David Mack Quoted in “Bank not entitled to equitable lien on home equity line of credit”

OCM partner David Mack was quoted in the November 23 issue of Massachusetts Lawyers Weekly in “Bank not entitled to equitable lien on home equity line of credit.” The article highlights the 1^st Circuit Court of Appeals decision in Wilmington Savings Fund Society, FSB v. Collart, et al., 2020 U.S. App. LEXIS 35915 (Nov. 13, 2020). At issue in the case was whether a lender was entitled to an equitable lien on property securing a home equity line of credit (HELOC) that its predecessor had issued to the father of the current owner.

The case involved a father and his wife, both now deceased, and their adult daughter who purchased a home in Harwichport. Each created a trust in their name with each as sole beneficiary of their respective trust. All three trusts held a one-third interest in the property as a tenancy in common. After the wife’s death, Bank of America – the predecessor to plaintiff Wilmington Savings Fund Society, FSB – issued a $500,000 HELOC to the father, who had no individual ownership interest in the Harwichport property. He used the funds to buy a property in South Dennis. When the daughter learned of the HELOC, her attorney sent a letter to the bank disputing its validity. The father later died but did not pay back the home equity loan before his death. After his death, the daughter inherited both the Harwichport and Dennis properties.

Wilmington Trust filed suit in U.S. District Court seeking an equitable lien and a declaration that the HELOC was valid. The U.S District Court ruled the home equity line of credit was invalid but said the bank was entitled to an equitable lien on the Harwichport property, which the daughter now owned in her own name.

On appeal, the 1^st Circuit reversed the District Court’s opinion, stating “The [Restatement (Third) of Restitution and Unjust Enrichment] makes clear that a transactional nexus must exist between the property and the events giving rise to the equitable lien.” In the decision the court noted the HELOC proceeds were used to purchase property in South Dennis and not to enhance or maintain the property located in Harwichport, resulting in the lack of a transactional nexus and a lien based on an error of law.

In the article, David points out that not only did the bank fail to recognize that the father did not hold title to the property in his individual capacity, it compounded the mistake by not investigating after receiving a letter disputing the borrower’s rights to the property. He notes, “Courts applying equitable doctrines look at overall fairness. The fact that the bank could have prevented its harm but failed to do so certainly hurt its position.”