Reforming Deeds for Mutual Mistake
Walter v. Walter (NC App December 31, 2020): Deed Reformation for Mutual Mistake
Can a deed be reformed under a theory of mutual mistake when the “mistake” was the absence of one spouse as grantor when the property was held as tenants by the entirety? Yes.
A separated but not divorced Wife quitclaims her interest in entireties property into her revocable living trust (RLT). A subsequent court order requires Wife to convey her interest in the property to Husband, pursuant to a separation agreement. Trustee of the RLT dutifully ejects its interest in the property via quitclaim deed to Husband.
Many subsequent issues arise with the property, but a significant focus on appeal and at trial is whether in the divorce proceedings Husband received full title from the RLT.
One way to read the appellate opinion is that absent deed reformation, Husband did not. This is because Wife’s initial deed into the RLT lacked a spousal joinder as grantor on an entireties property. However, because it was the full understanding, intent, and purpose of the parties (when deeding from the RLT to Husband) for that deed to in fact vest full title in him, reformation on the basis of mutual mistake was allowed.
As to the pressure point events giving rise to litigation: the divorce was never finalized and Husband (and soon thereafter Wife) died. Prior to his death Husband executed a POA to one (of 4) children, who used the POA to gift himself and his son the subject property. Nine (9) years later, the successor trustee to Wife’s RLT (one of the other 4 children) took the position that the RLT still owned the subject property, and he executed a deed purporting to transfer the property to himself. Lawsuits in a variety of states ensued, and focus eventually came to rest in part upon the validity of the initial deeds into and out of the RLT during the divorce proceedings.
The appellate decision seemed to give significant weight to the record’s reflection of testimony from the drafting attorney of the deed issued by the RLT in favor of Husband, which testimony indicated that all parties to that transaction had the mutual understanding and purpose to (via the RLT deed) fully vest title in Husband.
The case is currently on remand to the trial court.
Probate attorneys beware the non-finalized divorcing parties’ estate(s)
Disparate treatment of children will often increase the chance of litigation
Fiduciaries will often face scrutiny for acts that appear to be self-dealing
Drafting attorney testimony is often a K.O. punch
Remember spousal joinder issues in deeds issuing from married persons (and remember: until you're divorced, you're not)