The Massachusetts Supreme Judicial Court has held in a recent case that a foreclosing lender could not transfer valid title to a bona fide purchaser of a residential property where a transfer of the mortgage to the foreclosing lender was not recorded until after the foreclosure sale. The October 18 decision came in a case brought by the person who purchased the property from the foreclosing lender against the previous owner in an attempt to either force the previous owner to enforce any rights he may have in the property or forever bar him from challenging the purchaser’s title. The purchaser acquired the property by quitclaim deed from the foreclosing lender after the foreclosing lender executed a foreclosure deed purporting to transfer title to itself. However, at the time the lender executed the foreclosure deed, it was not the assignee of the mortgage it purported to foreclose. The assignment of the mortgage to the foreclosing lender was recorded about one month after the foreclosure sale. The Supreme Judicial Court held that, because the mortgage had not been assigned to the lender before the foreclosure, the lender had no authority to carry out a foreclosure and the foreclosure was void. Since the foreclosure was void, the court held that the purchaser did not hold a valid title to the property.
Nutter Notes: The purchaser made several alternative arguments to support his claim to the property. The purchaser argued that the chain of grants coupled with his quitclaim deed is sufficient to establish record title. However, as indicated above, the court held that, because the lender was not the assignee of the mortgage at the time it foreclosed on the property, its sale to the purchaser was invalid and the purchaser’s title was defective. The purchaser’s next argument was that he became the assignee of the mortgage. The court noted that it has held that a foreclosure deed may operate as an assignment of a mortgage in cases where the foreclosure deed itself is ineffective due to noncompliance with the power of sale. But the court held that the foreclosure deed could not be construed as an assignment of the mortgage because the lender was not the assignee at the time it executed the foreclosure deed. Finally, the purchaser argued that he was a bona fide purchaser of the property for value and could not have known of the title problem, and therefore must be recognized as the record title owner. The court noted that the law often protects the title of a purchaser for value who has no notice or knowledge of a defect of the seller’s power to sell the property. However, the court held that the foreclosure sale in this case was wholly void so title never left the possession of the prior owner.