Massachusetts equitable subrogation mortgage

Court Shoots Down Lender’s Attempt to Expand Doctrine of Equitable Subrogation

In the interesting case of Wells Fargo Bank v. Comeau (Nov. 15, 2017), Justice Peter Agnes of the Appeals Court has held that a surviving wife is not financially responsible for paying back a refinanced mortgage where the wife neither signed the promissory note nor the refinance mortgage, even though she originally held title to the home as a married couple (tenants by the entirety) and signed the original mortgage on the property. In so ruling, Judge Agnes rejected Wells Fargo’s argument to expand the doctrine of equitable subrogation to cover a situation such as this.

Parties to Deed Must Match Up With Mortgage!

Nancy and William Comeau owned their Haverhill home jointly in the traditional Massachusetts form of ownership called “tenancy by the entirety” where title passes automatically to the surviving spouse upon death of a spouse. When the couple purchased the home, they both signed a first mortgage to Haverhill Cooperative Savings Bank. It appears that Nancy was not an applicant for the loan because she did not sign the promissory note. However, the cardinal rule is that the parties to the deed must match the parties to the mortgage, otherwise there will be problems (foreshadowing what happened in this case).

When the couple went to refinance the Haverhill Savings loan with Wells Fargo, only William, the husband, signed the note and mortgage. Big mistake! Since Nancy, the wife, remained on the title as a joint owner, she should have signed the mortgage as well. After the refinancing, William unfortunately dies. His estate is probated, but Wells Fargo makes another mistake and fails to file a claim within the one year probate statute of limitations.

Lender Goes To Court

In an attempt to get Nancy to pay up on the mortgage,¬†Wells Fargo went to Superior Court and made the creative argument that the wife should be responsible under the little known legal doctrine of equitable subrogation which gives courts equitable power to reform mortgages, to restore once-extinguished mortgages, and to adjust priorities among existing mortgages where it is fair and just to do so. Wells lost in Superior Court. On appeal, Justice Agnes agreed, ruling that this case was not appropriate for the equitable subrogation remedy, thereby leaving Wells Fargo with a total loss on its mortgage debt. Judge Agnes reasoned that the situation was entirely of Wells Fargo’s making, and that it had the opportunity to have Nancy sign the mortgage or make a claim against William’s estate, but it failed to do so.

Having handled many title insurance claims in my prior practice, we often used equitable subrogation in cases where a title examiner missed a mortgage in connection with a refinance. Those types of human error would allow for equitable subrogation, however, this case would not, as Judge Agnes correctly ruled in my opinion.

This case is a good example why closing attorneys should always have both married spouses execute the mortgage even if one spouse is not on the loan.

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