The Colemans own lots 42, 43, 44, and 45 of a subdivision, with their home located on lots 42 and 43 and lots 44 and 45 being undeveloped. In 2007, Mr. Coleman borrowed $137,567.00 from (now) Wells Fargo, secured by a Deed of Trust signed by the couple. The Deed of Trust described the property as:
All that real property situated in the County of Davidson, State of North Carolina:
Being the same property conveyed to the Grantor by Deed recorded in Book 1007, Page 1013, Davidson County Registry, to which deed reference is hereby made for a more particular description of this property.
Property Address: 167 Lakeview Drive
Parcel ID: 06-027-A-000-0044
The property address describes lots 42 and 43, but the book and page description and parcel identification number is for only the vacant lots 44 and 45. Following Mr. Coleman’s death, Mrs. Coleman fell delinquent on mortgage payments and in December 2010, Wells Fargo, having discovered the error, and brought suit to reform the Deed of Trust based on mutual mistake. Mrs. Coleman argued that Wells should be barred from reformation by the statute of limitations, laches, lack of reasonable diligence and the non-claim statute. The Superior Court, without giving specific grounds, granted her motion for summary judgment and Wells Fargo appealed.
Regarding the statute of limitations, at trial the parties relied on a three-year statute of limitations, but on appeal Wells Fargo, for the first time, asserted that the note and Deed of Trust were signed under seal, resulting in a ten-year statute of limitations. Wells Fargo (because it’s a big bank to whom special rules should apparently apply) argued that the Court of Appeals should use discretion to suspect the Appellate Rules. The Court of Appeals declined to do this. It continued, holding that the Statute of Limitations is “not be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud or mistake.” N.C.G.S. § 1-52(9). Discovery of a mistake is when a party actually learns of the mistake or should have learned of the mistake in the exercise of due diligence. Despite Mrs. Coleman’s argument that Wells Fargo should in its exercise of due diligence have found the mistake during the drafting, review, recording and follow-up from the loan closing, the Court of Appeals held that “the mere fact that there were indications of fraud or mistake on the face of the document does not trigger the statute of limitations as a matter of law.” Instead this was a factual determination to be resolved by jury.
Similarly, as to Mrs. Coleman’s assertion that the doctrine of laches barred reformation, the court held that she was required to that the delay “resulted in some change in the condition of the property or the relation of the parties.” MMR Holdings, LLC v. City of Charlotte, 148 N.C. App. 208, 209, 558 S.E.2d 197, 198 (2001), which again is a factual determination for a jury.
Mrs. Coleman further argued that, because following the death of Mr. Coleman and proper administration of his estate, Wells Fargo failed to bring suit therein, the non-claims statute at N.C.G.S. § 28A-19-3 precluded such suit later. N.C.G.S. § 28A-19-3(g), however, excepts “any action or proceeding to enforce any mortgage, deed of trust, pledge, lien (including judgment lien), or other security interest upon any property of the decedent’s estate….”
Lastly and more broadly, the Court of Appeals held that a party seeking reformation of a written instrument need not prove that mutual mistake was reasonable or neglect-free, only that “there is clear, cogent, and convincing evidence that the mistake was a mutual one and that it prevents the instrument from embodying the parties’ actual, original agreement.”
Again, what is the point of title insurance if it never actually pays when there is a title mistake? Car insurance pays claims when there is a wreck. Even health insurers occasionally slip up and pay for medical treatment. But title insurance, nope.
So really what should Mrs. Coleman, who is delinquent on her mortgage, do? File Chapter 13. There goes any right that Wells Fargo has for reformation. Its just an unsecured claim and oops, she is not even liable for the note and the non-claims statute would preclude Wells Fargo from even having an allowable unsecured claim.
For a copy of the opinion, please see: