CitiFinancial, Inc. v. Balch, 2013 VT 86
By Elizabeth Kruska
As mundane as a mortgage feels, it’s a big responsibility. It’s the securing of debt to land. Land is expensive because it’s finite. In the wise words of Tony Soprano, “God ain’t makin’ any more of it.” Not everybody can pay the full amount of the purchase price in cash, so they’ve got to borrow money from a bank. If they can’t repay the money, the bank can come in and foreclose on the land.
Sometimes people who have land or who want land also have guardians to help with their affairs. SCOV takes a pretty clear stand in saying that the Vermont guardianship statutes are a bit of a mess. They use the word “hodgepodge.” That can’t be good. We had some statutes, and they got revised, but that might have made things more confusing. There’s also a rogue outlier guardianship statute about mortgages that’s not even in the same chapter.
The long and short of it, though, is that a guardian is charged with the duty to act in the ward’s best interest (I know it’s called a “person in need of guardianship” now, but that’s too long to type and “PING” seems confusing when “ward” is the word we all already know). The guardian’s powers are set forth by the probate court. They can be limited to certain powers or they can include a whole range of powers. The point is that the powers are specified by the court and tell the guardian what he or she is allowed to do. Or not do.
If the powers include anything regarding real estate, the guardian has to go to the probate court to get a special license to do that. The guardian has to show that there’s a really good reason: insufficient funds to pay expenses or debts, or there’s another good reason articulated. I can think of a reason – maybe an adult ward owns a house but would be best cared for in an assisted living facility and can only pay for it by selling the house. You know, that sort of thing.
Here, Mr. Ballard was 71 and couldn’t read. He had his niece, Ms. Bell, appointed as his guardian. He owned a home, apparently in Hubbardton (always read the footnotes!), and needed to refinance. The opinion doesn’t say why the refinance was necessary. What we do know, though, is that Ms. Bell never got a license from the probate court to do this. They secured a mortgage through CitiFinancial at 12.6%. Mr. Ballard signed the promissory note and Ms. Bell signed her name below his. Ms. Bell then signed the mortgage deed.
Not long after, Citi foreclosed, as payments got behind. By this point Ms. Bell asked to be removed as Mr. Ballard’s guardian. Judith Balch and Lisa Kemp took over as guardians. Mr. Ballard (through his guardian) filed a motion for summary judgment. Citi responded but had some errors they were told to correct. They didn’t correct the errors, and the case got dismissed. There had also been a previous issue with service. Citi re-filed their complaint alleging that Mr. Ballard didn’t make his payments as required by the mortgage deed and note.
Mr. Ballard moved for summary judgment, saying that the mortgage shouldn’t have even been done in the first place, because he was a person with a guardian and had no ability even to make the contract. Citi opposed this, saying that he failed to show that he couldn’t make the contract.
Now, when I read this, I thought, “say, whose burden is it to show that the person under guardianship has a guardian?” This is part of the mess. The guardianship statutes, as currently written, don’t require a guardian, except in a spendthrift trust (which this most assuredly was not) to put the other party to a contract on notice of the guardianship. You could have a headstrong ward making bogus contracts all over town that can’t be honored because the other party doesn’t know.
Anyway, Mr. Ballard argues that there wasn’t a license from the probate court for real estate, so this is void. Citi straightfacedly makes the argument that this wasn’t a land deal, it was just a loan. Secured by land. Well, they leave that part out. They also missed the statute that specifically talks about a guardian’s ability to get a license to mortgage property, but hey, everyone misses that statute because it’s not with the other guardianship statutes.
The trial court grants the motion for summary judgment saying, essentially, “let’s get real: this guy had a guardian and there wasn’t a land license.” Citi appeals.
SCOV, in keeping with the theme of hodgepodge, affirms in part but reverses in part.
First of all, Mr. Ballard appears to have co-signed the promissory note. A ward can’t act independently in a matter like this, but can act with the approval of the guardian. Citi doesn’t seem to disagree with this. Mr. Ballard tries to argue that Ms. Bell, as the guardian at the time, subjected herself to the liability of the loan but didn’t actually approve Mr. Ballard on the loan. SCOV thinks this doesn’t make any sense.
Secondly, SCOV is clear that the guardian didn’t get a license, so the mortgage deed is ineffective.
Citi tried to argue that somehow this licensing requirement only applies to involuntary guardianships, and not voluntary guardianships, like Mr. Ballard had. They don’t really base this on anything, and in fact, there’s case law from other states that hurts their argument. SCOV says, “say what? He ceded all his authority to Ms. Bell, so he can’t go doing this himself. She’s got to approve it.” What matters in guardianships is the powers themselves, not how the guardian got them.
Unfortunately, this opinion doesn’t stop there. SCOV says that the mortgage deed and promissory note are actually two different things. Even though the mortgage deed wasn’t valid, SCOV can’t say that the note wasn’t valid. The guardianship order said that Ms. Bell had general supervision over Mr. Ballard and could approve or withhold approval of any contract except for necessities. Since it looked like she and he had signed the loan together, it could be taken that she approved his signing of the note.
SCOV says that since the mortgage deed and the note are actually two different things, and just because the mortgage deed was invalid, the note might not be. The problem is that the statute says “mortgage” and doesn’t separate the mortgage deed from the note. They create two different legal obligations, and since the goal is to give effect to statutes as written, this is the result.
SCOV goes on to say that this is a hard situation. On one hand, there’s a person with a guardian who got over his head with a loan that might not have been ok to get at all. On the other hand, there’s the lender who ended up losing a sizeable chunk of money because they made a loan without knowing that the borrower actually couldn’t borrow the money.
SCOV suggests that there ought to be an amendment to the statute requiring publication notice to creditors to avoid situations just like this.
Justice Skoglund dissents. In short, everybody in the real world calls this whole situation a “mortgage.” People who want to buy houses go and “get a mortgage.” We talk about “mortgage brokers” and “mortgage lenders” and “paying the mortgage” and the like. Nobody distinguishes between the mortgage deed and the note itself. Even though the statute says “mortgage” it makes pretty much zero sense to separate the two because they work together.
Furthermore, there is a licensing requirement for guardians to sell their wards’ real estate. There’s no licensing requirement on a guardian taking an unsecured loan on behalf of her ward. Justice Skoglund feels it doesn’t follow that there shouldn’t be a licensing requirement if a guardian takes a loan secured by the ward’s land. Since the whole point of taking out the mortgage is to borrow money for the benefit of the ward, there’s a statute (the rogue outlier!) that gives guidance to the guardian and to the probate court for this procedure. It’s the probate division that authorizes the mortgage and the specifics of it, based on information presented to it by the guardian on behalf of the ward.
To sum up: hodgepodge.