The borrower and the co-signer signed a mortgage agreement for their home. The borrower alone signed the promissory note attached to the mortgage. The borrower began to default, but the lender did not foreclose. The borrower also failed to pay property taxes, and a third party bought the property in a tax sale. The third party received a court decree foreclosing the property and granting the title to the third party. The borrower and the lender were notified of the tax sale and foreclosure proceedings, but neither party appeared at nor contested the proceedings. The third party sold the property to an LLC whose shares were exclusively held in the borrower’s family trust. The lender sued the borrower and the co-signer, claiming that the mortgage agreement was an enforceable contract against both parties. The borrower and his parents died, leaving the shares exclusively to the co-signer. The district court granted the co-signer's motion for summary judgment, ruling that the court decree had extinguished the mortgage agreement. The lender appealed, claiming an enforceable contract against the co-signer, constructive-trust, equitable-lien, and unjust enrichment.
In Deutsche Bank Nat'l Trust Co. v. Wilson, 116 F.4th 12 (1st Cir. 2024), the 1st Circuit Court of Appeals ruled that the motion for summary judgment was properly granted. The court found that the lender could not enforce the promissory note against the co-signer because she had not signed it. Additionally, the lender could not initiate foreclosure proceedings because the mortgage agreement was extinguished by the court decree, granting the property to a third party. Because of the explicit difference in obligations between the borrower and the co-signer, the court held that the ordinary meaning of the terms suggested that the co-signer was exempt from covenants applicable to the borrower. Furthermore, the agreement expressly stated that the co-signer did not guarantee the borrower’s debt. Next, the court found that there was no fiduciary relationship between the lender and the co-signer or the LLC. Thus, there was no breach of fiduciary duties, a required element of a constructive-trust claim. Also, because the lender sat idly on its known rights, there would be no equitable relief. The court held the unjust enrichment claim invalid because the lender's actions while the property was changing hands did not enrich the co-signer or the LLC. Thus, the court ruled that the lender had not sufficiently argued a claim against the co-signer, so the motion for summary judgment was properly granted.
By Joel Durham: [email protected]
Edited By Nura Elhentaty: [email protected]
Edited By Ashley Boyce: [email protected]
Edited By Hayden Mariott: [email protected]