Carteret Title
DRN Title Search
Register
Log In
Forget your Password?

Home
Directory
Bulletins
Forums
Blogs
Articles
Links
Classifieds
About Us
Contact Us
Advertise
FAQ
Privacy Policy


Source of Title Blog

Bevilacqua Court Got It Wrong
by Robert Franco | 2011/10/24 |

The recently decided Bevilacqua case in Massachusetts held that a buyer who received a defective deed from a foreclosing bank did not have standing to bring a "try title" action to clear his title. Though this a Supreme Judicial Court opinion, and it is now the law in Massachusetts, I don't think the Court got it right. 

Source of Title Blog ::

Essentially, Bevilacqua acquired title, post-foreclosure, from U.S. Bank.  Unfortunately, it was MERS mortgage and MERS had not yet assigned the mortgage to U.S. Bank.  Thus, U.S. Bank was not "the mortgagee, or his executors, administrators, successors or assigns,"  and it had no authority to deed the property to Bevilacqua.

Bevilacqua recognized that because of this defect in the foreclosure proceeding, the prior owner, Pablo Rodriguez, may still have an interest in the property.  To clear his title, Bevilacqua filed a try title action.  This would have required Rodriguez to bring his claim of an interest in the property, or be forever barred from claiming any interest in the future.

The Massachusetts law provides, in relevant part:

If the record title of land is clouded by an adverse claim, or by the possibility thereof, a person in possession of such land claiming an estate of freehold therein or an unexpired term of not less than ten years, and a person who by force of the covenants in a deed or otherwise may be liable in damages, if such claim should be sustained, may file a petition in the land court stating his interest, describing the land, the claims and the possible adverse claimants so far as known to him, and praying that such claimants may be summoned to show cause why they should not bring an action to try such claim.

There was no question that Bevilacqua was "a person in possession."  However, the Court found that the statute also required that "a plaintiff must hold a 'record title' to the land in question" to have standing to bring a try title action.  Though the Court admitted that there was very little precedent for it to rely on, it found support in two cases from 1894 and 1901.  

The 1894 case of Arnold v Reed had held that mere possession was not sufficient and "title appearing 'on the record' was also necessary."  Here, Bevilacqua did have a recorded deed, however the Court found that it was insufficient because "recording is not sufficient in and of itself... to render an invalid document legally sufficient."  

"As a result," the Court wrote, "it is the effectiveness of a document that is controlling rather than its mere existence.  The effectiveness of the quit-claim deed to Bevilacqua thus turns, in part, on the validity of his grantor's title.  Accordingly, a single deed considered without reference to its chain of title is insufficient to show 'record title' as required by [the statute]."

This may make sense in the context of the Arnold case, decided more than a century ago, but it is not really consistent with the plain language of the statute, which only requires the plaintiff be to "in possession" and "claiming an estate of freehold therein."  If Bevilacqua actually did have a valid deed, and held "record title" as interpreted by the Court, he would have had no need for the try title action.  

The word "claiming," to me, means that the plaintiff must have at least color of title.  "Color of Title" means:

"The appearance of a legally enforceable right of possession or ownership.  A written instrument that purports to transfer ownership of property but, due to some defect, does not have that effect.  A document purporting to pass title to land, such as a deed that is defective due to a lack of title in the grantor, passes only color of title to the grantee."

The fact that Bevilacqua paid good and valuable consideration for his interest in the property and received a deed, which although defective was recorded to provide constructive notice to all parties, should have been enough for him to be able to claim a freehold estate; he at least had color of title.

The Court's holding essentially would require that Bevilacqua be able to prove that he would prevail in the try title action before allowing him to bring it - despite the fact that nobody was contesting his title - not even Rodriguez, the prior owner.

Aside from that, however, the practical considerations also weigh in favor of holding that Bevilacqua had standing to bring a try title action.  The Court found that although Bevilacqua was barred from bringing an action to try title, he would not be barred from bringing other actions regarding the title to his property.  Specifically, in a footnote, the Court wrote:

Nothing contained herein is intended to limit Bevilacqua's right, if he can show himself to be mortgagee of the property, to pursue foreclosure under the appropriate statutes. The record does not disclose if Bevilacqua presently holds the promissory note secured by Rodriguez's mortgage. Whether the holder of a mortgage may foreclose the equity of redemption without also holding the note is a question that is not before us.

But, what is the practical difference in this case between a try title action and a new foreclosure?  Rodriguez would still be subject to the same requirement for service in both cases, and he would be permitted the same opportunity to claim any interest he held in the property.  Presumably, Rodrigeuz was properly served in both cases, and he never once appeared to defend his interest.  If the only person that could claim an adverse interest in the property is not interested in asserting such a right, why are we wasting so much money, and judicial resources, trying to prevent someone from clearing the title?

It appears that the only difference is the time and cost involved.  Clearly the foreclosure will take longer and cost much more... just to get to the same result.   Perhaps the trial judge raised this issue on his own, merely to jab at the banks for their shoddy foreclosure practices (and for that I kind of admire him), but the effect here will not hurt the banks nearly as much as it will the innocent homeowners who acquire "bad title" and the title companies who insure them.

Fortunately, I'm in Ohio... not Massachusetts.  Our "try title" equivalent, a "quiet title" action, is much more clear.

An action may be brought by a person in possession of real property, by himself or tenant, against any person who claims an interest therein adverse to him, for the purpose of determining such adverse interest. Such action may be brought also by a person out of possession, having, or claiming to have, an interest in remainder or reversion in real property, against any person who claims to have an interest therein, adverse to him, for the purpose of determining the interests of the parties therein.

The only requirement here seems to be "possession."  Of course, our statute was last updated in 1973 and is much more modern that the century old statute in Massachusetts.  We have all heard the expression "possession is nine-tenth of the law."  There is a reason for that... if a person is in possession, and another who may claim a superior interest is not challenging that possession, perhaps that is because he doesn't want it.  If that is the case... who are we to decide otherwise?

 




Rating: 

Categories: Foreclosures, Title Problems

1696 words | 3808 views | 11 comments | log in or register to post a comment


Great analysis!

Robert,

I think that you have correctly identified all of the problems with this decision.  

Those of us who are deeply entrenched in the REO title business had hoped for some clarification from the court on the status of title in this case. Unfortunately, no help was offered to us as insurers, nor to the thousand of innocent buyers of foreclosed properties. 

I have not heard anything from underwriting counsel yet as to how this case may affect those of us in Maryland, but I know that my counterparts in Massachusetts are probably sitting at their desks wringing their hands and uttering over and over again "now what do we do"? 

 

 
by CHARLENE PERRY | 2011/10/24 | log in or register to post a reply

Require Correct and Exact Procedures!

Robert,


I think the Bevilacqua Court considered the consequences of an "open link" in the chain of title but, more importantly, didn't want to provide avenues of "differing" actions to correct "incorrect and faulty" land title actions.

Wouldn't it be more prudent, as the court found, to redo the foreclosure action (albeit as you conclude, more expensive) to correct the incorrect procedure?

It would seem to me that claims and cross-claims could become so unwieldy that stacking new actions to correct old incorrect actions, which in turn may become further incorrect actions, could potentially threaten the system.

I have to agree with the court that ""recording is not sufficient in and of itself... to render an invalid document legally sufficient." And further,  "a single deed considered without reference to its chain of title is insufficient to show 'record title'". This starts to cover the territory where innocents who may have valid claims are overwhelmed by the threat and cost of litigation. Substance has to be considered by the court and an "exact" and orderly record is of extreme and paramount importance!

If the "try title" action is used to coverup all incorrect and sloppy actions, from whatever angle, aren't we then, more or less, pandering to carelessness and neglect?

I realize the hardship for Bevilacqua but if we chip away at substantial soundness in chains of title, where the court surely must interven whenever imprecise and disorderly procedures are at work, the standards by which we require expert and correct procedures will go astray!

And wouldn't a ruling via a "try title" substantiating the faulty foreclosure proceeding reinforce any claim by the original mortgagor in that regard? It wasn't clear where the mortgagor was but who knows what lurks under the covers??

 
by Wyatt Bell | 2011/10/24 | log in or register to post a reply

We are beyond "correct and exact procedures" here...

I would have been more than pleased to see the court bring up the issue in the initial foreclosure case.  But, it didn't.  I agree that the banks should be held to "correct and exact procedures" when they foreclose.  But, in this case, the court let this one by.

Once the court confirms the sale, I think the buyer needs a remedy to correct the problem and the try title action was perfect for it.  Who benefits by making the buyer re-foreclose?  Nobody!

The only person with an adverse interest was presumably properly served twice, yet he didn't bother to appear.  It seems like a tremendous waste of money and judicial resources to do all over again - for a third time.

This isn't about letting the bank off the hook - it is about giving the buyer a remedy to clear his title after the mistake was made (and confirmed by the court). 

Besides that... there could be real problems with the buyer attempting to re-foreclose.  for example, he doesn't hold the note... the noteholder was satisfied with the proceeds from the foreclosure sale.  Thus, you have to wonder if the court (again on its own motion) could raise this issue to prevent the new homeowner from re-foreclosing on the lien.  This was a question the Court refused to address.  But, think about it... if we are going to insist on "correct and exact procedures" should the court allow the a new foreclosure to proceed if the person foreclosing doesn't hold the NOTE and the mortgage?

Just suppose for a minute that the court did raise that issue and held that because the buyer did not hold the note he had no standing to foreclose.  What remedy would he have then?  Apparently, he would still be barred from filing a try title action, and this propertly would FOREVER remain uninsurable.  There has to be a procedure for clearing title... and in the case of a person in possession it should be a try title action.

In my opinion, the court didn't think this through far enough.  AND... in my opinion, although the bank screwed up royally... the buyer did follow "correct and exact procedures" for the try title action.

 
by Robert Franco | 2011/10/24 | log in or register to post a reply

Interesting.

Could one argue that the doctrine of merger applies here, Robert, and that the interest in the note and mortgage merged into whatever interest was transferred to the BFP at foreclosure sale? Sounds like a mess. Perhaps MERS and it's financial supporters should issue indemnification agreements to title companies still willing to insure these transactions.

 
by J. H. | 2011/10/24 | log in or register to post a reply

Possibly...

I think the Court left open the possibility that the note was equitably assigned to the buyer.  The typical "equitable assignment" in Ohio occurs where the note or mortgage is properly negotiated or assigned to the new holder, in that case the other is said to be equitably assigned along with it. 

In this case, however, the court in the foreclosure most likely ordered the mortgage to be canceled and released.  The holder of the note was paid, thus the note was satisfied.  I'm not sure the equitable assignment theory applies, but I can see how it could be argued that it does.

Either way, my problem with this is essentially that foreclosure, try title, and equitable assignment are all equitable remedies.  As such, I don't see the harm in applying the more simple remedy of try title, particularly in this case where the only person with an adverse interest has been properly served and failed to appear with any objections.

I hope that the foreclosing bank and its foreclosure firm are the ones who will have to make this right for the buyer - he should not have to suffer the expense of clearing his title.  Unfortunately, the trustee used a quit claim deed and there are no warranties of title. 

 
by Robert Franco | 2011/10/25 | log in or register to post a reply

Iowa System

 

This case also brings into focus the issue of an Iowa (Torrens) type system.


If some form of "certificate of good title" were issued then the remedies would stand in an entirely different framework. Instead of depending on private title insurors to evaluate and determine faulty procedures which stall and lock the process as in the current case the real estate commerce could continue.


 
by Wyatt Bell | 2011/10/26 | log in or register to post a reply

Yes, J.H., MERS should indemnify

Title companies are not charitable entities and stand to face significant claims due to MERS involvement in our real property.   The idea of indemnification is one which should be

used accross the board for anyone taking title to property in which MERS was involved and certainly an indemnification is needed for businesses asked to insure these titles.   It's not a permanent solution, imo, however. What do you suppose are the chances title companies will be given indemnification for these transactions?  MERS et al  have put the risk on the title company.  These aren't reasonable risks, although the 'risk' of not insuring these transactions is obvious in that someone else, another company, will.  

 Law needs to be followed first time round.  

 I applaud the law upheld by the MA SC.  If I left my car on the mall, for example, and it gets stolen and sold to someone else, must I justify my ownership?  Must I be made to litigate with the buyer of stolen property?  We need to zealously uphold the law and let the chips fall where they may.  Under all is the land and under that is the law. The buyer is not without remedy.  He may have an equitable right to the interest in the note and dot  if handled properly (though clearly he cannot be a hidc) or he can get his money back from the party who 'sold' him the property.   

 

 

 

 

 
by john gault | 2011/10/28 | log in or register to post a reply

Trustee's Sale Guarantee

I've never worked at a title company, but I've worked with them, so  I know enough to be dangerous, as they say.  Title companies issue the trustee's sale guarantee, right? I've only seen a couple, admittedly.  Title companies don't get paid (well, as far as I know) to do the

dot trustee's job nor should they. The trustee is supposed to get the documentation which evidences the rights of the beneficiary, including verification (beyond some mullarkey-declaration) of its status, its right to claim itself as beneficiary and evidence of the borrower's default.   Clearly, these mandates are not being met.  If they were, there wouldn't be a Bevilacqua case.  In truth, there should and would be a zillion Bevilacqua cases, but for the disparity between a claimant and the homeowner.   

If the trustee is not given this evidence, and it clearly isn't,  how can a title company be expected to insure any transaction?    Maybe it's time for the title companies to demand certified copies of the documentation a trustee should not be moving without.  I suppose this is tough in a competitive environment, but isn't there power in numbers? I truly hope this would not involve a conflict of interest for title companies with an interest in, say, MERS.  

And wouldn't a title company rather be assured for any number of reasons that a foreclosure is appropriate?

I know every successful operation wants to run its machinery smoothly and cost effectively and this sometimes involves delegating, for example.  But, still, given the state of things, which cannot be in anyone's best interest in the larger picture,  maybe keeping some things closer to home would benefit everyone.  

 

 

 
by john gault | 2011/10/28 | log in or register to post a reply

Perhaps...

With regard to your "stolen car" analogy:

If I left my car on the mall, for example, and it gets stolen and sold to someone else, must I justify my ownership? Must I be made to litigate with the buyer of stolen property?

I think that if you neglected to report the car stolen and they guy who bought it actually got a title from the seller, you might have to "justify your ownership."  Particularly if the guy who bought it had been driving it for the past year and replaced the transmission, fixed the broken windshield, put new tires on it, and added a pine-scented air freshener.  And, even more so if you were notified that the car was being sold to the buyer and you did nothing.

The property in this case was not stolen.  Rodrigeuz was served twice in this case and he did absolutely nothing.  The buyer, relying a court order and a deed he recevied, took possession and spent hundreds of thousands (I believe) on improvements.  Do you really think Rodrigeuz has any intention of trying to recover the property?  Should he even be allowed to after someone else fixed it up?

I stick by my blog - the decision was wrong.  Bevilacqua will get to keep the house... but he will be forced to spend a lot more money on another foreclosure, serving Rodriguez AGAIN, who will most likely not bother to appear AGAIN.

But, I do understand your frustration.  I do agree that the banks should be held to a higher standard (they consistently show disregard for the law), but Bevilacqua should be able to avail himself of the remedy of a try title action.

 

 
by Robert Franco | 2011/10/28 | log in or register to post a reply

Disenfranchised

   There are at least four definable groups of people who were disenfranchised by this process who were not the former owner:

 1.  taxpayers:  those who pay to have a public (civil) records system for land matters that is accurate and properly reflective of reliable matters of title

 2.  the consumer:  those real estate investors who might otherwise show up at the courthouse steps to bid on this lot were it not for the fact that they see and understand this lack of assignment as a material flaw in the title record.  this affects the ability to get a fair market, competitive sale price for the land.

3. the businessperson:  those who rely upon the completeness and accuracy of the index and records to provide their clients (often the investors) with a clear picture of title and lien priority prior to an auction

4  the neighbors and community surrounding the home, as their property values will be affected by this auction and the subsequent results thereof (i.e. vacant homes, blight, quick resale, other losses)

 The ruling was correct because Rodriguez was not the only party with a valid interest in the records.

 
by William Pattison | 2011/10/31 | log in or register to post a reply

None of whom have standing...

None of the "four definable groups" you mentioned would have standing in this matter.  Furthermore, they all had equal opportunity to purchase this property... and had they, they should have had been allowed to file a try title action.

Do you actually have any proof that the defect in the foreclosure was discovered by ANYONE prior to the sale that might have affected the sales price??  NO!  Nobody even realized this was an issue prior to the Court's ruling in Ibenez.    And, if this was discovered, why did nobody bring it to the attention of the court then? 

 
by Robert Franco | 2011/10/31 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

 

Links

Recommended Blogs Recommended Posts Source of Title Services
Recent Comments

 Thank you for the reminder to check for that notation about homestead exemption ending on the ...
by stephen willard
Pat was one of the sweetest men I've ever had the pleasure of knowing.  At every conference he ...
by Douglas Gallant
Pat was a good friend and a critical part of NALTEA.  So many memories from the NALTEA conferen...
by Jay Duncan
Pat was a good friend.  I have many wonderful memories, having known him. for 13 years,  ...
by Wanda Steudel
I have done Richland and Lexington Counties many times and I agree.  My gripe is I have seen ou...
by Naomi Backes
You're a good man, my friend.  I have worked for many lawyers in the past and it is too easy to...
by Alix Ott
I concur with the general sentiment that the advancement in information technology will likely make ...
by Don (Chunshen) Li
Posting from personal experience... The title company I work for has had 2 instances within th...
by Richard Palen
Categories

 
© 2007, Source of Title.