Deutsche Bank Nat'l Trust Co. v. Luna
| Decision Date | 06 December 2022 |
| Docket Number | WD 84820 |
| Citation | 655 S.W.3d 820 |
| Parties | DEUTSCHE BANK NATIONAL TRUST COMPANY, AS Indenture TRUSTEE FOR AMERICAN HOME MORTGAGE INVESTMENT TRUST 2006-3, Respondent, v. Guillermo LUNA, et al., Appellants. |
| Court | Missouri Court of Appeals |
Charles Scott, Jr., Shawnee, KS, for appellant.
Christopher Miles, Kansas City, MO, for respondent.
Before Division Two: Lisa White Hardwick, P.J., Thomas N. Chapman and Janet Sutton, JJ.
Guillermo and Lourdes Luna (the Lunas), and Las Cumbres, Inc. appeal the judgment of the Jackson County Circuit Court reforming a deed to correct the property's legal description, changing the designations of the grantor of the deed and borrower on the note as Las Cumbres, Inc., and in entering a declaratory judgment that the deed of trust was a valid and first priority lien on and against the property. We affirm the judgment.
In March 1977, the Lunas acquired real property located at 7219 Main Street in Kansas City, Missouri (the property). In early 1980, the Lunas conveyed the property, as well as four other rental properties they owned, to Las Cumbres, Inc., a Missouri corporation wholly owned by the Lunas. The Lunas used the property as a rental property.
The Missouri Secretary of State administratively dissolved Las Cumbres, Inc. in 1991 because it failed to file an annual report with the Secretary of State. Beginning in 2000, the Lunas transferred rental properties held by Las Cumbres, Inc. back to themselves, in their names, as husband and wife. The Lunas did not transfer the property at 7219 Main back to themselves, and title remained vested in Las Cumbres, Inc.
In 2006, the Lunas applied for a refinance mortgage loan from HLB Mortgage (HLB), stating in their loan application that they were the title owners of the property. In late September 2006, HLB made a mortgage loan (the loan) to the Lunas, and the Lunas executed and delivered to HLB a note in the principal sum of $85,800.00 (the note). The Lunas executed a deed of trust against the property in favor of HLB, which was recorded in the recorder's office. In the deed of trust, the Lunas affirmed they were "lawfully seised of the [property] ... and ha[d] the right to grant and convey the [p]roperty and that the [p]roperty [was] unencumbered, except for encumbrances of record." Contemporaneously with the execution of the note and deed of trust, the Lunas signed a compliance agreement promising to assist HLB and its assigns if any issues concerning the deed of trust arose. A Spanish speaking interpreter communicated the information in the loan documents to the Lunas. HLB advanced the funds to the Lunas under the loan's terms.
In 2010, Deutsche Bank National Trust Company, as Indenture Trustee for American Home Mortgage Investment Trust 2006-3 (Deutsche Bank) acquired the mortgage loan from HLB.
In November 2017, Deutsche Bank filed a verified petition for reformation of instruments relating to the property. That same month, Deutsche Bank also filed a lis pendens against the property with the recorder of deeds. At the time of the filings, the Lunas were in default on the note.
In May 2018, Deutsche Bank filed a four-count amended petition requesting the following: (1) reformation of the deed to correct an error in the legal description of the property and to reflect that Las Cumbres Inc. was a borrower throughout the deed of trust documents; (2) a declaratory judgment that the deed as reformed constituted a first, prior, and paramount lien on the property; (3) quiet title; and (4) imposition of an equitable lien against the property.
In July 2018, while the reformation action was pending, Las Cumbres, Inc. executed and filed a warranty deed attempting to convey the property to Las Cumbres, LLC. The deed identified the grantor as Las Cumbres, Inc. a Missouri corporation, despite the fact that Las Cumbres Inc., was administratively dissolved twenty-seven years earlier. The Lunas signed on behalf of Las Cumbres, Inc. Las Cumbres, LLC was controlled by the Lunas and the Lunas’ son, Guillermo E. Luna, Jr., each having a thirty-three percent membership interest of Las Cumbres, LLC. In February 2020, Las Cumbres, LLC filed for bankruptcy.
In March 2021, the court held a bench trial on the reformation action. Deutsche Bank introduced evidence to establish that while Las Cumbres, Inc. was the titled owner of the property, the Lunas leased the property in their name as the titled owners and reported the income from the rental of the property on their personal income tax returns for the years 2014, 2015 and 2016. Deutsche Bank also established that in 2010, March and November 2013, and 2019, the Lunas filed for bankruptcy, and in all four bankruptcy cases the Lunas represented that they were the title owners of the property, that there was a mortgage on the property, and that the mortgage was undisputed. In the bankruptcy cases, the Lunas did not disclose their interest in Las Cumbres, Inc. and affirmatively stated that they held "no stocks or interest in any incorporated or unincorporated entities."
Guillermo Luna testified at trial that the Lunas’ native language was Spanish. He testified that attorneys assisted the Lunas in both buying property and in obtaining loans and that they signed documents based on their attorney's advice. Mr. Luna had no specific recollection of the purchase of the property. The Lunas’ attorney argued that both HLB and Deutsche Bank were on constructive notice that the Lunas were not the titled owners of the property at the time the mortgage was executed, and that the court should not protect a party from its own negligence. The Lunas’ attorney also argued that the Lunas were "simple," "unsophisticated," and "relied totally" on others for guidance and direction.
The court found that the note and deed of trust on the property evidenced a preexisting agreement. The trial court also found that the Lunas, either personally or as Las Cumbres Inc., intended to enter into a valid transaction with HLB, that the Lunas asserted ownership of the property in four different bankruptcy proceedings, that the mortgage on the property was valid and uncontested, that the Lunas made payments on the mortgage loan against the property, that the Lunas manifested title ownership of the property on lease agreements in 2013, 2014, and 2017, and that the Lunas reported direct rental income from the property on their personal tax returns for 2014, 2015, and 2016. The court found there was a mutual mistake as to the ownership of the property—the Lunas were mistaken as to who was the actual title owner of the property at the time of the loan application, and HLB relied on the false ownership information from the Lunas when it made the loan.
The court entered judgment for Deutsche Bank and ordered the deed reformed (1) to correct a scrivener's error in the legal description;1 (2) to change the designations of the grantor of the deed and borrower on the note as Las Cumbres, Inc., and (3) entered a declaratory judgment that the deed constituted a first, prior and paramount lien on the property.2
The Lunas appeal.
"An action for the reformation of a written contract is an equity action that is tried by the court." Fastnacht v. Ge , 488 S.W.3d 178, 183 (Mo. App. W.D. 2016). We will affirm the judgment unless it is not supported by substantial evidence, it is against the weight of the evidence, or it erroneously declares or applies the law. Id. (citing Murphy v. Carron , 536 S.W.2d 30, 32 (Mo. banc 1976) ).3 On claims that the judgment is not supported by substantial evidence or that the judgment is against the weight of the evidence, we will defer to the trial court's assessment of the evidence and will reverse the judgment only when we have a firm belief that it is wrong. Id. We apply de novo review to a claim that the trial court erroneously declared or applied the law, including the purely legal question of what factors must be shown to invoke judicial estoppel. Id. ; Vacca v. Mo. Dep't of Lab. and Indus. Relations , 575 S.W.3d 223, 230 (Mo. banc 2019). However, we review a trial court's discretionary application of judicial estoppel to the facts of the case for an abuse of discretion. Vacca, 575 S.W.3d at 230. A court abuses its discretion when a ruling is clearly against the logic of the circumstances and is so unreasonable as to indicate a lack of careful and deliberate consideration. Stephen W. Holaday, P.C. v. Tieman, Spencer & Hicks, L.L.C., 609 S.W.3d 771, 780 (Mo. App. W.D. 2020).
In their first point, the Lunas argue that the court erred in granting Deutsche Bank an equitable reformation of the deed because Deutsche Bank did not satisfy the elements for equitable reformation of a contract, specifically, they contend there was insufficient evidence of a preexisting agreement between the parties for Las Cumbres Inc. to be a grantor of the deed of trust and borrower under the note.4
Reformation is "available upon a showing that, due to either fraud or mutual mistake, the writing fails to accurately set forth the terms of the actual agreement or fails to incorporate the true prior intention of the parties." Lunceford v. Houghtlin, 170 S.W.3d 453, 464 (Mo. App. W.D. 2005) (citation omitted).
A party seeking reformation of a deed must show: "(1) a pre-existing agreement between the parties which is consistent with the change sought; (2) a scrivener's mistake in drafting the deed such that it was prepared other than as agreed; and (3) the mistake was mutual as between the grantors and the grantees." Mo. Land Dev. I, LLC v. Raleigh Dev., LLC , 407 S.W.3d 676, 687 (Mo. App. E.D. 2013) (citing Ethridge v. TierOne Bank , 226 S.W.3d 127, 132 (Mo. banc 2007) ).
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