Commonwealth Land Title Ins Co v. Potter ( 2024 )

7ermont Superior Court
Filed 07/25/24
Caledonia Unit
VERMONT SUPERIOR COURT CIVIL DIVISION
Caledonia Unit Case No. 23-CV-01324
1126 Main Street Suite 1
St. Johnsbury VT 05819
802-748-6600
www.vermontjudiciary.org
Commonwealth Land Title Insurance Company v. Mark Potter et al
ENTRY REGARDING MOTION
Title: Motion for Summary Judgment RE: Statute of Limitation Defense (Motion: 2)
Filer: Brice Simon
Filed Date: April 10, 2024
The motion is DENIED.
Defendants Mark and Kasey Ann Potter seek summary judgment on their affirmative
defense that the underlying mortgage lien, on which Plaintiffs' case is founded, was final more than
eight years prior to the present action, and that 12 V.S.A. § 504 bans any action on this mortgage as
untimely. For the reasons explained below, the Court finds that there are significant facts in dispute
that make summary judgment inappropriate.
Undisputed Facts
In September 2004, Defendants purchased the residential property located at 435 Barr Drive
in Ryegate, Vermont. At approximately the same time, Defendants took out a note and mortgage
on the property with GMAC Mortgage, LLC. In October 2008, Defendants obtained a discharge in
bankruptcy, which discharged their personal liability on the debt but did not discharge the note or
mortgage, which ran with the property.
In November 2014, Defendants sold the property to Plaintiffs Jimmy and Sylvia Newberry.
At the time, the mortgage was recorded in the land records at the Town of Ryegate. Defendants did
not obtain a payout amount or seek a discharge for the mortgage, but they did issue a warranty deed
to the Newberry Plaintiffs, which expressly covenants that the Property was conveyed free from
every encumbrance excepting only certain encumbrances that did not include the mortgage with
GMAC. At the time of the purchase, Plaintiffs obtained a title insurance policy from
Commonwealth Land Title Insurance Company.
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At some point after their purchase and before 2021, the Newberrys sought to sell the
property. At that time, they became aware that the mortgage had not been discharged and that
GMAC’s alleged successor in interest, Real Time Resolutions, would not discharge the lien without a
payment. Commonwealth’s title insurance policy was triggers, and Commonwealth negotiated a
payment with Real Time Resolutions in the amount of $120,000. It is unclear if this was a
discounted amount, the face value of the mortgage, or some negotiated amount reflecting the
uncertainty of the lien.
Commonwealth, on behalf of itself and the Newberrys, seeks to recover the $120,000
amount used to discharge the pre-2014 encumbrance and to recover its reasonable attorney’s fees
against Defendants under the covenant of the warranty deed.
Statute of Limitation
The Potters seek to dismiss this action against them by arguing that any action founded on
the covenant of warranty that runs with the land has an 8-year statute of limitation under 12 V.S.A. §
504. The Potters note that the covenant was issued in 2014 when the GMAC mortgage was already
in place, and the present action was filed in March of 2023—9 years after the covenant issued.
The provisions of Section 504 states that an “action founded on covenant of warranty in a
deed of land shall be brough only within eight years after a final decision against the title of the
covenantor in such deed.” 12 V.S.A. § 504. The Vermont Supreme Court has noted that this
language creates two potential deadlines: (1) at the time the deed is recorded and (2) when a final
action, like a foreclosure, wrests possession from the covenantee. Hull v. Federal Land Bank of
Springfield, 134 Vt. 201, 203–05 (1976). As Hull instructs, the distinction lies in whether the
covenantee takes possession and is later ousted or never takes possession but finds a holder of
paramount title already in possession. Id. at 204. In the former, the breach occurs at ouster, and in
the second, when the deed is recorded. Id.The question here is whether the third-party mortgagee was in possession in 2014 when the
deed was recorded for purposes of a Hull analysis. While there is no Vermont case on point, there
are number of cases from other jurisdictions that hold when dealing with a warranty of covenant, it
is the time of ouster, and not the time of recording, that controls. See, e.g., Fox v. Pinson, 34 S.W. 2d
459, 461 (Ark. 1930) (tying the date of the claim under a covenant of warranty to plaintiff’s date of
constructive eviction under foreclosure); Belleville Land & Lumber Co. v Griffith, 6 SW2d 36, 38 (Ark.
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23-CV-01324 Commonwealth Land Title Insurance Company v. Mark Potter et al
1928) (action did not accrue until eviction from the lands); Heath v. Whidden, 24 Me. 383, 384–85
(1844) (allowing cause of action to proceed because a mortgage is “an incumbrance, and, at the same
time, an outstanding title. Defeasible upon the performance of certain conditions”); Post v. Campau, 3
N.W. 272, 277–78 (Mich. 1879) (adopting the rule that a cause of action for breach of warranty on a
mortgage does not commence until the substantial damages is suffered and noting that “it can never
be held that a party is guilty of laches in delaying suit until he is damnified”); Morris v. Lain, 180 S.E.
206, 208 (S.C. 1935) (breach of warranty because of mortgage did not occur until the foreclosure
action was commenced).
The reasoning of these cases dovetails both with present Vermont caselaw and Defendant’s
own legal position. When a lien is placed on a parcel, it does not occupy or possess the land, and its
enforceability is untested and only potential. Its placement on the land and its claim of security is
just that, a ministerial act and claim.1 There is a question of discovery that goes both to the
existence of the lien and its import. Luke v. State, 2017 WL 7052187, at *5 (Jul 12, 2017) (Hoar, J.)
(noting that prior Vermont caselaw on the covenant of seisin did not incorporate the discovery rule
and holding that this rule must be read into all statute of limitation cases).
Defendant’s primary argument against Plaintiff’s motion for summary judgment is that the
lien was likely unenforceable and could have been discharged without payment or with a lower
payment. Such uncertainty would make the mortgage’s enforcement and damages uncertain in 2014
at the time that the warranty deed was recorded. In fact, Defendants claim that they did not
discharge the mortgage because they understood it to be a nullity after their bankruptcy.
Given that the mortgage appears to have sat in the land records from 2008 until the
Newberrys inquired about it sometime prior to 2021, it does not appear to have been any type of
active possession, and there is no record of GMAC or its successor blocking the Newberry’s active
possession of the property that they exercised from 2014 until their efforts to sell the property.
Based on the foregoing, the Court concludes that the triggering event for the statute of
limitations to run on a covenant of warranty claim related to a mortgage arises when the mortgagee
1 As the parties are aware, the mere fact that a document claiming to be a lien is filed in the land records does not
mean that it represents an enforceable or even foreclosable interest. See Wharton v. Tri-State Drilling & Boring,
2003 VT 19, ¶¶11–16 (finding a mechanic’s lien to be an unenforceable slander of title recorded in the land
records).
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takes some affirmative step to either foreclose the covenantee’s occupancy of the property or some
similar action or notice that gives the covenantee notice that the mortgage has moved into a default
and is being exercised to assert possession and dominion over the land to the exclusion of the
covenantee that would trigger the covenant of warranty in the deed.2 In this case, that took place
less than 8 years before the commencement of the present action, which renders the present action
time under Section 504.
ORDER
Defendants Potter’s motion for summary judgment is Denied. The present action was
commenced within 8 years of the triggering of the mortgage interest as an actual and present
encumbrance against Plaintiff’s ownership and occupancy, and the present action may proceed
under 12 V.S.A. § 504.
Electronically signed on 7/24/2024 5:40 PM pursuant to V.R.E.F. 9(d)
__________________________________
Daniel Richardson
Superior Court Judge
2 This is not to rule out other fact-specific situations where a covenantee becomes aware of an encumbrance,
contacts the covenantor, who refuses to act, and covenantee sits on his or her rights for 8 years. In such case,
though, the doctrine of laches would come into play to prevent an unfairness where notice and effort to enforce
were sought, but then abandoned.
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