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Title Could Not Be Reformed Under Doctrine of Mutual Mistake to Add Debtor to Title and Prevent Foreclosure

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In re Cheeks, 2019 Bankr. LEXIS 2530 (Judge Kenney)

The Debtor, Ms. Cheeks, intended to be added to the title to the property. However, the Cheeks did not complete a condition precedent to that addition at the time they bought the home and, therefore, only Mr. Cheeks was on the property title.  The property of up for foreclosure and, Mr. Cheeks was under the mistaken belief that he was not able to file foreclosure again.  However, believing Ms. Cheeks to be on the title, she filed to prevent the foreclosure sale.

The foreclosing trustee moved forward after the bankruptcy filing as no title holders had filed bankruptcy invoking the automatic stay. The Cheeks are now attempting to undue the foreclosure and add Ms. Cheeks name to the title under the doctrine of mutual mistake. 

Judge Kenney ruled that, despite being a harsh result as to the Cheeks, he could not reform the title under Virginia, holding that “the inquiry is not . . . who initially made the mistake, but rather whether each party held the same mistaken belief with respect to a material fact at the time the agreement was executed.”

In this case, it was undisputed that the builder required a written statement from the lender that adding Ms. Cheeks to the title was acceptable and would not delay the closing for any reason. The Title Addendum makes clear the Cheeks’ were aware of this requirement but never produced a letter from their lender consenting to adding Ms. Cheeks to the title.

Because there is not clear and satisfactory proof of a mutual mistake, the title may not be reformed and the automatic stay never applied to the property, therefore the foreclosure may not be undone.

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