January 5, 2016
by Graham H. Kidner
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)
The Court of Appeals of North Carolina issued an unpublished opinion that should reassure mortgage lenders that drafting errors in deeds of trust (ones that are clearly the result of a “mutual mistake” by both the lender and the borrower) can be corrected through court proceedings.
In Ocwen Loan Services, LLC v. Hemphill, 2015 WL 5432666 (N.C. Ct. App., Sept. 15, 2015), the deed of trust securing the loan to Ocwen contained a legal description covering only the driveway to the property, omitting the larger lot containing the borrower’s home. The borrower had first acquired title to the lot upon which his home was located, and then later purchased the driveway lot. When the loan was closed, only the driveway lot was described in the deed of trust. Ocwen obtained an order for summary judgment, allowing reformation of the deed of trust to include the legal description of the lot containing the borrower’s home. The Court of Appeals affirmed the judgment.
The evidence, which included the appraisal, demonstrated that: (i) the property address was included in the deed of trust; (ii) the borrower understood the address to refer to the lot containing the house; and (iii) the borrower acknowledged that Ocwen would expect the full legal description to be included in the deed of trust. All of this led the court to conclude that there was a mutual mistake of fact in that both parties fully intended the loan to be secured by the entire property. Additionally, the court noted that the deed of trust — which formed a contract between the parties — required the borrower to occupy the secured property as his principal residence. This would make sense only if the legal description included the lot containing the house.
The borrower’s defense, which the court briefly considered and then rejected, was that Ocwen may have intended to secure only the driveway lot because of a number of judgment liens against the lot containing the home. However, as the court made clear: In defending against a motion for summary judgment, a party must “produce a forecast of evidence demonstrating specific facts, as opposed to allegations, showing that he can at least establish a prima facie case at trial” in order to withstand a motion for summary judgment. Id at 4, citing Van Keuren v. Little, 165 N.C. App. 244, 246, 598 S.E.2d 168, 170 (2004).
The lesson to be learned, of course, is that lenders and their closing agents should employ quality control procedures to ensure that settlement documents are complete and accurate. Drafting errors such as this usually occur when real property is parceled out into different lots, or where lots are combined or divided. Special care should be taken in these situations to carefully review the final draft deed and deed of trust to ensure that the correct property description is provided.
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