added as a mortgagor, if she had been asked to do so by Tully at the closing. Mero did not volunteer to sign the mortgages, Tully did not ask her to do so, and she did not.

9. Mero did not fully understand the difference between a promissory note and a mortgage. She did not appreciate the distinction between a personal promise to repay borrowed money, as evidenced by a promissory note or a guarantee, on the one hand, and a commitment of one’s real property interest as security for repayment of borrowed money, as in the case of a mortgage signed by one not liable on a note or guaranty, on the other. But I find that Mero knew and fully appreciated that the plaintiff expected to be paid back the money it loaned, and would foreclose the mortgages if it were not repaid. I specifically find, moreover, based on the totality of Mero’s testimony, that Mero’s firm expectation was that, should the loans made by plaintiff not be repaid as agreed, the remedies available to the lender included the right to foreclose the mortgage by exercising rights granted in it (including the statutory power of sale) and that the result of any foreclosure would be that the high bidder at the sale would purchase a complete title to the house. I expressly find that Mero had no intention or expectation, coming out of the closing, that she held an undivided interest in the house that would not be included in what the mortgagee would sell at a foreclosure auction should one become necessary. To the extent I am asked by Mero to make a finding that she emerged from the closing with knowledge and understanding that she had intentionally and successfully had held back from the reach of the lender her undivided interest just purchased in the home, I do not find any basis in the evidence I credit to make such a finding, and I in fact find the opposite. I find that Mero, despite not having signed the mortgages or other loan documents, understood that uncured default by the borrower under the loan documents could lead to the loss, at foreclosure, of her undivided interest in the property.

10. When the closing concluded, Tully went to the Registry and recorded the deed to Gurinian and Mero and the mortgages signed only by Gurinian, with the mortgagors identified as “Gary J. Gurinian, as Joint Tenants.” Moments later, on the way out of the Registry, Tully realized that there had been a mistake in the mortgages, because the identity of the mortgagor did not match how the title stood under the deed. Tully attempted to have the Register retrieve the documents so that they could be corrected. The Register would not do that because the documents already had been recorded.

11. Tully later contacted Mero and asked her to sign a deed conveying her interest in the real estate to Gurinian, which would have resulted in the plaintiff having proper security for its loans. Mero refused. On the advice of counsel, Mero also refused to sign corrective or confirmatory mortgages explicitly subjecting her interest in the house to the encumbrances of the mortgages. This litigation followed.

12. Mero and Gurinian continue to reside at the 7 Windle Avenue property with their two children.

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“It is settled that a written instrument...will be reformed on the grounds of mistake upon ‘full, clear, and decisive proof’ of the mistake.” Simches v. Simches, 423 Mass. 683 , 687 (1996) (quoting Berman v. Sandler, 379 Mass. 506 , 509 (1980)). See Franz v. Franz, 308 Mass. 262 , 266_267 (1941) (ruling that reformation of deed is appropriate where necessary to give effect to the intent of parties). See also Dime Sav. Bank of New York v. Sullivan, Land Court Miscellaneous Case No. 160590 (Nov.10, 1992) (Kilborn, J.), aff’d, 37 Mass. App. Ct. 1107 (1994) (unpublished opinion issued pursuant to Appeals Court Rule 1:28). Wells Fargo Bank, N.A. v. Metcalf, 15 LCR 436 (2007), New Century Mortg. Corp. v. Vining, 17 LCR 155 (2009).

“It is well established that legal instruments, including deeds, may be reformed on the ground of mutual mistake.” Buk Lhu v. Dignoti, 431 Mass. 292 , 294 (2000). “If the language of a written instrument does not reflect the true intent of both parties, the mutual mistake is reformable. Mickelson v. Barnet, 390 Mass. 786 , 791 (1984). Fireman’s Fund Ins. Co. v. Shapiro, 286 Mass. 577 , 582 (1934). The mistake must either be mutual... or be made by one party and known to the other party (see Century Plastic Corp. v. Tupper Corp., 333 Mass. 531 , 535 [1956]; Torrao v. Cox, 26 Mass. App. Ct. 247 , 250 [1988]). To be entitled to reformation, a party must present full, clear, and decisive proof of mistake. ...” Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747 , 756 (1993). “The parol evidence rule does not bar extrinsic proof of intent in these circumstances.” Id.

In W. M. Gullicksen Mfg. Co. v. MacNeil, 347 Mass. 568 , 575-576 (1964), the court referred to the “principle of undoubted soundness to the effect that a court of equity has power to order the reformation of deeds or the execution of confirmatory deeds to include property or parties omitted through error.”

In Smith v. Smith, 313 Mass. 687 , 694-695 (1943), the court, in reference to Franz v. Franz, supra, said: “Since the deed in that case was not drawn in accordance with their expressed intent and the expected legal consequences were not provided for therein, it was held that the deed should be reformed....” In Franz, 308 Mass. at 267, the court cited approvingly to Williston’s view that “[f]or relief [reforming a deed] ‘[i]t is sufficient that the parties had agreed to accomplish a particular object by the instrument to be executed, and that the instrument as executed is insufficient to effectuate their intention.’”

“[A] court acting under general principles of equity jurisprudence has broad power to reform, rescind, or cancel written instruments, including mortgages, on grounds such as fraud, mistake, accident, or illegality.” Beaton v. Land Court, 367 Mass. 385 , 392 (1975).

The modern view, expressed in Section 156 of the Restatement (Second) of Contracts is that: “[i]f reformation of a writing is otherwise appropriate, it is not precluded by the fact that the contract is within the Statute of Frauds.” The Reporter’s Note for that section rejects the former rule [in former §509] that reformation of an instrument falling within the Statute of Frauds is not available unless there has been part performance or a written conveyance has been executed. “The modern cases support the view that there is never sufficient reason for refusing reformation before it is determined whether the writing satisfies the Statute, since adequate safeguards can be afforded through a careful examination of the evidence.”

Courts of equity have authority to reform an instrument adding to it the signatures of parties omitted as a result of mistake, where to do so would effectuate the intentions of the parties to the transaction. “Given that equity regards as done that which ought to be done, there is no compelling reason why a court may not reform a written instrument to reflect the intentions of the parties, including a party’s omitted signature. Restatement (Second) of Contracts § 156; 2 Joseph M. Perillo and Helen H. Bender, Corbin on Contracts § 340 (1995); 76 C.J.S. Reformation of Intruments § 36 (1994) (‘Where both parties to a deed or contract have agreed that the instrument is to be executed, the lack of a party’s signature can be supplied by reformation of the document. ...)’” Smith v. Royal Automotive Group, Inc., 675 So. 2d 144, 153-154 (Fla. 5th D.C.A. 1996).

In Ames v. Fallert, 61 Or. App. 415, 657 P.2d 224 review denied 294 Or. 682, 662 P.2d 726 (1983), the Court of Appeals of Oregon affirmed a judgment reforming a deed to add the omitted signature of a grantor, where both the grantor and his spouse were present when the deed was signed by the wife (to clear title of her dower interest) in conjunction with conveyance of the land, which was owned of record by the husband. The trial court had found that the husband, despite his testimony to the contrary, intended to convey his interest in the property. The Ames court relied upon L. B. Menefee Lumber Co. v. Gamble, 119 Or. 224 (1926): “In that case, a father and son mortgaged real property. Both signed the mortgage, but the son failed to sign the document in his capacity as trustee. The son not only owned a portion of the real property individually, but he also held half of it in trust for other family members. Although the son, as trustee, resisted reformation of the mortgage, the court allowed it, because it concluded beyond a doubt that the intention of the parties was to mortgage the entire estate, including the trust estate.” 61 Or. App. at 419-420.

In Security Pac. Nat’l Bank v. Ginkowski, 140 Wis. 2d. 332, 410 N.W. 2d 589 (Ct. App.) review denied, 141 Wis. 2d. 984, 416 N.W. 2d 296 (1987), a foreclosure action, the mortgagee sought reformation of the mortgage, which lacked the signature by the mortgagor, who testified that he never signed the mortgage, nor intended to sign it. The trial court found, however, that the mortgagor did intend to grant the mortgage as part of the loan transaction, and ordered reformation of the mortgage to cure the lack of execution. This result was upheld by the Court of Appeals of Wisconsin.

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The weight of the evidence convinces me that this is a case fully meriting the equitable relief of reformation. A mistake plainly was made here, and equity calls for its correction. The plaintiff lent the very full value of the new home being bought by the defendants as joint tenants. The lender advanced the entire purchase price to them, and because of that they achieved their dominant goal--buying the Windle Avenue property from the Palmers, getting good title to it, and owning and possessing it as the home in which they dwell with their children.

Mr. Tully made a regrettable mistake. He neglected to see to it, as the attorney responsible for closing the purchase and mortgage loan transaction, that the lender he represented received, as security for the funds it lent, a mortgagee’s title which encumbered the entire ownership interest in the house. On the mortgages as recorded, signed only by Mr. Gurinian, the lender’s title does not cover the undivided joint tenant interest of Ms. Mero. Were she to outlive Mr. Gurinian, while the loan remained outstanding, she would hold a complete title to the house free of any interest of the unsatisfied lender. And were the loan to go into default while both joint owners are alive, the foreclosure sale of the mortgages, given that they were granted only by Mr. Gurinian, would pass only his interest in the property, and leave the interest of Ms. Mero with her.

That there was a mistake on the part of the lender, caused by its closing attorney, is obvious. The critical question is whether there was error as well on the part of Ms. Mero, or an error in a circumstance where the court ought to enter against her a judgment of reformation, making her interest subject to the mortgages, notwithstanding her lack of participation as a party in the closing of the loan.

Ms. Mero maintains that the mistake is a purely unilateral one, on the lender’s part only, and that the lender’s error is not in any way something for which she can be held to answer. At the surface, this argument has simplistic appeal. Ms. Mero is able to say that she went to a closing at which her name was absent from all loan documents, and that she never was asked to join in the mortgages or any of the other papers signed by Mr. Gurinian to induce the lender to lend. In her view, she walked out of the closing legally unscathed.

But that is not the proper way to view what happened here. The lender advanced $300,000, substantially all of which went to buy a house of which she instantly became a joint owner. And Ms. Mero signed nothing and paid nothing to accomplish this result. She incurred no debt--no liability at all--to gain this valuable property interest in her new family residence.

Contrary to the defendant’s position, the mistake here was a mutual one. To know if the mistake is mutual, one needs to be specific about just what the mistake was. In the narrow view of the defendant, the mistake was simply one of the bank not preparing and obtaining mortgages which included her as a mortgagor. In a narrow sense, this was the mortgagee’s error alone, because, as I have found, Ms. Mero would have been prepared to sign these mortgages if she had been asked to, prior to recording. She merely (and fortuitously for her) was not asked.

But the mistake in this case is truly broader than that. The mistake is the failure of the borrowers and the lender in their transaction to accomplish its clear intended purpose--the lending of the full purchase price to the new home buyers in exchange for a complete and valid security interest in the property which would enable the lender to sell all of the owners’ title at foreclosure should the loan not be repaid. It cannot seriously be said that on these facts the borrowers or the lender intended that it lend the full purchase price, and have as security a mortgage on the interest of only one joint tenant. Ms. Mero, to her credit, said as much at trial, conceding that she expected that the entire title to the home, and not just the undivided interest of Mr. Gurinian, would stand as collateral for the $300,000 loan. She did not expect, nor could she have on these facts, that her undivided interest would stand clear of any mortgage even though the lender had put out the full purchase price that let her buy that interest. The mistake that took place here is a mistake shared by the borrowers along with the lender. They intended to accomplish a full purchase price mortgage financing that would grant the lender a meaningful, as opposed to grossly deficient, security. They all failed to accomplish this intention, and did so as a result of mutual mistake.

This is especially so given the reason for the change which pulled Ms. Mero out of the final loan application and approval. She was intending to be a borrower. She was prepared to complete the application for the loan. She was going to be obligated voluntarily on the promissory notes and was fully prepared willingly to execute the mortgages. It was only when her deficient credit rating threatened the entire loan (and the purchase) that she stepped out of the borrower role, and left Mr. Gurinian to go it alone. The mortgages signed by him and recorded by Mr. Tully were obviously altered at the later stages of the lending process, because, as signed and recorded, they each carry in the identification of the mortgagor on their first pages the inapt words “as joint tenants,” even though only Mr. Gurinian is named. These errant words are remnants of the earlier intended transaction, fully accepted by Ms. Mero, in which she was to be a mortgagor along with Mr. Gurinian, the couple intending to sign the mortgages as joint tenants to mirror the way they planned to (and ultimately did) receive title to the property. It is this transaction which the parties, including Ms. Mero, intended originally, and there is no inequity in directing that the mortgages now be reformed to hew to that intention. To the contrary, equity is served by such a judgment.

I emphasize that the decision I reach in this case rests on its particular facts. It is not in every case where the court would conclude that the mistake of failing to include a joint owner of a home as a mortgagor justifies a judgment of reformation to add the omitted mortgagor. The mistake, including the mutuality of it, must be proved by the high standard our law requires for reformation to take place. There are certainly instances where a spouse or other joint owner is unaware of a mortgage borrowing, receives no benefit from the loan proceeds, is flat out unwilling to agree to the borrowing, or where the dollars lent and the values involved do not show the clear intention of all the owners to give the mortgagee the entire interest in the property as collateral. But that is not what happened in this case.

The judgment I will direct be entered in this case will reform the mortgages to make them, as of the time of their recording (but subject to any rights of bona fide third parties, see Buk Lhu, supra, 431 Mass. at 294), mortgages of the interests of both defendants in the 7 Windle Avenue property.

Judgment accordingly.

Gordon H. Piper

Justice

Dated: October 12, 2010.