Reference no: EM131456430

Kenneth Smith obtained a second home equity line of credit and forged the signature of his wife, Sue-Anna Smith, on the loan documents submitted to the bank. Several years later, Sue-Anna filed for divorce and alleged that the home equity loan was obtained through fraud. To resolve the divorce litigation, the state court entered a series of orders dividing the property and obligations of each party. The order included a provision that after 12 months, it would be Sue-Anna's responsibility to make payments on the home equity loan and sell the property, from which she would receive the proceeds. Sue-Anna made payments on the home equity loan after the 12-month period. She then contacted the bank and told them that the loan had been fraudulently obtained. The bank was unable to complete a fraud investigation, because Sue-Anna failed to provide a copy of the police report. The bank then offered Sue-Anna the opportunity to modify the terms of the loan, which she accepted. Despite her knowledge of the forgery, Sue-Anna signed the modification agreement and continued making payments as modified by the agreement. The modification agreement also listed Sue-Anna as the sole borrower. After declaring bankruptcy, Sue-Anna sought to invalidate the home equity loan contract on the grounds that her signature was fraudulently obtained. How should the court rule on the case?