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PROPERTY AND WANTONNESS - U.S. BANK NAT'L ASS'N, AS TRUSTEE, ETC. V. SHEPHERD

U.S. Bank Nat’l Ass’n, as Trustee, etc. v. Shepherd, [Ms. 1140376, Nov. 20, 2015] __ So.3d __ (Ala. 2015). The Supreme Court reverses a $3,920,000 judgment in favor of mortgagors alleging wantonness and trespass against the successor to their mortgagee. The Shepherds owned three adjacent parcels, and the December 2003 mortgage described Parcel 2 instead of Parcel 1. This error was discovered before the Shepherds executed the mortgage, and the loan officer assured the Shepherds that the correction could be made after the closing. Despite Mr. Shepherd’s requests, the error was not corrected. A substitute mortgage was filed, but it described Parcel 3, and the Shepherds were not advised. The Shepherds fell behind on payments, a foreclosure sale was conducted, and the resulting deed described Parcel 3. The successor mortgagee/foreclosure purchaser ultimately filed an action to quiet title to Parcel 1, and the Shepherds counterclaimed. The trial court held that the December 2003 mortgage could not be reformed, because, with both parties knowing of the incorrect description, there was no mutual mistake of the parties. The Supreme Court reverses this holding on the ground that the undisputed evidence that the mortgage did not contain the correct property description supported a reformation, notwithstanding the fact that the parties knew before executing the mortgage that it contained the erroneous description. Because such a reformation is retroactive in effect, the mortgagee could not be liable for trespass when it entered Parcel 1. It had the right to enter the property when the Shepherds fell behind in their payments. For the same reasons, the mortgagee could not be liable for wantonness in regard to the foreclosure. The Shepherds also alleged that the mortgagee acted wantonly and injured them in its servicing of the mortgage. The Supreme Court, following federal cases applying Alabama law, holds that a claim alleging improper servicing of a mortgage is a contract claim, not a tort claim, and the Shepherds therefore had no cause of action for wantonness. The opinion is a plurality opinion by Justice Stuart with three Justices concurring and the Chief Justice concurring in the result.

Related Documents: US Bank 11-20-2015

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