MISC 11-453140

April 9, 2013

Sands, J.


Plaintiff, Wells Fargo Bank, NA, filed its Verified Complaint to Quiet Title and Reform Mortgage on September 8, 2011, pursuant to G. L. c. 231A, seeking declaratory judgment relative to reforming a mortgage (Count II) and quiet title to property (Count I) owned by Defendants Steven Yandoli (“Steven”) and Jarrett Yandoli (“Jarrett”) (together, “Defendants”) and located at 85 Thurlow Avenue, Revere, Massachusetts (“Locus”). In the alternative, Plaintiff seeks Equitable Subrogation (Count III) to prevent Jarrett from becoming unjustly enriched at Plaintiff’s expense. Plaintiff filed its Motion for Lis Pendens contemporaneously with its Verified Complaint. A case management conference was held on November 1, 2011, at which Jarrett filed his Answer, and this court allowed Plaintiff’s memorandum of Lis Pendens. [Note 1]

Plaintiff and Jarrett appeared at a number of status conferences, including one on July 10, 2012, at which the parties indicated that they had tried to settle the case but had not yet succeeded. A Summary Judgment schedule was established at that conference. On August 10, 2012, Plaintiff filed its Motion for Summary Judgment on Count III of the Complaint, together with supporting memorandum, Statement of Material Facts, and Appendix containing the Affidavit of Nicholas W. Allen, Esq. A hearing was held on this Motion on October 17, 2012, at which Defendants did not appear. Plaintiff filed its Supplemental Brief on Count III on November 5, 2012, together with affidavit of Jennifer Powers. [Note 2] The matter was taken under advisement at that time.

I find that the following material facts are not in dispute:

1. By document dated December 29, 2006 (“Mortgage 1”), Phyllis M. Yandoli [Note 3] (“Phyllis”), Trustee of the Yandoli Family Trust (the “Trust”), mortgaged Locus to Financial Freedom Senior Funding Corporation, a Subsidiary of Indymac Bank, F.S.B. (“Financial Freedom”), to secure a loan in the amount of $544,185.00. [Note 4] Mortgage 1 was an adjustable rate home equity conversion mortgage. The adjustable feature provided that the initial interest rate was 6.46% and that the calculated interest rate would never increase above 16.46%. The interest rate was subject to monthly adjustments. Mortgage 1 was recorded with the Suffolk County Registry of Deeds (the “Registry”) at Book 41065, Page 262.

2. By deed dated January 26, 2009, and recorded with the Registry at Book 44661, Page 177 (the “Estate Deed”), Dale Stevens (“Stevens”), as Executrix of the Estate of Phyllis M. Yandoli, conveyed Locus to Steven and Jarrett as joint tenants. [Note 5]

3. By document dated March 3, 2009 (“Mortgage 2”), Steven and Jarrett mortgaged Locus to Mortgage Electronic Registration Systems, Inc. (“MERS”), as nominee for Primary Residential Mortgage, Inc., to secure a loan in the amount of $264,550.00. [Note 6] Mortgage 2 was recorded with the Registry at Book 44661, Page 178. Part of the proceeds from Mortgage 2 were used to pay off the balance owed on Mortgage 1 ($203,088.02). A discharge of Mortgage 1 dated April 26, 2009, was recorded with the Registry at Book 44917, Page 222.

4. MERS assigned Mortgage 2 to Plaintiff by document dated April 4, 2011, and recorded with the Registry at Book 48021, Page 108. The assignment states that the holder of Mortgage 2 is “Steven Yandoli, an unmarried man.”

5. The Trust provides for the automatic appointment of Stevens as trustee upon the death, resignation, or incapacity of both original co-trustees (i.e. Phyllis and Louis). Stevens became trustee after Phyllis died.

6. By confirmatory deed dated August 19, 2011, and recorded with the Registry at Book 48306, Page 286 (the “Trust Deed”), Stevens, as successor Trustee of the Trust, conveyed Locus to Steven and Jarrett as joint tenants.

7. Defendants paid $20,419.50 towards Mortgage 2 in ten payments of $2,041.95 each. Of this $20,419.50, $2,956.16 was applied towards principal, $12,064.74 was applied towards interest, and $5,398.60 was applied to escrow payments for real estate taxes and insurance payments. The outstanding principal on Mortgage 2 owed by Defendants is thus $200,131.86. [Note 7]

8. Defendants defaulted on Mortgage 2 in or around February 2010. Between the date of default and the present, Plaintiff made escrow payments in the amount of $20,395.87. Mortgage 1 gave Financial Freedom the right to protect its interest in Locus by making, inter alia, real estate tax and insurance payments.


Plaintiff’s Motion for Summary Judgment is limited to the issue of equitable subrogation. Plaintiff seeks to be equitably subrogated to the position of the lienholder of Mortgage 1, i.e. Financial Freedom, to prevent the unjust enrichment of Jarrett at Plaintiff’s expense. However, the case-at-bar presents other issues that must be addressed before the issue of equitable subrogation can be addressed. First, I must determine the validity of the Estate Deed. If the Estate Deed is invalid, Defendants would not have had an interest in Locus to encumber and could not have given Mortgage 2 to Plaintiff; as a result, Mortgage 2 would not be valid and could not be subrogated to Mortgage 1. Second, I must address the validity of Mortgage 2 relative to the issues of mortgage reformation and forgery. Finally, the issue of equitable subrogation will be addressed.

I. Validity of the Estate Deed

As stated above, Stevens purported to convey title to Locus in January 2009 when she executed the Estate Deed to Defendants “as executrix” of Phyllis’s estate. Defendants granted Mortgage 2 in March 2009. Almost two and one-half years passed between the execution of Mortgage 2 and the execution of the Trust Deed to Defendants. Plaintiff admits that at the time the Estate Deed was executed, title to Locus was technically held by the Trust. This means that at the time of the execution of Mortgage 2 by Defendants, title to Locus was held by the Trust. Technically, then, title to Locus did not pass to Defendants until August 2011, when Stevens executed the Trust Deed. As such, Defendants had no interest in Locus to encumber in March 2009, which would make Mortgage 2 invalid. The issue, then, is to what extent this technical error impacts Plaintiff’s interest in Locus.

It is true that trustees and executors are separate and distinct legal persons. “The offices of executor, trustee, and guardian are separate and distinct from and independent of each other and, ordinarily, must be treated as such if there is to be an orderly and efficient performance of the duties of each office.” McMahon v. Krapf, 323 Mass. 118 , 127 (1948). It is not, however, unusual for one individual to act in both capacities. This was the case in McMahon, where a decedent appointed the defendant co-trustee of a testamentary trust and also executor of decedent’s estate. The defendant made payments to the trust’s beneficiary, which was one of his duties as trustee, prior to his qualification as trustee but while he was the duly appointed and acting executor. Id. at 119-20. The plaintiffs argued that it was improper for the defendant to include in his account as executor acts properly reserved to a duly appointed trustee. Id. at 122. The McMahon court disagreed with the plaintiffs and held that the defendant’s actions were “beneficial to the trust estate and that of the [beneficiary].” Id. at 127. The court also used equity to uphold the validity of the defendant’s acts as executor. Specifically, the court stated that “equitable principles have frequently been applied . . . to reach a just result even where the methods of the fiduciary did not strictly comply with established standards” because to do so is proper in light of “considerations of equity and good conscience.” Id. at 128 (emphasis supplied).

In another case, Springfield Nat. Bank of Springfield v. Couse, 288 Mass. 262 (1934), a testator’s will named the defendant trustee and executor. The defendant was empowered to invest in securities for purposes of the trust. Id. at 264. The bank invested principal assets in securities, but did so in its capacity as executor. Id. at 266. The Couse court, relying on Little v. Little, 161 Mass. 188 (1894), stated that while “it would have been more regular for [the bank] to have qualified as trustee” before investing, the error was “purely a technical one.” 288 Mass. at 267. The Couse court noted that the beneficiaries were not harmed by the defendant’s investments, that the defendant exercised proper care in its actions, and that it would be “contrary to reason, equity, and justice to hold it responsible for action which could not be regarded as improper in fact simply because based upon the technicality of performing a trustee’s duties.” Id. at 268 (emphasis supplied). The Little court also upheld the actions of the defendant trustee-executor because “no harm finally resulted from [the error] . . . and to allow [the plaintiff’s] contention would be to give them a benefit from the error which has been corrected . . . and to inflict, without reason, a forefeiture upon others.” 161 Mass. at 203 (emphasis supplied).

Stevens was duly appointed as both executrix and trustee at the time of the Estate Deed. [Note 8] She thus had the power to act as trustee and convey Locus when the Estate Deed was executed. Had she executed the Estate Deed “as trustee” rather than “as executrix,” the conveyance would have been valid. The only error was a technical, scrivenor’s error, and equity and good conscience should not permit such an error to invalidate the action of a trustee-executrix acting in good faith. See McMahon, 323 Mass. at 127. The beneficiaries of the Trust in this case, Jarrett and Steven, were not harmed by Stevens’ actions. In fact, she did precisely what was required of her as trustee. To allow Defendants to deny an interest in Locus now that they have defaulted “would be to give them a benefit . . . and to inflict, without reason, a forefeiture upon others,” i.e. Plaintiff. See Little, 161 Mass. at 203. This result would be “contrary to reason, equity, and justice.” See Couse, 288 Mass. at 268. [Note 9]

As a result of the foregoing, I find that, notwithstanding Stevens’ technical error of performing duties, as executrix, which were properly reserved to a trustee, equity requires that the Estate Deed be given effect.

II. Validity of Mortgage 2

Since the Estate Deed was validly executed, Defendants held the interest in Locus necessary to execute Mortgage 2 to MERS. I must next determine whether Mortgage 2 was valid. Mortgage 2 was executed by both Steven and Jarrett, and both signatures were notarized. However, Jarrett claimed at the case management conference that his signature on Mortgage 2 was a forgery and, therefore, that Mortgage 2 should not encumber his interest as joint tenant in Locus. In addition, Jarrett claims that because Steven’s name was the only name listed as mortgagor on the face of Mortgage 2, Jarrett could not be a mortgagor. [Note 10] In its Complaint, Plaintiff prayed for this court to reform Mortgage 2 by adding Jarrett’s name to the face of Mortgage 2. Plaintiff argued that it was the intention of the parties that Mortgage 2 encumber both Steven’s and Jarrett’s interest in Locus, and that the omission of Jarrett’s name on the first page of Mortgage 2 was a mistake. Plaintiff argues that the signature of both Steven and Jarrett is evidence of this intent and that failure to so reform Mortgage 2 would bestow an unjust enrichment on Jarrett at Plaintiff’s expense.

a. Forgery

Jarrett first raised the issue of forgery orally at the case management conference. This issue was never raised in Jarrett’s Answer or any other pleading. In fact, the issue of forgery was never raised by Jarrett in writing in any document before this court. Moreover, Jarrett neither filed a response to Plaintiff’s Motion for Summary Judgment or Supplemental Brief, nor did he appear at oral argument. The proper time to have raised the issue of forgery was in the pleadings stage or in a subsequent motion. Jarrett should have raised the issue of forgery in his Answer, but instead denied or admitted certain allegations made in the Complaint without specificity. “A party shall state in short and plain terms his defenses . . . .” Mass. R. Civ. P. 8(b) (emphasis supplied). Allegations in a pleading must be stated in “clear, direct, and unequivocal” terms. First Portland Nat. Bank v. Taylor, 323 Mass. 492 , 495 (1948). “Averments of crucial facts in a pleading should be clear, direct, and unequivocal.” Brown v. Neelon, 335 Mass. 357 , 361 (1957). When parties make allegations of “fraud, mistake, duress, or undue influence,” they must state in their pleadings the underlying circumstances “with particularity.” Mass. R. Civ. P. 9(b). See also Lazzaro v. Holladay, 15 Mass. App. Ct. 108 , 108-109 (1983) (recognizing Rule 9(b)’s requirement of particularity in pleading fraud). Therefore, I find that Jarrett’s defense of forgery was not properly raised in this action.

b. Mortgage Reformation

“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) (emphasis supplied). This court is such a court. See G.L. c. 185, § 1(k) (“[the Land Court] shall also have original jurisdiction . . . of . . . all cases and matters cognizable under the general principles of equity jurisprudence”). A mortgage can be reformed based on “mutual mistake, [or] by a mistake of one party . . . which is known to the other party.” Ward v. Ward, 70 Mass. App. Ct. 366 , 369 n. 5 (2007) (internal citations omitted). “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). Reformation based on mistake will not be allowed absent “full, clear, and decisive proof that the instrument failed to express the intent which both parties had in making it.” New York, New Haven, and Hartford R.R. Co. v. Plimpton, 238 Mass. 337 , 340 (1921). Reformation is an appropriate remedy, even if one party’s signature is absent from the mortgage instrument, if the circumstances show that all parties were intended to be encumbered. Bank of New York Mellon v. Robinson, 19 LCR 74 , 75 (2011) (reforming mortgage missing wife’s signature in land she owned as tenant by the entirety). Furthermore, equity will intervene and reform a mortgage when it is necessary to prevent unjust enrichment. Id. “Unjust enrichment is defined as retention of money or property of another against the fundamental principles of justice or equity and good conscience.” Santagate v. Tower, 64 Mass. App. Ct. 324 , 329 (2005).

Plaintiff argues and presents evidence that MERS’s payoff of Mortgage 1 resulted in its discharge, which released the encumbrance on Jarrett’s interest in Locus. The evidence shows that both Plaintiff and Defendants intended to encumber the interest of Defendants when Plaintiff took Mortgage 2. Both Defendants’ notarized signatures appear on Mortgage 2. In addition, without mortgage reformation, the encumbrance on Jarrett’s interest under Mortgage 1 will be gone, something Jarrett paid no consideration for. Plaintiff could not have intended this result, and neither could either of Defendants. See Piea Realty Co. v. Papuzynski, 342 Mass. 240 , 248 (1961) (“the substance of the intention of the parties in entering into the [second mortgage] was to change the terms of the notes but to make no change in [the mortgagee’s] relative security”). To permit this result would be to confer a significant windfall on Jarrett at great expense to Plaintiff, MERS’ successor in interest. Equity will not permit Jarrett to be so unjustly enriched. Accordingly, I find that the omission of Jarrett’s name from the face page of Mortgage 2 was a mistake, evidenced by Jarrett’s notarized signature on Mortgage 2, as well as the payoff of Mortgage 1, and that, consequently, Mortgage 2 shall be reformed to reflect the intention of the parties.

III. Equitable Subrogation

Because Mortgage 2 has been reformed to include both Jarrett’s and Steven’s interest in Locus, there is no need for equitable subrogation, particularly where there is no junior lien at issue and no issue of priority of mortgages. However, because that issue is the sole issue argued in Plaintiff’s Summary Judgment motion, and because it was argued in the alternative, I shall address it at this time. Plaintiff argues that it is subrogated to the position of Financial Freedom in the amount of $256,888.12, which includes principal, interest, and escrow payments. In this regard, Plaintiff cites East Boston Savings Bank v. Ogan, 428 Mass. 327 , 330 (1998), which established a five-part test for equitable subrogation, as follows: “(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” (internal citations omitted). Plaintiff contends that it meets all requirements of this test. Plaintiff argues that in the event that it is not subrogated to the position of Financial Freedom, Defendants would receive a substantial windfall and would be unjustly enriched in the amount of $203,088.02, as that was the amount that they were indebted to Financial Freedom when Mortgage 1 was discharged.

“Subrogation is the substitution of one person in place of another, whether as a creditor or as the possessor of any other rightful claim, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.” Provident Co-op Bank v. James Talcott, Inc., 358 Mass. 180 , 188 (1970). “One who fully performs an obligation of another, secured by a mortgage, becomes by subrogation the owner of the obligation and the mortgage to the extent necessary to prevent unjust enrichment. Even though the performance would otherwise discharge the obligation and the mortgage, they are preserved and the mortgage retains its priority in the hands of the subrogee.” Restatement (Third) of Property (Mortgages) § 7.6(a) (1997). Equitable subrogation applies to refinancing transactions, such as the transaction in the case-at-bar. East Boston Savings Bank, 428 Mass. at 329. “The payor is subrogated only to the extent that the funds disbursed are actually applied toward the payment of the prior lien. There is no right of subrogation with respect to any excess funds.” Restatement (Third) of Property (Mortgages) § 7.6, cmt. (e) (1997). The right to subrogation rests upon equity and because it is a broad equitable remedy, it may apply even where one or more of the factors in the five-part test is absent. East Boston Savings Bank, 428 Mass. at 329-30.

Plaintiff contends that it satisfies all the requirements of the five-part test. First, Plaintiff argues that MERS–its assignor–paid off the Financial Freedom obligation to secure its interest as first priority lienholder in Locus. Plaintiff is correct that there are no facts on the record which dispute this. Second, Plaintiff argues MERS did not act as a volunteer in discharging the Financial Freedom obligation. A party is a volunteer if “in making a payment, they have no interest of their own to protect, they act without any obligation, legal or moral, and they act without being requested to do so by the person liable on the original obilgation.” East Boston Savings Bank, 428 Mass. at 330, n. 4 (internal citations omitted). MERS is not a volunteer under this definition, as it clearly has an interest of its own to protect. Third, Plaintiff claims that Phyllis, not MERS, was primarily liable on the debt to Financial Freedom. Plaintiff is correct that MERS was not primarily liable, but was instead the refinancing lender. Fourth, Plaintiff argues MERS paid off the entire debt. “Where subrogation to a mortgage is sought, the entire obligation secured by the mortgage must be discharged. Partial subrogation to a mortgage is not permitted.” Restatement (Third) of Property (Mortgages) § 7.6, cmt. (a) (1997). Plaintiff is correct that MERS discharged the entire obligation. Defendants owed Financial Freedom $203,088.02, which is the amount listed as “Payoff of First Mortgage Loan” on the U.S. Department of Housing and Urban Development Settlement Statement. Finally, Plaintiff argues that subrogation would not work any injustice to Defendants. However, the standard in East Boston Savings Bank requires that no injustice be done to any junior lienholder. See 428 Mass. at 330. There is no junior lienholder in this case, as the prior lienholder’s interest was fully discharged by Plaintiff’s assignor. Thus, there can be no injustice to a party that does not exist. As a result, I find that Plaintiff has satisfied the criteria of East Boston Savings Bank and is entitled to equitable subrogation. [Note 11]

Plaintiff prayed for subrogation in the total amount of $256,888.12 in its Supplemental Brief. The $256,888.12 figure accounts for outstanding principal on Mortgage 1, plus interest and escrow payments of real estate taxes and insurance payments since the pay-off of Mortgage 1. If the amount of equitable subrogation were an issue, this court would not be in a position to determine such amount because of the variable interest rate on Mortgage 1. However, because this court has determined that mortgage reformation of Mortgage 2 is allowed, supra, and because there is no issue on the priority of Mortgage 2, there is no need to address the amount of allowed subrogation. As a result of the foregoing, I ALLOW Plaintiff’s Motion for Summary Judgment. [Note 12]

The parties shall attend a status conference on April 30, 2013 at 10:00 a.m. to discuss any issues relative to the finalization of this litigation, particularly with respect to the issue of mortgage reformation. Judgment shall issue after all issues have been resolved.


[Note 1] Only Jarrett has appeared at any of the conferences and hearings. On June 1, 2012, Plaintiff filed a Motion for Entry of Default and Default Judgment against Steven. This Motion was allowed on March 19, 2013.

[Note 2] Defendants did not file any opposition to Plaintiff’s Motion for Summary Judgment or to Plaintiff’s Supplemental Brief.

[Note 3] Phyllis is Steven’s mother and Jarrett’s grandmother.

[Note 4] The Trust was dated September 16, 1998 and recorded with the Registry at Book 22962, Page 1. The beneficiaries of the Trust were Phyllis and Phyllis’ husband, Louis A. Yandoli (“Louis”). The remainder interest beneficiaries were Jarrett (75%) and Steven (25%).

[Note 5] At that time Locus was held by the Trust. Steven and Jarrett were the sole beneficiaries of the Trust, since both Louis and Phyllis were deceased. The Summary Judgment record does not contain the dates of death of either Louis or Phyllis. Although the deed of Locus into the Trust is not a part of the summary judgment record, both the Estate Deed and the Trust Deed, as hereinafter defined, reference this deed as recorded with the Registry at Book 22962, Page 10 (immediately after the recording of the Trust).

[Note 6] Only Steven was listed as the mortgagor on the first page of Mortgage 2. Both Steven and Jarrett executed Mortgage 2 and their signatures were both notarized. Jarrett claims that his signature was forged, as discuss infra.

[Note 7] This figure is derived by taking the amount applied towards discharge of Mortgage 1, which is $203,088.02, and subtracting the $2,956.16 of principal paid towards Mortgage 2.

[Note 8] The Trust provided that “in the event of death, resignation or incapacity of both the Trustees named herein, then Dale Stevens shall become the succeeding Trustee.” Thus, Stevens automatically became trustee upon the death of Phyllis and Louis. She was also the Executrix at the time the Estate Deed was executed.

[Note 9] Although the case-at-bar involves real estate instead of personal property, as discussed in the cited cases, the principles articulated by the Supreme Judicial Court in those cases are applicable to the case-at-bar. No one in the case-at-bar was harmed in reliance upon the recording of the Estate Deed. The only party that will arguably be harmed by the validity of the Estate Deed is Jarrett, as its invalidity would effectively annul Plaintiff’s encumbrance on his interest in Locus. Considering Jarrett’s interest was encumbered when Plaintiff discharged Mortgage 1 and that Jarrett paid no consideration to remove that encumbrance, to invalidate the Estate Deed based upon Plaintiff’s technical error would be inequitable.

[Note 10] Mortgage 2 states “The Mortgagor is Steven Yandoli, an unmarried man.” Jarrett’s name, however, appears twice in Mortgage 2, first on the signature page, where his signature appears, and then again on the notary page.

[Note 11] In addition, equitable subrogation would be appropriate even if Jarrett had a viable claim of forgery, as discussed, supra. As stated above, Jarrett paid no consideration to have the valid encumbrance of Mortgage 1 removed. Plaintiff discharged Mortgage 1, which encumbered Jarrett’s interest in Locus, with the expectation that both Defendants’ interest in Locus would be encumbered by Mortgage 2. Equity will not permit Defendants to receive such a windfall at such great expense to Plaintiff, and “the right to subrogation rests upon equity.” Massachusetts Hosp. Life Ins. Co. v. Shulman, 299 Mass. 312 , 316 (1938). The Restatement supports this outcome. “If the circumstances are such that subrogation to a prior mortgage will relieve the payor, and if no prejudice to any innocent person will result, the payor may have subrogation” even if performance is induced by “misrepresentation, mistake, duress, undue influence, deceit, or other similar imposition.” See Restatement (Third) of Property (Mortgages) § 7.6, cmt. (d) (1997). As such, Jarrett’s signature, even if forged, would be treated as missing from Mortgage 2, and this issue has already been addressed in the section on mortgage reformation.

[Note 12] As discussed, supra, it was necessary to address the validity of the Estate Deed and the validity of Mortgage 2 in order to address the equitable subrogation issue, and there were no disputed facts in this regard. Moreover, the equity issues were similar for mortgage reformation and equitable subrogation.