The U.S. Court of Appeals for the First Circuit recently affirmed a lower court's dismissal of a borrower's complaint against a mortgagee under Massachusetts' "try title statute", Mass. Gen. Laws ch. 240, §§ 1-5, for failure to state a cause of action.
In reaching its ruling, the Court determined that: (1) pleading an "adverse claim" on the disputed property is a necessary element for a complaint brought under the try title statute; and (2) a mortgagee's legal title to a property does not constitute an "adverse claim".
A copy of the opinion is available at:
http://media.ca1.uscourts.gov/pdf.opinions/12-2275P-01A.pdf
The borrower brought suit following the assignment of the subject property's mortgage from MERS to the defendant/appellee ("mortgagee"). Specifically, the borrower's try title complaint alleged that the assignment was invalid and fraudulent. The borrow sought relief in the form of an order invalidating the assignment and enjoining the mortgagee from commencing foreclosure proceedings.
As you may recall, a complaint under a "try title statute", such as the Massachusetts law at issue here, is a specialized form of action which seeks to compel a party with an adverse claim to the petitioner's property to bring an action to try its title to the disputed property. In Massachusetts, an adverse claimant who fails to bring its action to try its title can be forever barred from having or enforcing its claim adverse to the petitioner.
The mortgagee filed a motion to dismiss arguing that the borrower failed to state a cause of action. The lower court granted the mortgagee's motion, dismissed the complaint without prejudice, and denied the borrower's motion for leave to amend.
The borrower appealed to the First Circuit based upon two arguments: (1) that the try title statute does not require that the petitioner allege an "adverse claim"; and, in the alternative, (2) that the mortgagee's attempt to foreclose on the subject property constituted an "adverse claim".
The First Circuit rejected both of borrower's arguments.
First, the Court determined that the plain language of the Massachusetts try title statute requires the petitioner to allege the existence of an adverse claimant: "'[i]f the record title of land is clouded by an adverse claim, or by the possibility thereof, a person in possession of such land' may file a petition to try title." See Mass. Gen. Laws ch. 240, § 1.
Additionally, the First Circuit noted that the borrower failed to cite to any case law supporting their contention; instead, the Massachusetts courts consistently dismissed try title complaints for failure to allege the existence of an adverse claim.
Second, the Court quickly dismissed the borrower's argument that the mortgagee's interest was adverse. Massachusetts subscribes to the "title theory" of mortgage law, which as you recall recall means that the mortgage creates two titles in the property: the legal title, owned by the mortgagee and securing the underlying debt, and the equitable title retained by the mortgagor. Under the "title theory" of mortgage law, the two titles created by the mortgage are separate but complementary claims to the property that do not survive the mortgage or each other. Thus, neither the equitable title holder or the legal title holder can claim that the other has an adverse claim to its own.
The Court held that, because the borrower's complaint against the mortgagee was based solely upon the mortgagee's purported status as the legal title holder, no adverse claim was alleged, and dismissal was appropriate.
Accordingly, the First Circuit affirmed the lower court's order dismissing the borrower's try title complaint.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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Chicago, Illinois 60602
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Email: RWutscher@mwbllp.com
Admitted to practice law in Illinois
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