Daily Development for Tuesday, February 1, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

MORTGAGES; FORECLOSURE: Under its equitable power, a court may require that a party invoking foreclosure relief has dealt "fairly" with the other party before the court as a condition of the relief requested.

Green Tree Acceptance, Inc. v. Anderson, 981 P.2d 804 (Okla. Ct. App. 1999).

Anderson, described as an eighth grade dropout who had an eighteen year career in the "chicken industry," signed a promissory note and sale agreement for a mobile home. The agreement called for a mortgage on Anderson's real estate, but no mortgage was executed, apparently through negligence of the salesperson. Some time later, representatives of the mobile home seller appeared at Anderson's door and induced him to sign a mortgage. Anderson later testified that they told him that the document was a "proof of title" rather than a mortgage, and that he didn't know what he was signing. The mortgage waived Anderson's homestead rights.

Later, the mortgagee sought to foreclose on the mortgage and Anderson counterclaimed for damages for failure to give notice of the right of rescission under the Federal Truth in Lending Act and the Oklahoma Uniform Consumer Credit Act. Plaintiff filed a motion for summary judgment on the grounds that the three year period for asserting failure to give notice of right to rescission had run and that this barred not only the rescission right but any counterclaim or offset rights based upon such a claim, citing the recent case of Beach v. Ocwen Federal Bank, 523 U.S. 410, 118 S.Ct. 1408, 140 L.Ed.2d 566 (1998). The trial court granted plaintiff's motion for summary judgment.

Defendant appealed, claiming that, notwithstanding the merits of the rescission claim, there were many material facts at issue including the misrepresentation of the document that he signed and the failure of the plaintiff to comply with all statutory consumer protection requirements. The Court of Appeals reversed and remanded the case, concluding that there were questions of fact to be determined, including whether or not the Mortgagee dealt fairly with the Mortgagor. The court agreed with the trial court on the issues concerning the right to rescission. As to the misrepresentation, the court noted that ordinarily parties are responsible for reading and understanding what they sign. But it still was willing to invite further evidence on the question of whether the lender's agents had misrepresented the nature of the mortgage in this case.

The mortgagee argued that even if Anderson had not signed the mortgage instrument at all, it still would have had an equitable mortgage because Anderson, in the original sale agreement, agreed to execute a mortgage. The court appeared ready to concede this point, but concluded that the mortgagee might be barred nevertheless from foreclosing, either on the written mortgage or on the equitable mortgage, if the court concluded that the mortgagee had behaved inequitably toward the mortgagor.

Comment 1: What the editor finds interesting in the case is the fact that the court seems willing to refuse a foreclosure action where it concludes that the mortgagee was guilty of inequitable conduct, even if the mortgagor agreed to give a mortgage, received value in exchange for this agreement, and failed to pay the mortgage.

Although admittedly the opinion is vague on the point, there does not appear to have been any of fraud or misrepresentation in the original transaction whereby Anderson agreed to buy the mobile home. Remember it was in this original transaction that Anderson agreed to provide the mortgage which was executed at a later time. Anderson produced a "readability expert" who concluded that the "documents" were written so that one would have to have had three or fours years in college to understand what the documents said, but the court states that even illiterate persons, absent fraud or misrepresentation, are liable for the contracts they sign.

It appears that if the conduct of the mortgagee "riles up" the court, it can refuse to give a party remedies for its legitimate contract expectations.

Comment 2: Of course, there is an area of equity jurisprudence that permits some discretion and some inquiry into the overall justice of the case. Is it possible that this decision goes beyond even that broad area of discretion? It may be that where a mortgagor has a good "story," a court will always listen, but is it appropriate to bar access to the foreclosure remedy at all, particularly when otherwise, due to homestead laws, the mortgagee is effectively without a remedy?

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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