Relating to Real Estate

Reverse Mortgage Made to a Disabled Person Without Her Guardian’s Consent Is Void

In James B. Nutter & Co. v. Black, 225 Md. App. 1, 123 A.3d 535 (2015), the Court of Special Appeals held that a reverse mortgage made by James B. Nutter & Co. to Edwina E. Black, a disabled person for whom a court had appointed a guardian, was void because the guardian did not join in the mortgage. Moreover, under the facts of the case, Nutter was not entitled to be repaid the funds that it extended to or for Ms. Black.

Ms. Black suffered injuries when she was deprived of oxygen during an operation. In 1989, the Circuit Court for Baltimore City determined that she was incompetent and appointed a guardian for her. In 1994, David L. Moore became the substitute guardian.

In 1995, Moore, as guardian, purchased a home in Baltimore County for Ms. Black, which he financed with a purchase money deed of trust. The deed and the deed of trust were recorded in the Land Records of Baltimore County and recited information about the guardianship. In 2007, the guardianship action was transferred to Baltimore County.

In 2009, Ms. Black, on her own and without the knowledge or consent of guardian Moore, entered into a reverse mortgage transaction with Nutter. Apparently, Nutter did not know of the guardianship. Nutter advanced approximately $150,000 at closing under the loan, which went to Ms. Black to pay off the prior loan, and for settlement expenses.

When Moore found out about the reverse mortgage loan, he took the remaining loan proceeds from Ms. Black’s account, and he advised Nutter of her disability. Nutter requested that Moore ratify the loan or that he reimburse Nutter, but Moore declined to do so.

Nutter filed suit in the Circuit Court for Baltimore County claiming that it did not have actual knowledge of Ms. Black’s disability and that in light of the guardianship the transaction was voidable. The circuit court held that the reverse mortgage transaction was void and denied any relief to Nutter.

On appeal, the Court of Special Appeals affirmed the decision of the circuit court. The Court of Special Appeals reviewed prior cases that concluded that deeds from persons with mental infirmities were voidable if at the time of the deeds the grantors had not been adjudicated disabled nor had guardians appointed for them. On the other hand, pursuant to Maryland’s guardianship statute (Subtitle 2 of Title 13 of the Estates and Trust Article) and longstanding case law, a disabled person lacks the capacity to enter into a contract. Moreover, a court order appointing a guardian is constructive notice of this.

The Court of Special Appeals noted that courts are reluctant to declare deeds to be void because of the consequences through the chain of title, and courts will only do so because of “circumstances that go to the face of the deed,” e.g., forgery. The court likened a disabled person’s signing a deed to a forgery because neither a disabled person nor a forger has title and so cannot pass title. The court, therefore, held the reverse mortgage transaction to be void.

Nutter then claimed that it should be entitled to restitution on the basis that Ms. Black was unjustly released. Unfortunately for Nutter, the Court of Special Appeals determined that this issue was not preserved for appeal.

Finally, Nutter argued that it should be entitled to be subrogated to the lien that was paid off with its loan proceeds. There is case law in Maryland that states that if a person pays a debt of a third party without obligation to do so, the payor is a “volunteer,” an “officious payor,” and an “intermeddler” who has no entitlement to be repaid. The Court of Special Appeals stated that because the contract between Nutter and Ms. Black was void, no legal duty could arise from it. Accordingly, Nutter was a mere officious payor and was not entitled to the remedy of subrogation.

For questions, please contact Ed Levin (410) 576-1900.