by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolpp@smtpgate.umkc.edu

MORTGAGES; FORECLOSURE; RIGHTS OF FORECLOSURE PURCHASERS: A third party may seek reformation of a deed of trust or mortgage when by a mutual mistake the parties have omitted from the legal description a tract of land that was intended to be conveyed and the third party purchases the property under a decree of foreclosure. Grappo v. Mauch, 887 P.2d 740 (Nev. 1994). Seller owned two lots, and attempted to change their common boundary to accomodate County building setback requirements as to one of the lots. Seller recorded a survey statement describing the changed boundary and built a fence on the new boundary.

Seller built a house on the enlarged lot and sold it. The deed that seller transferred, however, described the boundaries of the original lot, without the new (expanded) boundary. This property was mortgaged and later foreclosed upon. The foreclosure purchaser was able to obtain reformation. (Seller still owned the adjacent lot).

Comment: Sounds fair and practical, but a bizarre result nevertheless, since, of course, the foreclosure notice and foreclosure deed described only a certain property. If anyone was entitled to the additional property (a seventeen foot wide strip), isn't there an argument for the buyer/mortgagor?

RESPONSE by Mr. Dunlevy--
A surprisingly high percentages of the foreclosures I do include a reformation of the mortgage to include an access easement or adjoining property. So far I've been successful in including the other land every time I've tried. In Minnesota that type of defect in the legal description means a judicial foreclosure rather than a power of sale foreclosure, but that is better than access problems or missing some essential portion of the property

. For these reasons I don't think this case is anomalous. Some mortgages include references to hereditaments and appurtenances, and to after acquired property. These provisions, and mutual mistake, may serve to stretch the mortgage lien. The location of all or a portion of the improvements on the additional land may also lead the court to expand the area covered by the lien.

These situations are not nearly as bad and the lender having the mortgage on the wrong parcel completely. I've had several matters were the mortgage was on the swamp and not the farmstead. Typos in the legal (wrong block or lot number) are not so bad, but require reformation. The biggest problems are other liens which may have gained priority because the mortgage was not properly perfected. Goof ups in mortgage legal descriptions are not quite as common in commercial deals as in residential, but are more complex and less easy to fix. It is still surprising how common goofed up legals are in commercial deals, particularly when the lender is not represented by counsel. I've had several construction mortgages on strip malls where the major improvements encroached across the mortgage legals onto other land, and several hotels and apartment properties with bad legal descriptions, including easements upon which the improvements encroached.

CORRECTION by Pat Randolph--
In my report for DD 5/24, I indicated the facts as follows:

Grappo v. Mauch, 887 P.2d 740 (Nev. 1994). Seller owned two lots, and attempted to change their common boundary to accomodate County building setback requirements as to one of the lots. Seller recorded a survey statement describing the changed boundary and built a fence on the new boundary.

The party who bought the property at foreclosure sale resold it to a third party, and that third party was the person seeking (successfully) reformation of the foreclosed deed of trust. The case is also unclear whether reformation of the deed of trust also reforms the deed that passed in the prior foreclosure, or only gives a right to the foreclosure sale purchaser (or assigns) to reforeclose the reformed deed of trust. The latter result would seem to make more sense.

There is a difference between the circumstances reported by Mr. Dunlevy and this case, because in Mr. Dunlevy's cases he was "heads up" enough to catch the description problem before the first foreclosure. In the instant case, the process has ground along to the point where the erroneous title description has passed from a mortgage to a foreclosure deed to another deed. Although, as I said, there is some practical sense to the result, one wonders how far down the road this error should pass before it becomes uncorrectable.

Pat Randolph
randolpp@smtpgate.umkc.edu

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