Homestead rights. Moving into husband-owned vacation home and filing for divorce did not give wife a “homestead” that precluded husband from refinancing mortgage.

Brattleboro Savings and Loan Association v. Hardie, 2014 VT 26 (21-Mar-2014)

DOOLEY, J. Plaintiff Brattleboro Savings and Loan Association appeals a superior court decision ruling that Mangini holds title to a property, free and clear of a mortgage to plaintiff. The superior court ruled that the mortgage was inoperative because Mangini’s husband, defendant Richard Hardie, mortgaged the property without the participation of Mangini in violation of 27 V.S.A. § 141(a). We reverse.

“A homestead or an interest therein shall not be conveyed by the owner thereof, if married, except by way of mortgage for the purchase money thereof given at the time of such purchase, unless the wife or husband joins in the execution ” 27 V.S.A. § 141(a).  The parties agree that § 141(a) would apply only if Mangini had a homestead exemption at the time that the new mortgage was created.

In 2002, Hardie borrowed $209,000 from Brattleboro Savings in order to purchase a vacation home. Hardie was married to Mangini at the time, but was the sole owner of the property, and Mangini did not sign either the promissory note or the mortgage. In April 2007, Mangini left the couple’s New Jersey home and moved into the vacation home. In February 2008, Mangini filed for divorce and claimed that the property had become her primary residence as of May 2007. The family court’s interim domestic order forbade either spouse to “remove, sell, assign, transfer, dispose of, lend, dissipate, mortgage or encumber any marital property. In April 2008, while Mangini was occupying the property and the divorce was pending, Hardie refinanced the mortgage on the property. The 2008 refinancing was completed without Mangini’s participation.

In January 2011, Brattleboro Savings commenced a foreclosure action on the property, naming only Hardie as a defendant. Mangini filed an answer asserting an affirmative defense that she had established a homestead interest in the property prior to the 2008 mortgage, and that therefore the 2008 mortgage was “inoperative to convey” her homestead interest. The court granted summary judgment in favor of Mangini, declaring the entire 2008 mortgage on the property unenforceable against Mangini.

The court reasoned that Mangini acquired an equitable interest in the property when she filed for divorce, thus fulfilling the dual requirement for establishing a homestead interest—occupancy and equitable title—as set out in Soter, 26 B.R. at 841 (holding that equitable or legal title is required to establish homestead exemption)

The issue is whether Mangini had an sufficient “equitable interest” at the time of the refinancing because the family court exercised jurisdiction over all of the marital property and she stood to be awarded any or all of it, regardless of which of the spouses held legal title.

We agree with Brattleboro Savings that Mangini did not acquire equitable title to the property by filing for divorce. Because Mangini did not acquire equitable title, she is not entitled to a homestead exemption from the 2008 mortgage, and the security created by the 2008 mortgage is valid against her.

27 V.S.A. § 101 requires that the property claimed as a homestead must be “owned” by the person claiming the exemption, and our precedents recognizing equitable-title interests must be viewed in that context. Equitable title is defined as “title that indicates a beneficial interest in property and that gives the holder the right to acquire formal legal title.” This is a rigorous definition—one that requires not just a possibility of acquiring title, but a concrete right. The jurisdictional statute on which the court relied, s 15 V.S.A. § 751, does not establish title or ownership in either party to a divorce. Its purpose is to give the court jurisdiction over all the property of the parties. Section 751 did not give Mangini equitable title to the property. Nor do we find that the family court’s injunction give either party a right to any item of property.

The trial court should have granted Brattleboro Savings’s motion for summary judgment with respect to Mangini’s claim of a homestead exemption, and denied Mangini’s motion.

BURGESS, J., concurring. I concur with the majority’s mandate as well as its underlying reasoning, but I also concur with Judge Bent’s opinion as an alternative basis for reversing the superior court summary judgment decisions.

BENT, Supr., J., Specially Assigned, concurring. I concur with the majority’s mandate because Mangini cannot rely upon 27 V.S.A. § 141(a) to avoid an existing mortgage that merely refinanced a debt on the homestead that existed before she established the homestead. I am concerned, however, with the implication in the majority’s opinion that spouses generally may not rely upon § 141(a) to avoid the consequences of a unilateral spousal conveyance unless they can prove an equitable interest equivalent to a contractual right to marital property owned solely by the conveying spouse. I believe that a more fundamental basis for rejecting Mangini’s reliance upon § 141(a) in the present circumstances is simply that the 2008 mortgage did not increase the debt existing at the time Mangini established a homestead in the Vermont property and thus may not be deemed inoperative under § 141(a).