Division of marital property is often in contention in divorce cases. And, for many divorcing couples, real property represents a major asset the parties must divide. When the matter involves real property in a trust, additional complications may arise. In a recent case, the Massachusetts Appeals Court discussed the validity of a mortgage on the marital home, which was held in trust. The case is Mackey v. Santander Bank and it involves divorcing parties, one of which purported to be a trustee when he secured a mortgage on the marital home in the trust.


Case Facts

In 1998, while the parties were still married, the husband established a realty trust. He designated himself as trustee and transferred the marital home into the trust from his construction company. The husband and wife were beneficiaries of the trust. About two years later, unbeknownst to the wife, the husband resigned as trustee. The husband and his sister then signed documents purporting to appoint his sister as his successor trustee.

In 2008, about seven years after the husband resigned as trustee, he executed a mortgage with Santander Bank on the marital home. He did so “as trustee” to secure a $400,000 line of credit. The wife was unaware of the mortgage and the line of credit. In 2011, the husband’s sister resigned as trustee. The husband and his sister signed documents reappointing the husband as trustee.

In 2012, the husband filed for divorce. He also defaulted on the $400,000 line of credit. During the divorce proceedings, the wife became aware of the line of credit and the mortgage. She also learned about the effort to change the trusteeship. Later, the court entered a judgment of divorce nisi. This judgment required that the parties sell the marital home and share equally in the proceeds. By that time, however, foreclosure of the marital home was imminent.


Wife’s Action Against Santander Bank

The wife then brought a lawsuit against Santander Bank. Through the lawsuit, she was seeking a declaration that the mortgage was invalid. In turn, Santander Bank claimed the wife benefited from at least some portion of the line of credit. Both parties moved for summary judgment. The motion judge declared that the mortgage was valid by reason of estoppel by deed.


Estoppel by Deed

Generally, in order to transfer title to real property, the grantor must have title: specific rights to ownership of the property. The concept of estoppel by deed originates from real property law. In essence, it says that in a case where the grantor does not have title at the time of transfer, but acquires rightful title afterwards, the transfer will be held valid. The grantor – or anyone claiming under them – may not assert a claim of title against the grantee. In this case, the motion judge held that the husband was entitled to reappoint himself as trustee under the terms of the trust. And, Santander Bank could therefore rely on the doctrine of estoppel by deed to establish the validity of the mortgage.


Appeals Court

The wife appealed the lower court’s decision. On appeal, the Appeals Court concluded that the estoppel by deed doctrine was not available in this case. This is because the husband was not a trustee of the trust holding title to the real estate at the time the mortgage was granted, or any time thereafter. “Both parties agree that the purported appointment of [the husband’s] sister as successor trustee did not comply with the terms of the trust, but they disagree as to who instead became the successor trustee,” the court explained. The wife claimed she became successor trustee. Meanwhile, Santander Bank claimed the trusteeship was vacant after the husband’s resignation and he was free to resume the vacant trustee position, which he did in 2011.

The court noted that it needed to look at the relevant language of the trust in order to resolve that dispute. Barring disqualification, according to the unambiguous trust language, the wife was to serve as the successor trustee upon the husband’s resignation. “There is no dispute that [the husband] resigned. The trust then clearly provided that [the wife] was to become the successor trustee or, in the event of [wife’s] death, resignation, or incapacity (none of which occurred here), that the trust beneficiaries were to appoint a new trustee. The trust did not include an option allowing [the husband] to reappoint himself as trustee,” the Appeals Court held.

The Appeals Court vacated the portion of the judgment that found the mortgage to be valid on the basis of estoppel by deed.


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