Daily Development for
Tuesday, November 12, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

MORTGAGES; DEFAULT; NOTICE: Mortgagee has no duty to provide separate notice of default or assignment of note upon request to co-mortgageor wife who is living apart from her husband, and who is in sole title to the bulk of the mortgaged property.

Merchants & Planters Bank of Raymond v. Williamson, 691 So.2d 398 (Miss. 1997).

A sharply divided court reversed a Chancellor's decision finding liability here.

Husband and wife entered into a lease purchase agreement for certain Mississippi property. Thereafter, they gave a mortgage on their interest in the property, most of which was in the wife's sole title, to Bank, and moved to Texas. The parties separated, and husband agreed to keep up payments on the note. Wife returned to Mississippi and visited Bank, asking Bank's president to notify her if the note went into default. According to the court: "[President] refused to send separate notices to [husband and wife] regarding the status of their loan, but assured her that she would be notified if payments were not made."

A few months later, the husband was a month in default. The bank never made an effort to notify wife of this default. The lessees, who had "fallen out" with the wife, offerred to the bank that they would acquire the mortgage and note, which had a balance considerably below the price they had agreed to pay for the land. The parties executed an assignment agreement. Prior to the actual carrying out of the agreement, however, Wife discovered the agreement when she called the bank to inquire about the loan. The next day, the bank sent a certified letter to the borrowers at the Texas address only informing them of the pending assignment and giving them seven days *from the date of mailing* to redeem the note themselves prior to assignment. Bank did send this notice to wife's attorney, but there is no indication in the facts whether the attorney was in fact already knowledgeable about this dispute.

Subsequently, the wife was not able to put together a last minute deal to avoid the assignment. Later, she was unable to pay the note in the hands of the assignees (her lessees) and they foreclosed, buying for $13,500 most of the property they had agreed to pay $80,000 for under the lease/purchase arrangement.

The majority opinion reversed the Chancellor's verdict for the wife, which had been predicated on the existence of a fiduciary relationship. The court found no such relationship, and concluded further that the duty of good faith and fair dealing here did not impose upon the bank any duty to avoid assigning the note. The wife's subsequent failure to pay the note was the real cause of the wife's loss.

The dissenters argue that the bank indisputably breached a duty of good faith and fair dealing when, knowing of the wife's whereabouts and desire to be kept informed, it nevertheless failed to notify her of the assignment.

"Because the bank . . . were aware that [husband and wife] were estranged, and that much of the land involved was titled solely in her name, it was incumbent upon the Bank, pursuant to its duty of good faith and fair dealing, to keep not only [husband] but also [wife], abreast of the situation with the banknote, as she had requested. At the very least, timely notification should have been sent to her at the Jackson address she provided."

Comment: The dissent fails to respond to the contention of the majority opinion that, even assuming that there was a breach of a duty to notify, the wife had not shown that she was injured as a consequence of such breach. The bank's failure to notify her of the missed payment did not result in foreclosure - the foreclosure came much later, after adequate notice and opportunity to pay.

The editor questions whether the bank had any duty to notify either borrower of the pending assignment. Consequently, it seems pointless to quarrel with the bank's provision of notice of that assignment only to the husband (assuming that the notice to wife's lawyer was insufficient).

Comment 2: There is some indication here that if the wife had been aware that her tenants were negotiating to acquire the mortgage note, she would have been able to get her aunt to acquire the note instead, and it is likely that any foreclosure by the aunt would have eliminated the husband's interest but that ultimately the wife would have been restored to title. Thus, the bank's failure to notify her prior to the contract to assign to the tenants was proximately related to her loss. But, again, why did the bank have such a duty?

Perhaps the bank would not have been inclined to assign to the tenants had the note not already been in default. Thus, had the bank promptly notified the wife of the first default, perhaps she would have cured it and deterred the bank from assigning it. But this is far too speculative a scenario to form the basis of a legal conclusion that the failure to notify of the default led to the wife's problems. The bank was free to assign the note and mortgage whenever and to whomever it wanted, at any time.

Bank's providing 100% financing of the cost of the assignment to the lessees certainly suggests that the Bank became actively involved in the creation of a problem for its existing borrowers. But the court points out that at the time of the original agreement with the tenants it was not aware of any hostility between them and Wife. It became aware of this problem in the Wife's subsequent phone call, but by then it was committed by contract to the tenant/assignees.

Comment 3: The majority, apparently feeling a need to bolster its position [the editor is unsure why] appears to argue that the wife's mortgaging the property to the bank after she had agreed to a long term lease purchase with the tenants was somehow inequitable, leading the tenants to "justifiably be concerned" about her ability to deliver good title. In light of the the fact that the tenants were already in possession and thus gave constructive notice of their claim, it seems unlikely that the mortgage had any adverse impact upon the expectations of the tenants.

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