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Smith v. Wells Fargo Bank

DISTRICT OF COLUMBIA COURT OF APPEALS


March 25, 2010

DARAL R. SMITH, APPELLANT,
v.
WELLS FARGO BANK, APPELLEE.

Appeal from the Superior Court of the District of Columbia (CA-3925-07) (Hon. Odessa F. Vincent, Trial Judge).

The opinion of the court was delivered by: Thompson, Associate Judge

Argued January 27, 2010

Before THOMPSON and OBERLY, Associate Judges, and FERREN, Senior Judge.

In 2005, Mary Smith, asserting power of attorney for her father, Willie Smith, conveyed to herself a parcel of real property that he owned. In 2006, Mary Smith executed a deed of trust conveying an interest in the property to a mortgage lender. Subsequently, after Mary Smith defaulted on the mortgage loan, Wells Fargo Bank, which had come to hold the note secured by the deed of trust, foreclosed on the property and eventually purchased it at a foreclosure sale. Appellant, who is Mary Smith's brother, and several of their siblings sued both Mary Smith and Wells Fargo in a quiet title action, alleging that the conveyances to and from Mary Smith (and any conveyances following from them) were invalid because the power-of-attorney instrument did not authorize Mary Smith to convey the property to herself and because, in any event, the instrument was a forgery. The trial court granted summary judgment in favor of Wells Fargo, (1) having stricken the affidavits that plaintiffs submitted to oppose summary judgment on the forgery issue, and (2) finding that Wells Fargo was a bona fide purchaser for value without notice of any defect in title (a "BFP"). This appeal followed.

We affirm as to the trial court's ruling that Wells Fargo was a BFP, as no evidence was presented showing that Wells Fargo was on inquiry notice of any irregularity in Mary Smith's conveyances of the property (and, as we also discuss, unless the power-of-attorney instrument was a forgery, we are satisfied that it gave Mary Smith apparent authority to convey the property as she did). We conclude, however, that the trial court erred in striking the affidavits that plaintiffs submitted in support of their forgery claim, and likewise erred in granting summary judgment, because the affidavits raised a material factual issue as to whether there was a forgery affecting the chain of title. We therefore reverse and remand for trial on the forgery issue.

I.

Willie Smith was the fee simple owner of real property located at 3061 Vista Street, N.E. ("the property"). The summary-judgment record contains a copy of a "Durable Power of Attorney" ("the POA"), purportedly executed by Willie Smith on November 4, 2005, that named "my daughter, Mary A. Smith . . . as my Attorney in Fact" and that bore a legend (required by D.C. Code § 42-101 (a) (2001) for a power of attorney to convey land) authorizing Mary Smith to "sell, lease, grant, encumber, release or otherwise convey any interest in my real property and to execute deeds and all other instruments on my behalf." The POA was notarized by notary public Marilyn Beckwith.

On November 15, 2005, Mary Smith executed a deed transferring the property from "Mary Smith, Agent for Willie Smith" to herself for the consideration of ten dollars. One day later, Willie Smith died intestate. He was survived by eight children: Daral Smith, Jennifer Hebron, Nathaniel Smith, Rickey Smith, William Smith, and Walter Smith (together, the plaintiffs), Michael Smith, and Mary Smith.

After Mary Smith applied for a loan to refinance the property on November 3, 2006, the lender caused a title search to be done regarding the property. The search revealed both the POA and the November 15, 2005 deed, which had been recorded simultaneously in the District of Columbia land records on December 12, 2005. Mary Smith obtained a mortgage loan on the property in the amount of $220,000 upon execution of a deed of trust in favor of trustees for Option One Mortgage Corporation. The deed of trust was recorded in the land records on November 14, 2006. At some point thereafter, Wells Fargo came to be the holder of the note as trustee for Option One Mortgage Loan Trust 2007-1 Asset-Backed Certificates, Series 2007-1.*fn1

On June 8, 2007, plaintiffs filed an action in the Superior Court to quiet title to the property, naming Wells Fargo ("as trustee for Option One Mortgage Loan") and Mary Smith as defendants. In their complaint, plaintiffs alleged that the POA did not grant Mary Smith the power to convey the property as a gift to herself and that the signature on the POA was not that of Willie Smith. They sought a declaration that the deed recorded on December 12, 2005, and the deed of trust recorded on November 14, 2006, were invalid, null and void, and that the estate of Willie Smith is the fee simple owner of the property. The complaint also sought an award of damages against Mary Smith and "any other relief the court deemed proper," but did not specifically seek monetary damages from Wells Fargo. A week after the complaint was filed, plaintiff/appellant Daral Smith was appointed personal representative of the estate of Willie Smith, which was opened for probate in the Superior Court.

Defendant/appellee Wells Fargo filed its motion for summary judgment on February 1, 2008. In support of the motion, Wells Fargo attached an affidavit from notary Beckwith, who averred that she notarized the POA after Willie Smith, accompanied by Mary Smith, came to Beckwith's office and Willie Smith presented photo identification that enabled Beckwith to verify his identity. Beckwith further stated that Willie Smith signed the POA voluntarily and did not appear to be under any duress.

Plaintiffs opposed the motion for summary judgment and attached to their opposition, inter alia, affidavits of Jennifer Hebron and Daral Smith. Hebron stated in her affidavit that she saw her father's signature many times, including during the last months of his life, was "very familiar" with his signature and handwriting, and "[b]ased upon my experience and knowledge of my father's handwriting, I do not believe that he executed the power of attorney." Hebron also stated that her father, who was 90 years old when he died from pancreatic cancer on November 16, 2005, was "extremely weak" when she saw him on November 4, 2005 and "rarely left his bed." She stated that, by November 4, 2005, her father's "mental state had deteriorated significantly and he was no longer able to understand even simple financial transactions" and "[h]is weak condition and mental state would have been obvious to anyone seeing him sign his name." Daral Smith's affidavit contained similar statements about Willie Smith's weakened condition in November 2005.

In response, Wells Fargo moved to strike the affidavits that plaintiffs had submitted. In an order dated May 13, 2008, the trial court granted Wells Fargo's motion to strike, denied plaintiffs' motion to strike Beckwith's affidavit,*fn2 and granted Wells Fargo's motion for summary judgment. The court found that Wells Fargo "is a bona fide purchaser for value," explaining that:

In preparation for closing on the loan, Wells Fargo, via a title company, undertook an investigation of the title history of the property. There was nothing untoward discovered during the title history investigation. Further, there was nothing about the nature of the conveyance of the property from defendant Mary A. Smith, as the agent for Willie Smith, to defendant Mary A. Smith that on its face, was sufficient to put Wells Fargo on notice of any potential deficiency in the title, i.e., there was nothing within the title history that would have put Wells Fargo on notice of an "outstanding claim."

On June 3, 2008, the court denied plaintiffs' motion for reconsideration of those rulings. Daral Smith, in his capacity as personal representative of the Estate of Willie Smith, filed a notice of appeal on January 16, 2009 (after the court entered judgment against remaining defendant Mary Smith on July 25, 2008).

The parties' Appendix contains a November 7, 2008 notice of a foreclosure sale of the property scheduled for December 11, 2008, anda substitute trustees deed showing a January 9, 2009 conveyance of the property to Wells Fargo as trustee for Option One Mortgage Loan Trust 2007-1 Asset-Backed Certificates, Series 2007-1.*fn3 Neither party, however, has moved to supplement the record to include these post-summary-judgment documents.

II.

Appellant contends that the trial court erred in granting summary judgment to Wells Fargo, asserting that the record establishes a genuine issue of material fact as to whether Wells Fargo was on inquiry notice of a defect in title and that the court abused its discretion in striking plaintiffs' evidence that the signature on the POA was a forgery. Wells Fargo urges us to affirm the trial court's ruling, but, in the alternative, urges us to dismiss the appeal as moot inasmuch as the property was sold in December 2008, the court may not order a reconveyance of the property since its beneficial owner is not a party to these proceedings, and plaintiffs sought damages only against Mary Smith, not against Wells Fargo. We begin our analysis with the mootness issue.

A.

"In deciding whether a case is moot, we determine whether this [c]court can fashion effective relief." Thorn v. Walker, 912 A.2d 1192, 1195 (D.C. 2006) (quoting Graveyard Creek Ranch, Inc. v. Bell, 116 P.3d 779, 781 (Mont. 2005)). "[W]hile an appeal is pending, an event that renders relief impossible or unnecessary . . . renders that appeal moot." Id. (citation and internal quotation marks omitted). We have observed that, in appeals involving title to real property, "the sale of property generally precludes effective relief" unless there is a claim for the recovery of money damages.*fn4 Id. at 1195, 1196. That is because, where the "property has been sold and [defendant] no longer has any right to possess it," it is not possible for the court to return the property to the plaintiff. Id. at 1197; see also Evans v. Family Sav. & Loan Ass'n of Va., 481 A.2d 1309, 1310 (D.C. 1984) (per curiam) (holding that appeal was moot where property in dispute had been sold at a foreclosure sale to a third party who was not before the court, because the status quo could not be restored and thus the court could not grant effective relief).*fn5

The situation before us is unlike the ones we described in Thorn and Evans, and thus the rationale of those cases is inapposite here. The grantee under the January 9, 2009 conveyance that Wells Fargo claims moots this appeal was Wells Fargo itself (as trustee for Option One Mortgage Loan Trust 2007-1 Asset-Backed Certificates, Series 2007-1). Thus, even though plaintiffs sued Wells Fargo "as trustee for Option One Mortgage Loan" (a somewhat different name), and even though it appears that Wells Fargo has changed roles since the filing of the Complaint*fn6 and the entry of judgment, we cannot conclude that, to grant relief, the court would be required to enjoin conduct by a person not before the court. We conclude, therefore, that this appeal is not moot, and thus we proceed to consider the parties' arguments on the merits.*fn7

B.

The trial court's analysis and appellant's argument focus on whether Wells Fargo is a BFP-i.e., one who "acquire[d] . . . interest in a property for valuable consideration and without notice of any outstanding claims which are held against the property by third parties," Clay Props., Inc. v. Wash. Post Co., 604 A.2d 890, 894 (D.C. 1992),*fn8 and thus is protected from outstanding interests in the property of which it had no notice.*fn9 Our analysis, however, must be somewhat broader. BFP status, though affording some protection, would not protect Wells Fargo if the conveyances underlying Wells Fargo's interest in the property were void ab initio. See, e.g., SEC v. Madison Real Estate Group, LLC, 647 F. Supp. 2d 1271, 1279 (D. Utah 2009) (explaining that while a voidable deed is "unassailable in the hands of a bona fide purchaser," the "protections afforded to bona fide purchasers do not apply to deeds that are void") (internal quotation marks and alterations omitted).*fn10 The underlying deed to Mary Smith and the deed of trust in favor of her mortgage lender would be void if the POA was a forgery,*fn11 or if the POA was valid but Mary Smith exceeded the authority it gave her as attorney-in-fact when she conveyed the property to herself.*fn12 As to the first of these possibilities, appellant urges that the POA was indeed forged and that the trial court erred in excluding the evidence of forgery and in granting summary judgment to Wells Fargo, an issue we discuss infra. As to whether Mary Smith exceeded her authority under the POA, even if the POA was valid, the answer depends on whether the terms of the POA gave her either actual or apparent authority to transfer the property to herself.*fn13

Appellant contends that the terms of the POA did not give Mary Smith actual authority to convey the property herself for only nominal consideration. He correctly notes that the weight of authority is that a general power of attorney authorizing an agent to convey property does not authorize an agent to make a gift of the property or to transfer it without obtaining consideration for the principal. See, e.g., King v. Bankerd, 492 A.2d 608, 612 (Md. 1985) (citing cases across jurisdictions holding that a general power of attorney that authorizes an agent to sell and convey property does not authorize the agent to make a gift of the property). Thus, appellant asserts, neither the power-to-convey-real-property language set out in the legend of the POA nor the general language set out in paragraph four of the POA*fn14 authorized Mary Smith to gift the property to herself. Nor, appellant asserts, did paragraph seven of the POA authorize such a gift. Paragraph seven authorizes the attorney-in-fact to "make gifts of my assets as my Agent may deem desirable so as to utilize the annual gift tax exclusion or in order to minimize death taxes." Appellant emphasizes that there was no evidence that Mary Smith transferred the property for either of those purposes and, in any event, "the value of the estate of Willie Smith was far below any threshold for estate or gift taxes."*fn15

We can assume without deciding that appellant is correct that the general power-to-convey provisions of the POA did not authorize Mary Smith to convey the property to herself for ten dollars. We are satisfied, however, that paragraph seven gave Mary Smith at least apparent authority to convey the property to herself. Nothing in the POA disclosed that Willie Smith had a small estate or that the property was (as appellant's brief now suggests) Willie Smith's only substantial asset. Cf. Parton v. Robinson, 574 S.W.2d 679, 682 (Ky. Ct. App. 1978) ("[A] third party dealing with the attorney in fact is only required to look to the language of the power of attorney to determine the extent of the power."). Even if Willie Smith had no need to avail himself of the annual gift tax exclusion or to minimize death taxes, his execution of the POA authorizing gifts for these purposes clothed his attorney-in-fact with apparent authority to make gifts that could appear to an innocent third party to be for such a purpose. Further, the fact that Mary Smith deeded the property to herself-Willie Smith's daughter-did not show that the transfer was not for one of the purposes authorized by paragraph seven of the POA. To the contrary, inter vivos gifts to adult children are a familiar estate and tax planning vehicle.*fn16

Even if the POA gave Mary Smith apparent authority to gift the property to herself, Wells Fargo may not rest on that apparent authority if it was on inquiry notice that Mary Smith did not actually have the authority the POA appeared to give her-i.e., if Wells Fargo was "aware of circumstances which generate enough uncertainty about the state of title that a person of ordinary prudence would inquire further about those circumstances." Clay Props., 604 A.2d at 895 ("The purchaser is on inquiry notice of all facts and outstanding interests which a reasonable inquiry would have revealed.").*fn17 This is the BFP issue, to which we now turn.

Appellant contends that Mary Smith's conveyance of the property to herself for only nominal consideration did raise a red flag and that, upon inquiry, Wells Fargo could have discovered that it was at best questionable whether Willie Smith had empowered Mary Smith to convey the property. Accordingly, he argues, it was error for the trial court to find that Wells Fargo was a BFP and on that basis to grant summary judgment in Wells Fargo's favor. But appellant has cited no facts or precedents that persuade us that (or that create an issue as to whether) Wells Fargo "had any reason to question the validity of [the POA] or the competency of [Willie Smith] to execute same." Parton, 574 S.W.2d at 682 ("[A] good faith purchaser . . . [will] not be bound to consult an attorney, or to look for subtle rules of law, or to make a hypercritical analysis of the language of the power, but must be protected in his purchase made in good faith.") (citations and internal quotation marks omitted); Spence v. Spence, 628 S.E.2d 869, 876 (S.C. 2006) (discussing the "range of inquiry" required for BFP status and explaining that there must be "such a connection between the facts disclosed and the further facts to be discovered, that the former could justly be viewed as furnishing a clue to the latter") (italics added and citation omitted). Nor has appellant pointed to anything in the record that suggests that Wells Fargo had an obligation to be skeptical about or to inquire into whether the conveyance was for a purpose authorized by paragraph seven of the POA. For example, although the deed conveying the property to Mary Smith disclosed that Willie Smith was the "Surviving Tenant by the Entirety of Carrie Lee Smith," nothing in the recorded instruments disclosed that Mary Smith had siblings who might have been additional objects of Willie Smith's bounty or have had an expectancy interest in the property. And there was no evidence that the Option One Mortgage had financial or family information about Willie Smith and his other children (and appellant has cited no basis for charging Wells Fargo with knowledge of such information even if it were contained in the lender's files). Cf. SEC, 647 F. Supp. 2d at 1281 ("Merely showing information from a loan broker or an original lender's file is insufficient to prove that a . . . bona fide purchaser for value took the property with knowledge about such information.").

Appellant also argues that the irregular form of Mary Smith's execution of the deed put Wells Fargo on inquiry notice. He cites the requirement of D.C. Code § 42-101 (b) (2001) that "[a] person with . . . power of attorney executing a deed for another shall sign and acknowledge the deed as attorney-in-fact." He contends that Mary Smith's execution of the deed by signing "Mary

A. Smith as Agent for Willie Smith," instead of "Willie Smith by his attorney-in-fact Mary A. Smith" as prescribed by the statute, either constituted or put Wells Fargo on inquiry notice of a defect in title. We disagree. For one thing, one of the introductory paragraphs of the POA specifies that the "Attorney in Fact" is "hereinafter called my Agent." Thus, a title searcher examining the POA and the deed together would not have perceived any inconsistency between the POA and Mary Smith's execution of the deed as "Agent for Willie Smith." In addition, even if the form of signature prescribed by section 42-101 (b) was a formal requisite, any defect in the deed as a result of Mary Smith's non-conforming manner of execution was overcome by the time Wells Fargo came to be the holder of the note secured by the property. Under D.C. Code § 42-403, "[a]ny instrument recorded in the Office of the Recorder of Deeds on or after April 27, 1994, shall be effective notwithstanding the existence of 1 or more of the failures in the formal requisites listed in § 42-404 (which includes 'a defective or improper acknowledgment,' see D.C. Code § 42-404 (a)(1)), unless the failure is challenged in a judicial proceeding commenced within 6 months after the instrument is recorded." The deed executed by Mary Smith on November 15, 2005, was recorded on December 12, 2005. There was no challenge to any defect in the acknowledgment within six months after that recordation date. Thus, when Wells Fargo first acquired an interest in the property on or after December 2006, even if a title search revealed a defect in the acknowledgment, as a matter of law, that defect did not call into question the ineffectiveness of the deed.*fn18

For the foregoing reasons, we agree with the trial court that Wells Fargo was protected as a BFP against the alleged defects in title discussed above.*fn19

C.

The trial court's grant of summary judgment to Wells Fargo came on the heels of the court's ruling striking the affidavits of Jennifer Hebron and Daral Smith that plaintiffs submitted in opposition to the summary-judgment motion, and the court's denial of plaintiffs' motion to strike the Beckwith affidavit. These affidavits were relevant to plaintiffs' claim that the POA was a forgery, as the statements in each addressed the likelihood that Willie Smith executed the POA. As explained above, if the POA was a forgery, it rendered ineffectual the deed by which Mary Smith conveyed the property to herself and the deed of trust that she executed, which is the basis of Wells Fargo's interest in the property., because even a bona fide purchaser cannot acquire a property right by means of a forged instrument relating to the property. In re Baxter,320 B.R. at 39. Appellant contends that the court erred in striking the Hebron and Daral Smith affidavits and that only upon this error was the court able to grant summary judgment for Wells Fargo.

Wells Fargo moved to strike the Hebron and Daral Smith affidavits on the ground that the affidavits were not based on personal knowledge about whether Willie Smith signed the POA, as neither Hebron nor Daral Smith claimed to have been present when the POA was signed.*fn20 Hebron stated in her affidavit, however, that she was familiar with her father's signature, including his signature during the last years of his life, and that on that basis she did not believe the signature on the POA was his. Her affidavit was competent evidence, and the court erred in striking it. See Rogers v. Ritter, 79 U.S. 317, 322 (1870) (stating that it is well-settled that a person who has seen someone write his or her name even once is qualified to testify to the genuineness of a controverted signature); Bates v. Hogg, 251 S.W. 620, 622 (Ky. 1923) (stating that the personal knowledge a witness must have to prove the handwriting of a person includes prior experiences seeing the person write); Berg v. Peterson, 52 N.W. 37, 37 (Minn. 1892) (noting that personal knowledge of a person's handwriting can be acquired by having seen the person write); Storm v. Hansen, 124 A.2d 601, 604 (N.J. Super. Ct. App. Div. 1956)("[T]o qualify to identify handwriting or a signature, a witness must have seen the person write, or by correspondence and other business transactions with him obtained personal knowledge of the party's handwriting.").

Daral Smith's affidavit does not specifically address the signature of Willie Smith but sets out information, based on Daral Smith's personal observations, about Willie Smith's weakened, bedridden condition and deteriorated mental state during the month of his death. The affidavit raises at least an issue as to whether the individual who (according to the Beckwith affidavit) went to the notary's office and executed the POA twelve days before Willie Smith's death was in fact Willie Smith. Cf. Succession of Gabisso, 48 So. 277, 279 (La. 1909) (citing, as additional basis for upholding trial-court judgment that contract allegedly written and delivered by decedent was a forgery, the fact that deceased "was in feeble health and physically unable").*fn21 The Daral Smith affidavit, and the similar sworn statements in the Hebron affidavit, were competent evidence on the issue of forgery. See Wright, 198 So. at 90 ("Circumstantial evidence may be sufficient to prove the forgery of a deed."); Black v. Morton, 352 S.W.2d 177, 179 (Ark. 1961) ("All the circumstantial evidence indicates that the will is a forgery."). Thus, we agree with appellant that the court erred in striking the affidavits.*fn22

Had the court not erred by striking the Hebron and Daral Smith affidavits, plaintiffs' opposition to Wells Fargo's summary-judgment motion would have sufficed to raise a genuine issue of material fact as to whether Wells Fargo's interest in the property was rendered void by a forgery, and the court could not properly have entered summary judgment in favor of Wells Fargo. We therefore conclude that the summary-judgment ruling cannot stand.

III.

For the foregoing reasons, we uphold the ruling of the trial court that Wells Fargo is a BFP. That status, however, does not protect Wells Fargo if the POA was a forgery, an issue of fact raised by the Hebron and Daral Smith affidavits, which were competent evidence and should not have been stricken. Accordingly, we reverse the grant of summary judgment and remand to the trial court for trial on the forgery issue.

So ordered.


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