Slaving v. Cendant Mortgage Corp., No. 13-1-04 Bncv (Carroll, J., Feb. 10, 2005)


[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the
original. The accuracy of the text and the accompanying data included in the Vermont trial court
opinion database is not guaranteed.]


                                    STATE OF VERMONT
                                  BENNINGTON COUNTY, ss.

       BARBARA SLAVING,
            Plaintiff,

                        v.                           BENNINGTON SUPERIOR COURT
                                                     DOCKET NOS. 13-1-04, 44-1-04Bncv
       CENDANT MORTGAGE CORP.,
            Defendant.

                  and

       CENDANT MORTGAGE CORP.,
           Plaintiff

                        v.

       SHERMAN SLAVING ESTATE,
           Defendant


   ORDER ON PLAINTIFF’S MOTIONS FOR DECLARATORY AND SUMMARY
 JUDGMENT AND DEFENDANT’S CROSS MOTION FOR SUMMARY JUDGMENT

       Plaintiff Barbara Slaving requests a declaratory judgment from the Court that a mortgage

executed solely by her late husband, on their homestead during their marriage, is inoperable as to

her homestead property pursuant to 27 V.S.A. § 141. Defendant, and Plaintiff in a concurrent

action, Cendant Mortgage Corp., seeks foreclosure on the Slaving property. In response to

Cendant’s foreclosure suit, Slaving moves for summary judgment arguing that the mortgage at

issue is voidable as contrary to Vermont’s Homestead Statute found at 27 V.S.A. § 141. In
opposition to Slaving’s summary judgment motion, Cendant argues alternatively that it should be

subrogated to the rights of the prior mortgagee (also Cendant), and that if subrogation does not

apply, the mortgage at issue is a lien secondary to Slaving’s homestead interest.

       For the following reasons, Slaving’s motion for summary judgment is GRANTED, and

the Court DECLARES that the mortgage executed by Sherman Slaving is inoperative to the

extent of Barbara Slaving’s homestead interest. Cendant’s motion for summary judgment is

GRANTED IN PART. Although Cendant’s interest in the Slaving property is inoperative

against Barbara Slaving’s homestead interest, it is nonetheless a valid property interest that will

be held in abeyance until Barbara Slaving’s homestead interest terminates. Therefore, Cendant’s

complaint for foreclosure must be DISMISSED.

                               Standard for Summary Judgment

       Summary Judgment under V.R.C.P. 56 is appropriate when there is “no genuine issue as

to any material fact and that any party is entitled to judgment as a matter of law.” V.R.C.P. 56

(c) (3). When reviewing a motion for summary judgment, the court will afford the non-moving

party “all reasonable doubts and inferences” based upon the facts presented. Samplid

Enterprises, Inc. v. First Vermont Bank, 165 Vt. 22, 25 (1996) (citing Pierce v. Riggs, 149 Vt.

136, 139 (1987)). In the event that the non-moving party opposes the moving party’s motion,

“[a]llegations to the contrary must be supported by specific facts sufficient to create a genuine

issue of material fact.” Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50

(1986)).

                                           Background

       The material facts in this case are undisputed and judgment as a matter of law is



                                                 2
appropriate. On January 28, 2000, prior to his marriage to Plaintiff, Plaintiff’s late husband

Sherman Slaving purchased property in Woodford, Vermont, consisting of lots 118, 119, and

120 at Woodford Lake Estates. Sherman Slaving borrowed $57,230 from Cendant Mortgage,

executed a promissory note, and secured the note with a mortgage on the property in favor of

Cendant. The mortgage was recorded on February 1, 2000, in the Woodford land records.

       On August 30, 2002, Barbara and Sherman Slaving were married, and resided at the

Woodford property, which was their homestead as defined in 27 V.S.A. § 101. On February 6,

2003, Sherman Slaving refinanced the Woodford property in the amount of $71,227, executed a

promissory note, and secured the note with another mortgage on lot 118 at the Woodford

property in favor of Cendant. Barbara Slaving was not a party to the February 6, 2003 mortgage,

although she admits she was aware of it. Sherman Slaving used the proceeds from the February

6 loan to satisfy the prior mortgage on the property in the amount of $56,224.42. Cendant states

its belief that the balance of the second loan was used to improve the Slaving property. Cendant

then discharged the first mortgage. Sherman Slaving died on August 8, 2004, leaving Barbara

Slaving as his widow.

       Barbara Slaving filed her complaint for declaratory judgment on January 8, 2004.

Cendant initiated its foreclosure action on January 29, 2004. The complaints were consolidated

by stipulation and order on July 19, 2004. Pending for the Court’s resolution are Plaintiff

Barbara Slaving’s complaint for declaratory judgment and her related motion for summary

judgment. Also pending is Defendant Cendant’s cross motion for summary judgment and its

foreclosure complaint. This order will dispose of all pending motions.

                                            Discussion



                                                 3
       The issue for the Court is whether the February 6, 2003 mortgage executed solely by

Sherman Slaving in favor of Cendant is voidable by Barbara Slaving. If it is, the question then

becomes whether Cendant may be subrogated to the rights of the prior mortgagee so that it may

proceed with its foreclosure action. Furthermore, if Cendant is not subrogated to the rights of the

prior mortgagee, and the mortgage is inoperative, what then becomes of Cendant’s right to

collect on the debt? The statute and related case law answer these questions.

       Vermont’s homestead statute, 27 V.S.A. §§ 101-109, 141-145, 181-185, governs the

rights and benefits of those individuals entitled to claim the exemption. Section 101 defines

“homestead” as a “dwelling house, outbuildings and the land used in connection therewith . . .

not exceeding $75,000 in value.” 27 V.S.A. § 101. Section 105 provides that the homestead as

defined “shall pass and vest in the surviving spouse without being subject to the payment of

debts of the deceased.” Id. § 105. Section 141, the critical section in this inquiry, provides:

       (a) 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 and
       acknowledgment of such conveyance. A conveyance thereof, or of an interest
       therein, not so made and acknowledged, shall be inoperative so far only as relates
       to the homestead provided for in this chapter.
       (b) When a mortgagee takes an accruing mortgage, the only debt which shall be
       secured thereby or become a lien upon the property described therein shall be the
       debt described in the mortgage and existing at the time of its execution, and any
       subsequent direct indebtedness of the mortgagor to such mortgagee; provided,
       that when the mortgage includes a homestead, the written consent of the wife or
       husband of the mortgagor to the creation of such subsequent direct indebtedness
       shall be required.


27 V.S.A. § 141.

       The statutory provisions make clear that a conveyance of a homestead property interest

other than for a purchase money mortgage must be acknowledged by both husband and wife in


                                                 4
order to a valid debt assertable against the homestead. Here, despite the fact that Sherman

Slaving is denoted on the second mortgage as a “married man,” (See Slaving Mot. for Summ. J.,

at Ex. F), Cendant proceeded with the mortgage despite Barbara Slaving’s absence from the

transaction. The plain language of the statute indicates that a conveyance contrary to the

statute’s restrictions is “inoperative so far only as relates to the homestead provided for in this

chapter.” 27 V.S.A. § 141(a).

        In Estate of Girard v. Laird, 159 Vt. 508 (1993), the Court overruled Martin v.

Harrington, 73 Vt. 193 (1901), clarifying and limiting the extent of the homestead exemption.

Martin had held that a deed to homestead property executed by only one spouse was “void ab

initio for non-compliance with the statute.” Girard, 159 Vt. at 510-11. In supplanting the Martin

rule, the Court concluded that a conveyance of homestead property by only one spouse is

“ineffective with respect to the spouse who did not join it and may be set aside by that spouse

unless the homestead interest is otherwise extinguished.” Id. at 517 (emphasis added). In its

new formulation, the Court concluded that as an inchoate property right, the homestead interest

could be relinquished through divorce, alienation, or abandonment for example. In other words,

the homestead exemption is co-extensive with its policy goals, and co-terminable with an

individual’s status as a ‘homesteader.’ See Girard, 159 Vt. at 516 (quoting Speck v. Anderson,

318 N.W.2d 339, 344 (S.D. 1982) (“to permit the assertion of the homestead exemption to be

raised by those who have no rights under the homestead exemption statutes would be to arm with

a sword those who need no such weapon”).

       Here there has been no relinquishment by Barbara Slaving, and thus her interest in the

homestead is superior to Cendant’s mortgage on the property during the homestead’s existence.



                                                  5
Girard, 159 Vt. at 517. Cendant’s interest can be said to be dormant during the homestead’s

existence. See Mercier v. Partlow, 149 Vt. 523, 527 (“lien can attach to the homestead property

but lie dormant until the property is no longer held and used as a homestead”); 40 Am. Jur. 2d

Homestead § 84 (1999) (“Only after the [homestead] exemption has ceased to exist may the

property become liable for the payment of the claims of the owner’s creditors.”).

        Nonetheless, Cendant urges the Court to apply equitable subrogation to place Cendant in

the shoes of the prior mortgagee. The thrust of Cendant’s argument is that because a conveyance

and mortgage for purchase money is not subject to the spousal signature requirement, 27 V.S.A.

§ 141(a), and the first mortgage was a purchase money mortgage paid off by the second loan,

Cendant should be placed in the shoes of the prior mortgagee. Cendant is correct that a purchase

money mortgage is excepted from the signature requirement. See 27 V.S.A. § 141(a) (“mortgage

for the purchase money thereof given at the time of such purchase” does not need

acknowledgment of both spouses). However, although the loan secured by the subsequent

mortgage–and executed solely by Sherman Slaving–was used to satisfy the prior purchase money

mortgage, this does not make Cendant’s refinancing transaction a purchase money mortgage as

well. This argument has been considered and rejected as leading to an “absurd result” where

“any mortgage would be a purchase money mortgage so long as some portion of the funds from

the loan secured by the mortgage was used to satisfy a loan for purchase money.” Wells Fargo

Home Mortgage, Inc. v. Chojnacki, 668 N.W.2d 1, 4-5 (Minn. Ct. App. 2003). In its argument,

Cendant wishes to fill the shoes of the prior mortgagee without first being able to take the steps

required to fill those shoes.




                                                 6
       For subrogation to override the homestead statute’s requirements, there must be

circumstances present to invoke the equitable remedy. Where “one party provides funds used to

discharge another’s obligations,” id. at 5, and the anticipated security interest fails, subrogation

will apply to place the lender in the shoes of the prior security interest-holder if the lender has

relied upon a justifiable or excusable mistake of fact, or where injury to innocent parties will

result. Id. Here, Cendant loaned Sherman Slaving money to satisfy the original purchase money

mortgage, and attempted to secure the loan with a subsequent mortgage on the property.

However, the inescapable problem for Cendant is that it created the faulty mortgage it now

asserts should be the basis for subrogation. Therefore, Cendant cannot be said to have relied on

any justifiable mistaken belief with respect to Sherman Slaving’s marital status or Barbara

Slaving’s acknowledgment of the conveyance.            Cendant also points to language from Hunt

v. Davis in which the Court noted that a lender “is entitled to be subrogated to the rights of the

prior mortgagee in case the borrower fails to execute a new mortgage, or in case the new

mortgage proves to be invalid or defective.” Hunt v. Davis, 90 Vt. 153 (1916). Given Cendant’s

role in the creation of the inoperative mortgage, Hunt provides no relief absent circumstances

suggesting Cendant was misled with respect to Sherman Slaving’s marital status, or had relied on

any other representations regarding Barbara Slaving’s assent in the conveyance of the homestead

property.1 As in Chojnacki, Cendant acknowledged on the mortgage documents that Sherman



       1
           Cendant also relies on Katsivalis v. Serrano Reconveyance Co., 70 Cal. App.3d 200

(1977) for its argument that subrogation should apply here. In Katsivalis, the court subrogated a

subsequent lender to the rights of the original mortgagee despite non-compliance with a similar



                                                  7
Slaving was a married man, yet inexplicably accepted the mortgage without Barbara Slaving’s

acknowledgment. See Chojnacki, 668 N.W.2d at 6.

       To apply subrogation here would be directly contrary to 27 V.S.A. § 141, and would

undermine the goals it seeks to accomplish by allowing Cendant to foreclose on a mortgage of

homestead property conveyed unilaterally during marriage by Sherman Slaving. See Mercier,

149 Vt. at 524 (1988) (quoting R. Waples, Homestead and Exemption ch. 1, § 2, at 3 (1893)) (the

homestead exemption seeks to protect “‘homes from forced sales so far as it can be done without

injustice to others’”). Moreover, Cendant cannot be said to be an innocent party given its

position as a professional purveyor of loans and holder of security interests. Equity will not

intervene to disregard unambiguous provisions in Vermont’s statutory law in order to save

Cendant from its own mistake.

       Finally, Cendant argues that if subrogation does not apply here, its loan to Sherman

Slaving then becomes a lien secondary to Barbara Slaving’s homestead interest. Cendant is

correct in this regard. In Girard, the Court made clear that the homestead interest may be

extinguished. The implication is that at some future point, whether through death, devise, sale,

or abandonment Barbara Slaving’s homestead interest will dissolve, at which point Cendant may



homestead statute. Id. However, Katsivalis is distinguishable. There, the subsequent deed of

trust executed in favor of the mortgagee contained an acknowledgment by the surviving spouse

in the form of her husband’s signature as attorney in fact under her name. The court held that

there was “sufficient evidence” that both spouses intended the refinancing. Id. There is no such

evidence here warranting application of the equitable remedy.



                                                 8
assert its interest in the property. At present, however, Barbara Slaving’s homestead interest is

superior during its lifetime to any interest presently held by Cendant.

                                             ORDER

       For the foregoing reasons, Plaintiff Barbara Slaving’s complaint for declaratory judgment

is GRANTED. The February 6, 2003 mortgage executed on the Slaving homestead is

inoperative against Barbara Slaving’s homestead interest. Therefore, Barbara Slaving’s motion

for summary judgment is also GRANTED. Cendant’s motion for summary judgment is

GRANTED IN PART insofar as its interest in Barbara Slaving’s homestead property is a

dormant lien on the property not enforceable during the life of the homestead. Cendant’s

complaint for foreclosure is hereby DISMISSED.



Dated this ______ day of February, 2005, at Bennington, County of Bennington, Vermont.



                                              ________________________
                                              Karen R. Carroll
                                              Presiding Judge




                                                 9
