Brattleboro Savings and Loan Association v. Hardie

2014 VT 26, 94 A.3d 1132, 196 Vt. 144, 2014 WL 1328169, 2014 Vt. LEXIS 26

• Court: Supreme Court of Vermont
• Decided: March 21, 2014
• Docket: 2012-332
• Status: Published

Opinions

Dooley, J.

¶ 1. Plaintiff Brattleboro Savings and Loan Association appeals a superior court decision denying plaintiff’s motions for summary judgment and granting intervenor/appellee Lisa Mangini’s cross-motion for summary judgment, ruling that Mangini holds title to a Weathersfield, Vermont property, free and clear of a mortgage to plaintiff. The superior court ruled that the mortgage was inoperative because Mangini’s husband, defendant Richard Hardie, mortgaged the property without the participation of Mangini in violation of 27 V.S.A. § 141(a). We reverse the grant of Mangini’s motion for summary judgment and the denial of Brattleboro Saving’s motions for summary judgment, and remand.

¶ 2. The essential facts are undisputed. In 2002, defendant Richard Hardie borrowed $209,000 from Brattleboro Savings in order to purchase a vacation home and surrounding land in Weathersfield, Vermont. The loan was secured by a mortgage on the property and included a “second home rider” clause, asserting that the property was not a primary residence. Hardie was married to Mangini at the time, but was the sole owner of the property, and Mangini did not sign either the promissory note or the mortgage. Hardie refinanced the property in 2004 and 2005, both times without Mangini’s participation. These mortgages each contained a second home rider clause.

¶ 3. By 2007, Hardie and Mangini’s marriage was deteriorating. In April 2007, Mangini left the couple’s New Jersey home and moved into the Weathersfield property. In February 2008, Mangini filed for divorce in the Windsor Superior Court, Family Division.¹ In her divorce filing, Mangini claimed that the property had become her primary residence as of May 2007. Also in the divorce filing, Mangini requested “an award of the Weathersfield home and the adjoining land either without any encumbrances, or, in the alternative, that [Hardie] be responsible for paying off and releasing the mortgage[] to [Brattleboro Savings].”²

¶ 4. In April 2008, while Mangini was occupying the property and the divorce was pending, Hardie refinanced the mortgage on the Weathersfield property. The 2008 refinancing was completed without Mangini’s participation, and Hardie again claimed that the property was a second home only. In January 2011, Brattleboro Savings commenced a foreclosure action on the property, naming only Hardie as a defendant.

¶ 5. Despite not being named in the foreclosure case, Mangini filed an answer asserting an affirmative defense that she had established a homestead interest in the property prior to the 2008 mortgage, and that therefore the 2008 mortgage was “inoperative to convey” her homestead interest. Due to the unusual posture of this case, Brattleboro Savings filed two motions for summary judgment, one requesting a foreclosure judgment against Hardie and the second seeking judgment against Mangini on her homestead claim. The motion directed at Mangini specifically alleged that Mangini did not have a homestead interest because she possessed neither a legal nor an equitable interest in the property. Brattleboro Savings made two alternative arguments in the event that the court found a valid homestead exemption. First, Brattleboro Savings argued that the 2008 refinancing fell under the exception in 27 V.S.A. § 141(a) for purchase money mortgages and therefore did not require participation by “execution and acknowledgement” of Mangini to give the mortgage priority over her homestead exemption. Second, Brattleboro Savings argued that if Mangini were to have a homestead interest, it would be subject to all preexisting causes of action against the homestead as provided in 27 V.S.A. § 107, which states that homestead interests “shall be subject to attachment and levy of execution upon causes of action existing at the time of acquiring the homestead.” Mangini filed a cross-motion for summary judgment, detailing for the first time her claim that she had acquired an equitable interest in the property by her divorce filing.

¶ 6. The court denied Brattleboro Savings’s motions for summary judgment and granted summary judgment in favor of Mangini, declaring the entire 2008 mortgage on the property unenforceable against Mangini. The court reasoned that Mangini acquired an equitable interest in the property when she filed for divorce, thus fulfilling the dual requirement for establishing a homestead interest — occupancy and equitable title — as set out in In re Soter, 26 B.R. 838 (Bankr. D. Vt. 1983).³ The court held that Mangini was entitled to full immunity from the note and mortgage, not merely protection for the $125,000 value of the homestead exemption as provided in 27 V.S.A. § 101. Following the denial of Brattleboro Savings’s motion to reconsider, the superior court granted permission to appeal its summary judgment decisions. Brattleboro Savings subsequently appealed.

¶ 7. We review summary judgment decisions de novo. Doe v. Forrest, 2004 VT 37, ¶ 9, 176 Vt. 476, 853 A.2d 48. As provided in Vermont Rule of Civil Procedure 56(a), summary judgment will be granted only when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” V.R.C.P. 56(a). The nonmoving party, in this case Brattleboro Savings, is given “the benefit of all reasonable doubts and inferences.” Forrest, 2004 VT 37, ¶ 9. In this case, the parties on appeal agree that there is no material issue of fact and the questions presented to us involve only issues of law.

¶ 8. Brattleboro Savings has appealed on a variety of issues, asserting that the court erred in holding that Mangini had acquired an equitable interest upon filing for divorce; that the court had unjustly enriched Mangini; that the court erred by not considering the 2008 mortgage to be a purchase money mortgage; that the court abused its discretion by refusing to apply the doctrine of equitable subrogation; that the court erred by not limiting Mangini’s homestead interest to $125,000; and that the court lacked subject matter jurisdiction to declare the 2008 mortgage entirely void. We address only the first issue and resolve the appeal by deciding that Mangini did not acquire equitable title to the property by filing for divorce. Because Mangini did not acquire equitable title, she is not entitled to a homestead exemption from the 2008 mortgage, and the security created by the 2008 mortgage is valid against her. See Soter, 26 B.R. at 841 (holding that equitable or legal title is required to establish homestead exemption).

¶ 9. In Vermont, the homestead exemption is a statutory creation.⁴ The homestead exemption at issue in this case was originally enacted in 1849. 1849, No. 20, § 1; 27 V.S.A. § 101. The current version of the statute states: “The homestead of a natural person . . . not exceeding $125,000.00 in value, and owned and used or kept by such person as a homestead . . . shall be exempt from attachment and execution except as hereinafter provided.” 27 V.S.A. § 101. The term “homestead” “signifies the dwelling house in which the family resides, with the usual and customary appurtenances.” In re Avery, 41 B.R. 224, 225 (Bankr. D. Vt. 1984). The purpose of the homestead exemption in Vermont, as elsewhere, is to conserve family homes. Estate of Girard n Laird, 159 Vt. 508, 510, 621 A.2d 1265, 1266 (1993); see In re Roberge, 307 B.R. 442, 446 (Bankr. D. Vt. 2004) (“[T]he intention' of Vermont’s homestead exemption is to preserve a home for the family.”); see generally R. Waples, Homestead and Exemption, ch. 1, § 2, at 3 (1893) (“The conservation of family homes is the purpose of homestead legislation. The policy of the state is to foster families as the factors of society, and thus promote the general welfare. To save them from disintegration and secure their permanency, the legislator seeks to protect their homes from forced sales so far as it can be done without injustice to others.”).

¶ 10. The statute requires that a homestead be both owned and occupied as a homestead by the person claiming it.⁵ Regarding the ownership requirement, we have explained that “the statute applies to an equitable as well as legal ownership; an incumbered as well as an unincumbered estate.” Morgan v. Stearns, 41 Vt. 398, 407 (1868); see also Doane’s Ex’r v. Doane, 46 Vt. 485, 493 (1874) (“It is well settled that a homestead right exempt from attachment, may exist in a mere equitable interest in premises occupied or used or kept as a homestead.”).

¶ 11. Also enacted in 1849, and essentially unchanged since that time, is § 107, which states: “Such homestead shall be subject to attachment and levy of execution upon causes of action existing at the time of acquiring the homestead.” 27 V.S.A. § 107; see 1849, No. 20, § 6. We have clarified that § 107 is intended to prevent parties from hiding assets from creditors by purchasing property. W. River Bank v. Gale, 42 Vt. 27, 31-32 (1869). The Legislature has further provided:

A homestead or an interest therein shall not be conveyed by the owner thereof, if married, except by way of mortgage for the purchase money thereof given at the time of such purchase, unless the wife or husband joins in the execution .... A conveyance thereof . . . shall be inoperative so far only as relates to the homestead provided for in this chapter.

27 V.S.A. § 141(a). Thus, when two spouses have established a homestead together, one spouse cannot convey the other’s interest “without the express, written consent and participation of the other co-owner.” In re Jakab, 293 B.R. 621, 626 (Bankr. D. Vt. 2003).

¶ 12. No person may have more than one homestead at a time. See 27 V.S.A. § 109; In re Estate of Wolff, 108 Vt. 54, 56, 182 (1936); Goodall v. Boardman, 53 Vt. 92, 101 (1880). Likewise, cohabitating family members may normally claim only one homestead exemption per household. D’Avignon v. Palmisano, 34 B.R. 796, 800 (D. Vt. 1982). Where spouses have separated and are living apart, however, they may each claim a separate homestead if the court finds that “each homestead is necessary to preserve a family unit” and that “there is no evidence of fraud.” Roberge, 307 B.R. at 448. A prerequisite to each spouse’s homestead claim is that each spouse separately meets the requirements of establishing a homestead interest.

¶ 13. The parties agree that § 141(a) would apply only if Mangini had a homestead exemption at the time that the new mortgage was created. The trial court found that Mangini occupied the property as her principal residence beginning in April 2007. The court also found that Mangini had an “equitable interest” because, upon her divorce filing in February 2008, the family court “exercised jurisdiction over all of the marital property, and Ms. Mangini stood to be awarded any or all of it, regardless of which of the spouses held legal title.” The court found additional evidence of Mangini’s interest in the property in the form of the family court’s interim domestic order, which was issued before the 2008 mortgage was created and forbade either spouse to “remove, sell, assign, transfer, dispose of, lend, dissipate, mortgage or encumber any marital property.” Because the occupancy, divorce filing and interim domestic order preceded the new mortgage, the court found that § 107 did not apply, but that § 141(a) did apply to make the mortgage inoperative relative to the homestead exemption.

¶ 14. Mangini’s argument here is that the “equitable interest” found by the trial court is sufficient to give her a homestead exemption. In response, we stress that the governing statute, 27 V.S.A. § 101, requires that the property claimed as a homestead must be “owned” by the person claiming the exemption, and our precedents recognizing equitable-title interests must be viewed in that context.

¶ 15. Equitable title is defined as “title that indicates a beneficial interest in property and that gives the holder the right to acquire formal legal title.” Black’s Law Dictionary 1523 (8th ed. 2004). This is a rigorous definition — one that requires not just a possibility of acquiring title, but a concrete right. Although “homestead statutes are remedial . . . [and] are to be interpreted liberally to accomplish their remedial purpose,” Mercier v. Partlow, 149 Vt. 523, 524, 546 A.2d 787, 789 (1988), we must apply this definition here. All of our cases are consistent with the requirement for equitable title and its definition. See Canfield v. Hard, 58 Vt. 217, 225-26, 2 A. 136, 151-52 (1886) (holding that an enforceable oral contract for a conveyance of land vested equitable title in the grantee and created a homestead exemption, especially where the grantee took possession, built a house, and made other improvements to that land in expectation of becoming the future owner); Doane, 46 Vt. at 493 (recognizing a homestead exemption where the defendant held a right of redemption in property he occupied as a home even though legal title to that right was held by a trustee for his benefit); Stearns, 41 Vt. at 406-07 (applying a homestead exemption where the defendant had equitable ownership of a farm on which he had lived with his family for twelve years, although legal title to the farm was held by the defendant’s brother and another man, “for purposes of security”); see also Soter, 26 B.R. at 841 (holding that a purchaser gained equitable title and a homestead exemption after she executed a valid agreement for the purchase and sale of property and occupied that property as a home). In each of these cases, the party holding equitable title had a definitive right to acquire formal legal title.

¶ 16. Cases in which we have found equitable title — or even equitable interest — in other contexts also support this mainly enforceable-contract-driven derivation of equitable title. The less certain the right to the property, the less likely we are to find equitable title. See, e.g., Field v. Costa, 2008 VT 75, ¶ 31, 184 Vt. 230, 958 A.2d 1164 (holding that, where potential purchaser’s alleged contractual right to purchase property was barred by third party’s right of first refusal, potential purchaser never acquired equitable title to property); Mad River Valley Enters., Inc. v. Town of Warren Bd. of Adjustment, 146 Vt. 126, 128-29, 499 A.2d 759, 760-61 (1985) (holding that, where assignment transferring property interests never occurred, alleged assignee held no title to property despite parties’ apparent intent to eventually transfer rights to assignee); see also Avery, 41 B.R. at 226 (holding that wife’s occupancy of property with husband, the legal owner of the property, was insufficient to establish homestead exemption for wife); Prue v. Royer, 2013 VT 12, ¶¶ 29, 41, 193 Vt. 267, 67 A.3d 895 (finding that an enforceable contract for deed creates an equitable interest in vendees); Gregoire v. Gregoire, 2009 VT 87, ¶¶ 23-24, 186 Vt. 322, 987 A.2d 909 (holding that, where family had agreed to list son on parents’ property deed as joint tenant with right of survivorship solely for estate-planning purposes, and parents managed and benefited from property for twenty years without son’s participation, resulting trust existed under which parents had equitable title — and therefore a right to the use and benefit of the property during their lifetimes — and son did not); Tromblay v. Dacres, 135 Vt. 335, 339-40, 376 A.2d 753, 756 (1977) (stating that lease with purchase option, unlike contract for deed, does not create equitable mortgage interest in lessor).

¶ 17. The trial court found a sufficient equitable interest to support a homestead exemption in the family court’s jurisdiction over the marital property and the interim domestic order. The jurisdictional statute on which the court relied is 15 V.S.A. § 751, which provides: “All property owned by either or both of the parties, however and whenever acquired, shall be subject to the jurisdiction of the court. Title to the property . . . shall be immaterial ...” The statute does not establish title or ownership in either party to a divorce; indeed it explicitly operates irrespective of title. Its purpose is to give the court jurisdiction over all the property of the parties. See Lynch v. Lynch, 147 Vt. 574, 576, 522 A.2d 234, 235 (1987). Whether or not a party’s interest in the marital property could be classified as “equitable,” it is no better than an expectancy that particular property will be distributed as that party seeks. In this case, the family court divorce record, which' is also before this Court on appeal, shows that both parties sought the Weathersfield property. The family court has broad discretion in distributing marital property and could have awarded the Weathersfield property to either party. Section 751 did not give Mangini equitable title to the Weathersfield property.

¶ 18. Nor do we find that the family court’s injunction against alienation of marital property affects our result. The intent of the order is to maintain the marital property for whatever distribution the court will make in its final order. It did not give either party a right to any item of property. The value of the Weathersfield property did not materially decrease as a result of Hardie’s actions and thus the purpose of the injunction was not violated.

¶ 19. The trial court should have granted Brattleboro Savings’s motion for summary judgment with respect to Mangini’s claim of a homestead exemption, and denied Mangini’s motion.

Reversed and remanded.

1 The divorce action has concluded in family court, and an appeal of the final judgment is pending in this Court as Lisa Mangini v. Richard Hardie, Supreme Court Docket No. 2012-362. We have referenced events in that action only when they were in the civil division record when this case was decided.

2 This request apparently referred to the 2005 mortgage in effect at the time the divorce action was filed.

3 Because homestead law is invoked so frequently in the context of bankruptcy, we note that the federal bankruptcy court in this state has significant experience interpreting Vermont homestead statutes. Many significant precedents underlying our decision in this case come from that court. We find them to be well-reasoned and have generally chosen to follow them in this decision.

4 This is true of homestead interests in most jurisdictions. “The estate of homestead is purely the creature of statute, and can be created only in the mode prescribed by the statute.” C. Boone, Real Property, ch. 8, § 80(a), at 200 (1901) (citing Abbott v. Cromartie, 72 N.C. 292, 294 (1875)).

5 This is consistent with the majority of homestead statutes. Occupancy of the property is typically required, but “ownership by some title is an essential everywhere, required by every statute.” R. Waples, supra, ch. 4, § 2, at 103-04.