SJC rejects remedy for purchaser of invalidly foreclosed property

Issue January 2012 January 2012 By Julie Taylor Moran

The recent decision of the Supreme Judicial Court in Bevilacqua v. Rodriguez1 has dealt another blow to purchasers attempting to establish clear title to property whose titles derive from foreclosure sales deemed invalid as a result of the SJC decision in U.S. Bank Nat'l Ass' v. Ibanez.2

In Ibanez, issued in January 2011, the SJC affirmed the Land Court's holding that a foreclosing lender must be the holder of the mortgage by an assignment dated before the first publication of the sale.3 The decision, which repudiated the Real Estate Title Standard long relied upon by real estate attorneys, which recognized the validity of assignments of mortgage dated after the foreclosure sale, sent shock waves through the real estate community.

A foreclosure which does not comply with Ibanez is now in most cases considered invalid. Accordingly, any subsequent attempted transfer of title to a purchaser of that property by the foreclosing lender is a nullity. The plaintiff in Bevilacqua was faced with just this situation.

In 2006, Bevilacqua purchased a foreclosed property from the foreclosing lender U.S. Bank, which was not holder of the mortgage at the time of the foreclosure sale.4 Bevilacqua proceeded to create four condominiums, three of which apparently were sold before the Ibanez decision. While the appeal of Ibanez was still pending, Bevilacqua filed a try title action in the Land Court under G.L. c. 240, §§ 1-5.5 He argued he was the party in possession and holder of record title, therefore according him the requisite standing to compel the respondent, the former mortgagor, to either bring an action to try title or be forever barred from enforcing his adverse claim to the property.6

The former mortgagor could not be found and did not appear in the case.7 Nonetheless, Judge Lang, the same judge who had decided the Ibanez case, on his own initiative, raised the issue of the validity of the plaintiff's record title and therefore, his standing to maintain the action.8 He determined, based on Ibanez, that Bevilacqua did not hold title to the property and dismissed the case with prejudice.9 Bevilacqua appealed. The SJC affirmed the Land Court's dismissal of the action while holding that the dismissal should have been without prejudice to allow the plaintiff to pursue other judicial remedies.10

In its decision, the SJC systematically rejected various theories offered by Bevilacqua to establish standing. He argued unsuccessfully that he was a bona fide purchaser for value and that he held good title by virtue of his recorded deed, a document the SJC characterized as "meaningless."11

The court did suggest that under certain circumstances, a defective foreclosure deed could operate as an assignment of the mortgage.12 With this, the unfortunate purchaser could attempt to clear title by conducting his own foreclosure of the mortgage. There are inherent challenges to this type of remediation, including the risk to the purchaser (the foreclosing entity) of being outbid at the auction by a third party, wiping out of the lien of the purchaser's own purchase money mortgage as a result of the new foreclosure sale and issues of priority of other recorded liens on the property.

These efforts could become even more complicated, depending on the outcome of the pending appeal in Eaton v. Fed. Nat'l Mortg. Ass'n,13 a recently decided case in which the court held that the foreclosing entity must hold both the note and mortgage. The purchaser could consider contacting the former mortgagor (owner) to obtain a deed in lieu of foreclosure, provided there are no subordinate liens on the property, or alternatively, rely on the entry made under G.L. c. 244§§1-2, either at the original foreclosure sale, or at some point thereafter which resolves title three years after recordation of the certificate of entry.

Julie Taylor Moran, a founder and principal of Orlans Moran PLLC, is a member of the Massachusetts Bankers' Association, the Massachusetts Mortgage Bankers' Association Compliance Committee, the American Legal and Financial Network and a founding member of Women Executives in Banking. She is on the Massachusetts Home Ownership Advisory Committee and a volunteer lecturer for Boston's first-time home buyers program.

1460 Mass.762 (2011).
2458 Mass.637 (2011).
3Id. at 650.
4Bevilacqua, 460 Mass. at 765.
6Id. at 763.
11Id. at 772.
12Id. at 773.
13SJC 11041 (Mass. filed Sept. 6, 2011).