Brattleboro Sav. & Loan Ass'n v. Hardie

• Decision Date: 21 March 2014
• Docket Number: No. 12–332.,12–332.
• Citation: 94 A.3d 1132,2014 VT 26
• Court: Vermont Supreme Court
• Parties: BRATTLEBORO SAVINGS AND LOAN ASSOCIATION v. Richard E. HARDIE, et al.

94 A.3d 1132

2014 VT 26

BRATTLEBORO SAVINGS AND LOAN ASSOCIATION

v.Richard E. HARDIE, et al.

No. 12–332.

Supreme Court of Vermont.

March 21, 2014.

James B. Anderson of Ryan Smith & Carbine, Ltd., Rutland, for Plaintiff–Appellant.

Richard E. Hardie, Pro Se, Avon, New Jersey, Defendant–Appellee.

Robert S. DiPalma of Paul Frank + Collins P.C., Burlington, for Intervenor–Appellee.

Present: REIBER, C.J., DOOLEY, SKOGLUND and BURGESS, JJ., and BENT, Supr. J., Specially Assigned.

DOOLEY, J.

¶ 1. Plaintiff Brattleboro Savings and Loan Association appeals a superior court decision denying plaintiff's motions for summary judgment and granting intervenor/appellee Lisa Mangini's cross-motion for summary judgment, ruling that Mangini holds title to a Weathersfield, Vermont property, free and clear of a mortgage to plaintiff. The superior court ruled that the mortgage was inoperative because Mangini's husband, defendant Richard Hardie, mortgaged the property without the participation of Mangini in violation of 27 V.S.A. § 141(a). We reverse the grant of Mangini's motion for summary judgment and the denial of Brattleboro Saving's motions for summary judgment, and remand.

¶ 2. The essential facts are undisputed. In 2002, defendant Richard Hardie borrowed $209,000 from Brattleboro Savings in order to purchase a vacation home and surrounding land in Weathersfield, Vermont. The loan was secured by a mortgage on the property and included a “second home rider” clause, asserting that the property was not a primary residence. Hardie was married to Mangini at the time, but was the sole owner of the property, and Mangini did not sign either the promissory note or the mortgage. Hardie refinanced the property in 2004 and 2005, both times without Mangini's participation. These mortgages each contained a second home rider clause.

¶ 3. By 2007, Hardie and Mangini's marriage was deteriorating. In April 2007, Mangini left the couple's New Jersey home and moved into the Weathersfield property. In February 2008, Mangini filed for divorce in the Windsor Superior Court, Family Division.¹ In her divorce filing, Mangini claimed that the property had become her primary residence as of May 2007. Also in the divorce filing, Mangini requested “an award of the Weathersfield home and the adjoining land either without any encumbrances, or, in the alternative, that [Hardie] be responsible for paying off and releasing the mortgage[ ] to [Brattleboro Savings].” ²

¶ 4. In April 2008, while Mangini was occupying the property and the divorce was pending, Hardie refinanced the mortgage on the Weathersfield property. The 2008 refinancing was completed without Mangini's participation, and Hardie again claimed that the property was a second home only. In January 2011, Brattleboro Savings commenced a foreclosure action on the property, naming only Hardie as a defendant.

¶ 5. Despite not being named in the foreclosure case, Mangini filed an answer asserting an affirmative defense that she had established a homestead interest in the property prior to the 2008 mortgage, and that therefore the 2008 mortgage was “inoperative to convey” her homestead interest. Due to the unusual posture of this case, Brattleboro Savings filed two motions for summary judgment, one requesting a foreclosure judgment against Hardie and the second seeking judgment against Mangini on her homestead claim. The motion directed at Mangini specifically alleged that Mangini did not have a homestead interest because she possessed neither a legal nor an equitable interest in the property. Brattleboro Savings made two alternative arguments in the event that the court found a valid homestead exemption. First, Brattleboro Savings argued that the 2008 refinancing fell under the exception in 27 V.S.A. § 141(a) for purchase money mortgages and therefore did not require participation by “execution and acknowledgement” of Mangini to give the mortgage priority over her homestead exemption. Second, Brattleboro Savings argued that if Mangini were to have a homestead interest, it would be subject to all preexisting causes of action against the homestead as provided in 27 V.S.A. § 107, which states that homestead interests “shall be subject to attachment and levy of execution upon causes of action existing at the time of acquiring the homestead.” Mangini filed a cross-motion for summary judgment, detailing for the first time her claim that she had acquired an equitable interest in the property by her divorce filing.

¶ 6. The court denied Brattleboro Savings's motions for summary judgment and granted summary judgment in favor of Mangini, declaring the entire 2008 mortgage on the property unenforceable against Mangini. The court reasoned that Mangini acquired an equitable interest in the property when she filed for divorce, thus fulfilling the dual requirement for establishing a homestead interest—occupancy and equitable title—as set out in In re Soter, 26 B.R. 838 (Bankr.D.Vt.1983).³ The court held that Mangini was entitled to full immunity from the note and mortgage, not merely protection for the $125,000 value of the homestead exemption as provided in 27 V.S.A. § 101. Following the denial of Brattleboro Savings's motion to reconsider, the superior court granted permission to appeal its summary judgment decisions. Brattleboro Savings subsequently appealed.

¶ 7. We review summary judgment decisions de novo. Doe v. Forrest, 2004 VT 37, ¶ 9, 176 Vt. 476, 853 A.2d 48. As provided in Vermont Rule of Civil Procedure 56(a), summary judgment will be granted only when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” V.R.C.P. 56(a). The nonmoving party, in this case Brattleboro Savings, is given “the benefit of all reasonable doubts and inferences.” Forrest, 2004 VT 37, ¶ 9, 176 Vt. 476, 853 A.2d 48. In this case, the parties on appeal agree that there is no material issue of fact and the questions presented to us involve only issues of law.

¶ 8. Brattleboro Savings has appealed on a variety of issues, asserting that the court erred in holding that Mangini had acquired an equitable interest upon filing for divorce; that the court had unjustly enriched Mangini; that the court erred by not considering the 2008 mortgage to be a purchase money mortgage; that the court abused its discretion by refusing to apply the doctrine of equitable subrogation; that the court erred by not limiting Mangini's homestead interest to $125,000; and that the court lacked subject matter jurisdiction to declare the 2008 mortgage entirely void. We address only the first issue and resolve the appeal by deciding that Mangini did not acquire equitable title to the property by filing for divorce. Because Mangini did not acquire equitable title, she is not entitled to a homestead exemption from the 2008 mortgage, and the security created by the 2008 mortgage is valid against her. See Soter, 26 B.R. at 841 (holding that equitable or legal title is required to establish homestead exemption).

¶ 9. In Vermont, the homestead exemption is a statutory creation.⁴ The homestead exemption at issue in this case was originally enacted in 1849.1849, No. 20, § 1; 27 V.S.A. § 101. The current version of the statute states: “The homestead of a natural person ... not exceeding $125,000.00 in value, and owned and used or kept by such person as a homestead ... shall be exempt from attachment and execution except as hereinafter provided.” 27 V.S.A. § 101. The term “homestead” “signifies the dwelling house in which the family resides, with the usual and customary appurtenances.” In re Avery, 41 B.R. 224, 225 (Bankr.D.Vt.1984). The purpose of the homestead exemption in Vermont, as elsewhere, is to conserve family homes. Estate of Girard v. Laird, 159 Vt. 508, 510, 621 A.2d 1265, 1266 (1993); see In re Roberge, 307 B.R. 442, 446 (Bankr.D.Vt.2004) (“[T]he intention of Vermont's homestead exemption is to preserve a home for the family.”); see generally R. Waples, Homestead and Exemption, ch. 1, § 2, at 3 (1893) (“The conservation of family homes is the purpose of homestead legislation. The policy of the state is to foster families as the factors of society, and thus promote the general welfare. To save them from disintegration and secure their permanency, the legislator seeks to protect their homes from forced sales so far as it can be done without injustice to others.”).

¶ 10. The statute requires that a homestead be both owned and occupied as a homestead by the person claiming it.⁵ Regarding the ownership requirement, we have explained that “the statute applies to an equitable as well as legal ownership; an incumbered as well as an unincumbered estate.” Morgan v. Stearns, 41 Vt. 398, 407 (1868); see also Doane's Ex'r v. Doane, 46 Vt. 485, 493 (1874) (“It is well settled that a homestead right exempt from attachment, may exist in a mere equitable interest in premises occupied or used or kept as a homestead.”).

¶ 11. Also enacted in 1849, and essentially unchanged since that time, is § 107, which states: “Such homestead shall be subject to attachment and levy of execution upon causes of action existing at the time of acquiring the homestead.” 27 V.S.A. § 107; see 1849, No. 20, § 6. We have clarified that § 107 is intended to prevent parties from hiding assets from creditors by purchasing property. W. River Bank v. Gale, 42 Vt. 27, 31–32 (1869). The Legislature has further provided:

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.... A conveyance thereof... shall be inoperative so far only as relates to the homestead provided for in this chapter.

27 V.S.A. § 141(a). Thus, when two spouses have established a homestead together, one spouse cannot convey the other's interest “without the express,...