BAC HOME LOANS SERVICING, L.P., and BSM FINANCIAL, L.P. v. KHAMBAO SAVANKHAM n/k/a KHAMBAO SAVANKHAM KENNEDY, SENGSOUVANNY BOUNPHASAYSONH n/k/a SUE DELEON, and JOSEPH BOUNPHASAYSONH.

In 2004, Khambao Savankham Kennedy (“Kennedy”) deeded her property in Southbridge to herself, her daughter Sengsouvanny Bounphasaysonh DeLeon (“DeLeon”), and her son Joseph Bounphasaysonh (“Bounphasaysonh”) as joint tenants with rights of survivorship and not as tenants in common. This conveyance is at the root of the dispute that is before the court today regarding a 2007 refinancing that did not include all the owners of the property.

The plaintiffs, BAC Home Loans Servicing, L.P. (“BAC”), the current holder of the mortgage, and BSM Financial, L.P. (“BSM”), the named lender on the 2007 mortgage and the holder of the Note, seek: (1) to reform the 2007 mortgage to include Kennedy’s son and daughter as mortgagors, based on the doctrine of mutual mistake (Count I); (2) declaratory relief that BAC holds a valid first mortgage from all of the defendants (Count II); and (3) to quiet title to include all of the property owners as mortgagors (Count III). The defendants, Kennedy, DeLeon, and Bounphasaysonh, seek a judgment in their favor on grounds that there was no mutual mistake, only a unilateral mistake on the part of the lender, of which they were not aware at the time the mistake was made. [Note 1]

BAC and BSM commenced this action on December 22, 2011. The defendants filed separate Answers, including mis-named “Cross-claims” and “Counterclaims” to the Complaint on January 17, 2012. The court (Grossman, J.), dismissed the counterclaims and crossclaims on April 12, 2012. Following a pre-trial conference on November 12, 2015, a trial was held before me on March 1, 2016 and April 13, 2016, at which the defendants (not including Bounphasaysonh, who did not appear) appeared pro se. During both trial sessions, Kennedy testified through a Lao interpreter. On March 1, 2016, I suspended the trial until April 13, 2016 in order to determine Bounphasaysonh’s status and that of his legal guardian. I ultimately decided that Bounphasaysonh’s testimony would be substantially similar to that of his sister, and he would not be defaulted for failure to appear. [Note 2] On April 13, 2016, after closing arguments, I suspended the matter, allowing the parties thirty days after receipt of transcripts for the filing of any post-trial memoranda, requests for findings of fact and rulings of law. On May 13, 2016 after the end of the thirty-day period with no memoranda or other post-trial submissions having been filed by any party, I took the matter under advisement.

For the reasons stated below, I find and rule that the plaintiffs have failed to prove their claim of mutual mistake, and therefore deny the plaintiffs’ requested reformation of the mortgage, declaratory relief, and quiet title relief.

FACTS

Based on the facts stipulated by the parties, the documentary and testimonial evidence admitted at trial, and my assessment as the trier of fact of the credibility, weight, and inferences reasonably to be drawn from the evidence admitted at trial, I make factual findings as follows:

1. Khambao Savankham Kennedy originally purchased the property at 33 Fiske Street, Southbridge, Worcester County, (the “Property”) in 1987 for $95,000. [Note 3] Kennedy took a mortgage out on the property at the time of the purchase.

2. In 2003, Kennedy refinanced the mortgage on the Property with a new first mortgage in the amount of $170,000.00. [Note 4]

3. By deed dated April 10, 2004, Kennedy deeded the Property, subject to the 2003 mortgage, to herself and to her two adult children, DeLeon and Bounphasaysonh, as joint tenants with rights of survivorship. The deed was recorded with the Worcester County Registry of Deeds (“Registry”) on April 14, 2004 in Book 33309, Page 189.

4. Kennedy did not inform either DeLeon or Bounphasaysonh of the deed transferring an interest in the Property to them at that time, and not for several years thereafter. DeLeon did not become aware that she was a part owner of the Property until several years later, after the 2007 refinance that is at issue in this action, and there is no evidence that Bounphasaysonh had any more knowledge of their joint ownership or of the 2007 refinance than did his sister. [Note 5]

5. On February 16, 2007, Kennedy refinanced the Property again, taking out a new first mortgage loan in the amount of $184,500.00 with BSM as lender and MERS (later assigned to BAC) as mortgagee. An attorney (the “closing attorney”) represented the lender at the closing. Kennedy, who speaks serviceable English but is not fluent, was not represented by counsel at the closing. The mortgage was recorded at the Registry in Book 40708, Page 1. [Note 6]

6. Prior to the closing, the closing attorney’s office received a title report with the correct names of all three owners of the Property. However, the owners’ names were all listed on one line of the report, and both the paralegal reviewing the report and the closing attorney missed the separate names, and as a result of their mistake, the closing attorney prepared the mortgage documents with only Kennedy’s name listed as the Borrower. [Note 7] At the closing, the closing attorney asked Kennedy if “there was anyone else in possession” of the Property. Kennedy truthfully answered that only she and her husband lived at the Property, and that her son listed the Property as his residence but currently was in “some facility”. [Note 8]

7. Kennedy did not inform her two adult children, who were the joint owners of the Property with her, that they were joint owners or that she was refinancing the Property. [Note 9] The closing attorney, who had the names of the two other owners of the Property, made no effort to contact the two adult children of Kennedy, to require that their names be included as co-mortgagors, or to ensure that they were aware of or present at the closing. [Note 10]

8. Kennedy used the new mortgage loan to pay off the prior 2003 mortgage loan in the amount of $141,660.77, as well as to pay several other debts, and later to cover house repairs costing about $17,000. [Note 11]

9. DeLeon became aware of the new mortgage on the Property when her mother filed for bankruptcy in early 2009, before DeLeon moved back into the Property later that year. [Note 12] Kennedy was granted a discharge in bankruptcy in May 2009, and the bankruptcy case closed in July 2009.

10. Kennedy lost her job in 2010 because the company was moving. Kennedy defaulted on the loan in 2010. [Note 13]

11. Bounphasaysonh was deemed incompetent on October 27, 2009. In December 2009, Bounphasaysonh was assigned a Roger’s Guardian, David Ferguson, whose authority is limited to deciding necessary medical treatments and to monitoring the administration of antipsychotic medications. [Note 14]

12. The closing attorney’s failure to require the two other owners of the Property to be included as mortgagors was not discovered by the plaintiffs or their agents until 2010 or 2011, when the closing attorney was contacted by the lender’s title insurer and asked to draft a scrivener’s affidavit. At the request of Connecticut Attorneys Title Insurance Company (“CATIC”) the closing attorney drafted an affidavit dated December 21, 2011 asserting that the failure to include DeLeon and Bounphasaysonh as mortgagors on the mortgage was merely a “scrivenor’s error”. [Note 15] There is no evidence that this affidavit was ever recorded. To the extent this statement is in the record, I do not credit it as true, in light of the closing attorney’s candid testimony that he made a far more substantive mistake in failing to require DeLeon and Bounphasaysonh to be included as mortgagors. [Note 16]

DISCUSSION

I. Mutual Mistake

“It is well established that legal instruments, including deeds, may be reformed on the ground of mutual mistake.” America’s Wholesale Lender v. Gurinian, 18 LCR 522 , 524 (2010) (Misc. Case. No. 351481) (Piper, J.), quoting Lhu v. Dignoti, 431 Mass. 292 , 294 (2000). “[M]utual mistake supporting reformation is a mistake common to all parties.” Apfel v. Miller, 85 Mass. App. Ct. 450 , 455 (2014). “As a general rule, reformation of an instrument may be warranted not only by fraud or by mutual mistake, but also by mistake of one party which is known to the other party” and “if the party knowing of the mistake fails to make it known to the mistaken party.” 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).

In the present case, it is fully evident, and I so find, that rather than a mutual mistake, the failure to include DeLeon and Bounphasaysonh as mortgagors, and to require their execution of the note and mortgage along with their mother, was purely a unilateral mistake on the part of the lender, through its agent, the closing attorney. The closing attorney had in his possession the correct title information showing all three record owners of the Property, but failed to require the inclusion of all three owners’ names on the loan documents.

I further find that the closing attorney’s unilateral mistake occurred without the knowledge of, or any attempt at deception, by Kennedy or the other defendants. The closing attorney asked Kennedy if there was “anyone else in possession” of the property at the closing, and Kennedy answered truthfully and correctly that she and her husband lived at the property and her son, while in treatment elsewhere, used the house as his residence. [Note 17]

It is not in dispute that DeLeon was never informed or notified that the refinance transaction was taking place or that she needed to be included. [Note 18] There was also no evidence presented from which it could be reasonably inferred that Bounphasaysonh had any more knowledge of the transaction than did his sister. [Note 19] Unlike the defendant in Gurinian, where the nonsigning party was aware of the mortgage and would have signed the mortgage at the closing if asked, and who understood that she was receiving the benefit of the mortgage loan and expected to be liable should she fail to pay the loan, there was no mutual mistake in the present action because, as I expressly find, neither DeLeon nor Bounphasaysonh were even aware of the new mortgage loan or would have been prepared to sign the mortgage if they had been asked to do so. I credit DeLeon’s testimony that she could not say that she would have signed the mortgage if she had been asked, as she was unaware of the refinancing or its terms and was never presented with any contemporaneous information concerning the proposed refinance transaction. [Note 20] Nor was there any evidence that her brother Bounphasaysonh would have understood what he was being asked, or that he would have consented, if he was consulted during the mortgage refinance process. [Note 21]

I find that the plaintiffs have not carried their burden of proving a mutual mistake, and I further find that the defendants were not aware of the plaintiffs’ unilateral mistake, and that there was no fraud or inequitable conduct on the part of the defendants.

II. Equitable Subrogation

The plaintiffs in this action have made no claim for equitable subrogation of that part of the new loan that was used to pay off the earlier loan on the Property. However, I raised the issue at trial and for that reason I now address it here. [Note 22] Equitable subrogation is a doctrine providing that a “new mortgage given by a mortgagor, who used the proceeds of the new mortgage to extinguish an earlier mortgage, may receive the same priority once given to the earlier mortgage.” East Boston Sav. Bank v. Ogan, 428 Mass. 327 , 330 (1998). The party bringing a claim for equitable subrogation must prove that “(1) the subrogee made the payment to protect his or her own interest, (2) the subrogee did not act as a volunteer, (3) the subrogee was not primarily liable for the debt paid, (4) the subrogee paid off the entire encumbrance, and (5) subrogation would not work any injustice to the rights of the junior lienholder.” Id. (quoting Mort v. U.S., 86 F.3d 890, 894 (9th Cir. 1996)). Equitable subrogation is “a broad equitable remedy and, depending on the individual case, it may apply even where one or more of these factors is absent.” Id. at 330. In the present case, the plaintiffs have neither asked for equitable subrogation in their claims for relief, nor have they explicitly presented any evidence to support such a claim. A judge does not “have authority to order relief no party had sought and in support of which no evidence had been offered.” Fed’l Nat. Mortg. Ass’n v. Therrian, 42 Mass. App. Ct. 523 , 525 (1997). I note that even after the issue was raised by the court, the plaintiffs neither sought to amend their pleadings nor did they address a claim of equitable subrogation in any post-trial submissions seeking such relief. The onus was on the plaintiffs to request the relief upon being given more than one opportunity to do so. See Messina v. Sheft, 20 Mass. App. Ct. 945 , 946 (1985) (“[T]here will be instances where a judge may glimpse an issue not perceived by the parties. On those occasions, the course that the judge should follow is to notify counsel of his concerns and permit counsel to present evidence on the question…”).

Having given the plaintiffs the opportunity to address the issue of equitable subrogation, and the plaintiffs having failed to avail themselves of the opportunity presented, I decline to further consider such a claim. Accordingly, I decline to grant any relief in the nature of equitable subrogation.

CONCLUSION

For the reasons stated above, I find and rule that the plaintiffs are not entitled to reformation of the mortgage, to declaratory relief of the same nature, or to quiet title based on mutual mistake.

Judgment will enter accordingly.