June 4, 2014
by Jennifer Burnett
Trott & Trott, P.C. – USFN Member (Michigan)
On April 8, 2014, the Michigan Court of Appeals decided Federal Home Loan Mortgage Corporation v. Guntzviller (Docket No. 313323). This case involved a mortgage encumbering a property owned by a husband and wife. The proceeds of the mortgage were used to refinance two prior mortgages. The prior mortgages were executed by both spouses. The husband alone signed the refinance mortgage, though the lender was aware of the marriage, and the wife was present at the closing. Upon the husband’s death and subsequent default upon the mortgage, the plaintiff filed suit against the wife seeking equitable relief including a declaration that the mortgage was valid and encumbered her interest in the property.
In Michigan, unless expressly stated otherwise, a conveyance of real property to a husband and wife creates a tenancy in entireties. Generally, but with some exceptions, one tenant by the entireties has no separate interest from the other, and cannot convey, mortgage, or otherwise alienate the property without the other’s consent. Upon the death of one tenant, the other becomes the sole owner of the property through a right of survivorship.
The court of appeals found that because the husband could not unilaterally refinance the prior mortgages without the wife’s signature, the mortgage was void and entirely invalid. As the mortgage was invalid, it did not encumber the property at all, and the wife became the sole owner of the property free and clear of the mortgage upon her husband’s death. The court further declared that the plaintiff was not entitled to equitable remedies such as reformation, equitable mortgage, ratification, or an implied contract to prevent unjust enrichment to save it from what the court deemed to be the lender’s unilateral mistake in not obtaining the wife’s signature on this mortgage.
While the Guntzviller opinion is not published and is therefore not binding as legal precedent, this case and its reasoning may be cited to and considered by Michigan courts as persuasive authority. The conclusion that a refinance mortgage lacking the signature of a required spouse is invalid is not new, but the determination by the Michigan Court of Appeals as to what would entitle a party to equitable relief to correct the omission and validate the mortgage is unclear. The decision implies an elevated standard for a lender to successfully prevail on such a claim.
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