Tenn. State Bank v. Mashek

• Citation: 616 S.W.3d 777
• Decision Date: 21 May 2020
• Docket Number: No. E2019-00591-COA-R3-CV,E2019-00591-COA-R3-CV
• Parties: TENNESSEE STATE BANK v. Douglas V. MASHEK et al.
• Court: Court of Appeals of Tennessee

616 S.W.3d 777

TENNESSEE STATE BANK

v.Douglas V. MASHEK et al.

No. E2019-00591-COA-R3-CV

Court of Appeals of Tennessee, Eastern Section, AT KNOXVILLE.

January 23, 2020 Session

FILED May 21, 2020

Douglas Vernon Mashek and Deborah A. Mashek, Powell, Tennessee, Pro Se.

W. Morris Kizer, Knoxville, Tennessee, for the appellee, Tennessee State Bank.

Thomas R. Frierson, II, J., delivered the opinion of the court, in which D. Michael Swiney, C.J., and Richard H. Dinkins, J., joined.

Thomas R. Frierson, II, J.

This case involves a home equity line of credit ("HELOC") extended to the co-defendant, Douglas V. Mashek, by the plaintiff, Tennessee State Bank ("the Bank"), via a promissory note secured by a deed of trust encumbering real property titled to Mr. Mashek and acquired during Mr. Mashek's marriage to the co-defendant, Deborah A. Mashek. When the Bank subsequently attempted to foreclose on the property, Mr. Mashek objected based on alterations to the deed of trust and a notice of right of rescission that had allegedly occurred after the deed's execution and prior to recordation. The Bank filed a complaint against the Masheks in the trial court, seeking declaratory judgment that the recorded deed of trust was valid and enforceable, or in the alternative, reformation of the executed deed of trust to conform to the recorded deed. The Bank also named the title company involved in the loan transaction as a third-party defendant, alleging the title company's liability in the event that the trial court found the deed of trust, either as executed or as recorded, to be unenforceable.¹ The Masheks, proceeding pro se , filed various pleadings in response to the complaint, including a counterclaim against the Bank, alleging, inter alia , common law fraud, breach of fiduciary duty, negligence, equitable estoppel, slander of title, statutory estoppel, wrongful foreclosure, and unclean hands. Upon the Bank's motion for partial summary judgment and following a hearing, the trial court granted the motion as to reformation of the executed deed of trust, declaring the deed, as reformed, to be enforceable and finding that the Bank was entitled to pursue foreclosure proceedings. The trial court found in part that the Bank or its agent(s) had employed "procedurally questionable and perhaps fraudulent" methods that were "at the very least negligent and potentially criminal in nature" to correct mistakes in the executed deed of trust and to, without authorization, affix the Masheks’ initials over a change in a date of signature on the notice of right of rescission. However, having also found that the mistakes corrected were mutual and amounted to scrivener's errors that were not intended to and did not prejudice the Masheks, the trial court granted the Bank's request to reform the executed deed of trust. The trial court awarded to the Bank a monetary judgment against Mr. Mashek, as the sole debtor named in the loan documents, in the amount of $294,566.39 for unpaid principal and interest. The trial court also awarded to the Bank reasonable attorney's fees and expenses in the amount of $8,795.84, limiting such fees to those that "would be expected in an ordinary foreclosure action." The trial court dismissed the Masheks’ various counterclaims and subsequently denied the Bank's motion to alter or amend language in the judgment. The Masheks have appealed, and the Bank has raised issues regarding the trial court's denial of its request to alter the court's findings and denial of its request for additional attorney's fees and expenses. Having determined that the Bank or its agent(s) made a unilateral mistake in materially altering the deed of trust after the document's execution and then recording the altered deed of trust with the unilateral mistake incorporated, we reverse the trial court's judgment as to the reformation and enforceability of the executed deed of trust. Having also determined that the action of the Bank or its agent(s) in affixing the Masheks’ initials over the altered date on the rescission notice without authorization or notice constituted gross negligence, we reverse the trial court's finding that no gross negligence occurred but affirm the trial court's implied finding that the Bank could not succeed in its request to reform the effective date of the rescission notice. However, concluding that no alterations were made to the promissory note, we further determine that the trial court properly found Mr. Mashek to be liable for the unpaid principal and interest due under the terms of the note. We therefore affirm the trial court's $294,566.39 monetary judgment against Mr. Mashek. We vacate the trial court's award of attorney's fees and expenses to the Bank and remand for a hearing to determine the amount of attorney's fees and expenses incurred by the Bank solely to obtain a judgment based on the promissory note. We affirm the trial court's judgment in all other respects, including its denial of the Bank's request for additional attorney's fees and expenses and its denial of the Bank's motion to alter or amend the language of the judgment. Finally, we clarify that no evidence has been presented in this case to support a finding of the intent necessary for forgery as a cause of action against the Bank or its agent(s).

I. Factual and Procedural Background

The initial transaction giving rise to this action occurred in December 2003 when Mr. Mashek obtained a HELOC from the Bank via a promissory note ("the Note") that was secured by a deed of trust encumbering real property located at 1116 Irwin Road in Powell, Tennessee ("the Property"). The trial court, in its July 2017 Memorandum Opinion and Order, summarized the essentially undisputed facts leading to the initiation of this lawsuit as follows:

Pursuant to this [HELOC] transaction, Mr. Mashek executed several documents, including a Promissory Note, a Deed of Trust (wherein his property at 1116 Irwin Road was pledged as security for any indebtedness arising pursuant to the Note,) a Notice of Right of Rescission, and a Sweep Authorization Form. Mrs. Mashek executed the Deed of Trust, with the proviso that she was not obligated on the debt and was only conveying any interest she might have in the property. The documents were fully executed by December 22, 2003, Mrs. Mashek having signed the necessary documents at the couple[’s] then residence in Minnesota. Sometime after, Mr. Mashek began making draws on the HELOC.

In 2005 or 2006, according to Mr. Mashek's recollection, when the balance owed on the HELOC was zero or close to zero, he contacted [the Bank] to close the line of credit, and was informed that there would be a charge for this service. This charge was called for in the Promissory Note under the Paragraph entitled "Additional Charges." Faced with paying this fee, Mr. Mashek decided to leave the line of credit open. Following this conversation, Mr. Mashek began making additional draws against the line of credit.

In 2011, Mr. Mashek, who had apparently fallen behind on repayments of the loan, was contacted by a representative of [the Bank]. During this conversation Mr. Mashek asked to see a copy of the original loan documentation and was refused, the representative asserting that [Mr. Mashek] had the original copies. Sometime after that conversation, Mr. Mashek failed or refused to make any additional repayments of the loan. In 2012, [the Bank] attempted to foreclose on the property, and was at [that] point notified by Mr. Mashek that the documents which he had signed in 2003 had been altered, and that he objected to the foreclosure sale based on those alterations.

Although [the Bank] in its original complaint asserted that a copy of the Deed of Trust securing the debt of Douglas Mashek was a "true and correct copy of the Deed of Trust that was signed by Mr. and Mrs. Mashek at the closing," it seems certain now and is not seriously disputed by [the Bank] that at some time after the closing, the Deed of Trust and other documents relative to the loan were in fact altered. The original Deed of Trust, included at various places in the record, most recently as an exhibit in response to the pending Motion, reflects that the Deed was executed to secure the obligations of "Breaking Bread, Inc.[,"] an entity that the Masheks had never heard of nor had any interest in. Additionally, the Notary seal indicates that the documents were executed in Knox County, Tennessee, when in fact they had been executed in Minnesota and notarized by a Minnesota Notary. Further, it appears that the Notice of Right of Rescission was also altered to change the date of notice from December 22, 20[03] to December 15, 200[3],^[2] with an apparently fraudulent acknowledgment in the form of forged initials made over the handwritten correction. Finally, the box that indicates the Deed of Trust is an "Open Ended Mortgage as defined by Chapter 137, 1987 Public Acts of Tennessee" is checked on the documents executed by the Masheks, but absent on the documents actually filed with the Knox County Register of Deeds Office.

(Internal citations to record omitted.)

The Bank initiated this action by filing a complaint in the trial court on March 8, 2012, naming as defendants the Masheks and Stewart Title Company d/b/a Abstract Title ("Stewart Title"). The Bank sought declaratory judgment that the deed of trust recorded with the Knox County Register of Deeds on January 16, 2004 ("Recorded Deed of Trust"), was valid and enforceable and that the Bank could "proceed with the exercise of its remedies under the Deed of Trust." In the alternative, the Bank requested that the trial court "reform the Deed of Trust to correct the identity of the borrower listed therein as Douglas V. Mashek, with such correction of the name of the borrower to relate back by a nunc pro tunc order to the date of execution of the Deed of Trust, December 15, 2003," allowing the Bank to then proceed with its exercise of remedies.

The Bank also sought a...