Beneficial Financial I v. Hatton (IN)
Summary: A mortgage may be reformed if it is faulty in some manner. One manner in which the mortgage may be faulty is an incorrect legal description.
Beneficial Financial I., Inc. v. Hatton, 998 N.E.2d 232 (Ind. Ct. App. 2013).
Facts: Howard and Sharon Hatton executed and delivered a promissory note and mortgage to Beneficial Mortgage Co. of Indiana (BMCI). In 2008 Sharon became the sole owner of the property, and in 2009, ceased making payments. In response, Beneficial Financial I, Inc. (BFI), having merged with BMCI, accelerated the indebtedness due under the promissory note and mortgage, and provided pre-suit notice. In 2010, BFI filed a foreclosure action against Hatton.
However, before filing its foreclosure action, BFI’s counsel discovered an error in the legal description of the property reflected on the mortgage security instrument. BFI’s counsel responded by filing a Complaint on Note and to Reform and Foreclose Mortgage on Real Estate. In the complaint, BFI stated that the legal description of the property in the mortgage did not describe the real estate the Hattons intended to convey. The complaint, therefore, sought to reform the mortgage and provide the property’s correct legal description.
After the parties failed to reach a settlement, Hatton responded by filing a motion to dismiss BFI’s complaint on two counts. One, the legal description of the property, being in error, made mortgage ineffective. Two, BFI failed to attach the assignment of BFI’s interest in the Hatton mortgage to BMCI. The trial court summarily granted Hatton’s motion to dismiss without prejudice.
In response, BFI filed its Amended Complaint on Note to Reform and Foreclose Mortgage on Real Estate. While not considerably different from its prior complaint, the amended complaint added that: (1) BFI refuted Hatton’s claimed grounds for dismissal; and (2) BFI attached an official document evincing the merger of BFI and BMCI, generated by the office of the Indiana Secretary of State. Hatton filed another motion to dismiss, arguing the same points from her initial motion, which the trial court granted with prejudice. BFI appealed the ruling.
Holding: Reversed and Remanded. On appeal, BFI argued that the court erred in granting Hatton’s motion to dismiss. More specifically, (1) under common law reformation, the mortgage was still valid, and (2) BFI proved that it had an interest in the property as a successor in interest to BMCI.
Beginning with the first issue, the court addressed whether reformation was applicable. BFI argued that reformation was applicable because of a “mutual mistake” between BMCI and the Hattons in providing the description of the property. More specifically, BMCI and the Hattons knew what property they intended to secure with a mortgage, therefore reformation was valid. The court agreed stating that the intent of the parties controlled, and, “[b]y definition, an action to reform a mortgage involves a mortgage that is faulty in some manner. One manner in which the mortgage may be faulty is…an incorrect description of the…property.” Therefore, as the law permitted reformation of the mortgage when the movant established by clear and convincing evidence that the error was a product of mutual mistake. The court found that it would be illogical to deny BFI the opportunity to demonstrate the applicability of reformation. The court found that there was a clear question of fact regarding whether the Hattons and BMCI intended to secure the note with a mortgage attached to a certain tract, and improperly executed their intent because of a recording error.
The court next addressed whether BFI’s complaint should be dismissed because BFI allegedly failed to prove that it possessed an interest in the property as a successor in interest to BMCI. The court summarily determined that the argument was without merit, stating, “When a merger takes effect…the title to all real estate and other property owned by each corporation party to the merger is vested in the surviving corporation without reversion or impairment.” Therefore, as the merger’s surviving corporation assumed the liabilities and assets of the subsumed corporation as a matter of law, the merger of BFI and BMCI vested BFI with interest in the property. Additionally, BFI did not need documentation proving the assignment of interest apart from proof of the merger. Because BFI attached a Certificate of Notice of Merger to its amended complaint, the trial court erred in permitting dismissal on that ground.
The court held that BFI’s complaint was sufficient to state a claim, and rendered the dismissal erroneous.
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