Thursday, January 22, 2015

FYI: 1st Cir Rules Prior Owner's Attempt to Invalidate Mortgage Barred by Estoppel by Deed

The U.S. Court of Appeals for the First Circuit recently affirmed the entry of summary judgment in favor of a mortgagee where a borrower’s father, the original owner of the collateral property, sought to invalidate the mortgage. 


In so ruling, the First Circuit concluded that the father was estopped from claiming an interest in the property pursuant to the doctrine of estoppel by deed.  The First Circuit also rejected the father’s argument that borrower was not a bona fide purchaser.


A copy of the opinion is available at:


In 1984, the original owner (“Father”) owned two non-contiguous lots in Alton, New Hampshire.  One property, located at 132 Roger Street, fronted a lake and had various improvements, including a house (the “House Lot”).  The other property was located further down Roger Street but did not have an address or any improvements (the “Vacant Lot”).  Both lots were bisected by Roger Street, which used to be known as Mount Major Park Road.


In December of 2001, Father entered into a purchase and sale agreement with his son (“Brother”) to sell property “located at Mount Major Road.”  Although Father and Brother intended to convey the House Lot, both the warranty deed and Brother’s mortgage contained a legal description of the Vacant Lot.  The warranty deed did not include a street address.  Although there were no buildings on the Vacant Lot, the deed’s description of land referenced a tract of land with buildings thereon before reciting the metes and bounds of the Vacant Lot.


In 2000 the town of Alton (“Town”) recorded a lien on the Vacant Lot for unpaid taxes.  In October 2002, because the taxes still had not been paid, a tax collector conveyed the Vacant Lot to the town by the tax collector’s deed.  In July 2005, Father’s mortgagee paid off the tax debt, and on August 3, 2005, the town reconveyed the Vacant Lot to Father by quitclaim deed.


On January 20, 2006, Brother entered into a purchase and sale agreement to convey “land and building situated at 132 Rogers Road” to his sister (“Borrower”).   Although the agreement referenced the House Lot’s address, it referred to the deed from Father to Brother for the property description.  As stated above, that deed described the Vacant Lot, not the House Lot. 


Thus, Borrower’s mortgage agreement with the lender, dated April 27, 2006, stated that the property securing the loan was located at 132 Rogers Road, the House Lot’s street address, but including a legal description of the Vacant Lot.  The warranty deed from Brother to Borrower recited the same legal description of the Vacant Lot found in the deed from Father to Brother, and did not include a street address.  Borrower’s mortgage was eventually assigned to Mortgagee.


Father filed for Chapter 7 Bankruptcy in 2005.  The bankruptcy Trustee considered the House Lot to be part of the bankruptcy estate, and in July 2008, filed a notice of intent to sell the House at public auction.  Over the objection of Borrower and the Mortgagee, the bankruptcy court granted bankruptcy Trustee’s motion to sell the House Lot.  Subsequently, the House Lot was sold. 


Borrower stopped making her mortgage payments in August 2007, and Mortgagee notified her that it intended to foreclose on the vacant lot.  Then, Father brought suit in state court, styling his complaint as a petition to quiet title on the Vacant Lot and for a declaratory judgment that he held a fee simple title to the Vacant Lot. 


Mortgagee removed the case to federal course on diversity grounds.  The district court allowed Father to amend his complaint to add a petition to invalidate Borrower’s mortgage agreement with Mortgagee.  Both parties moved for summary judgment, and the district court granted Mortgagee’s motion, reasoning that Father was estopped from claiming title to the Vacant Lot because he had conveyed that property to his son in 2002.


On appeal, Father argued that he still held title to the Vacant Lot pursuant to the quitclaim deed issued to him by the Town in August 2005.  Second, he argued that Mortgagee’s mortgage interest in the Vacant Lot was invalid because Borrower was not a bona fide purchaser for value.


As you may recall, the doctrine of estoppel by deed, which prevents a party from denying representations made in a valid deed.  See Hilco Prop. Servs., Inc. v. United States, 929 F. Supp. 526, 545 (D.N.H. 1996).  Even if an individual does not possess clear title at the time he grants the deed, he is estopped from denying the grant of the deed once his title is perfected.  White v. Ford, 471 A.2d 1176, 1178 (N.H. 1984).


The First Circuit noted that parties agreed that Father’s deed to Brother described the Vacant Lot, on which the town held a lien due to unpaid taxes.  Thus, when Father deeded the property to Son in 2002, he did not hold complete title to the Vacant Lot.  Mortgagee argued that the title issue was cured when the taxes were paid off by Father’s mortgagee and the Town deeded the Vacant Lot back to Father in 2005.


The Appellate Court noted that any deficiencies in Father’s title passed to Brother when Father’s mortgagee paid the taxes owed to the Town in 2005, making fully valid his conveyance of the Vacant Lot to Son in January 2002.  Accordingly, as of August 3, 2005, it was Brother rather than Father who held title to the Vacant Lot.  Thus, the Appellate Court concluded that Father could not meet his burden to establish his good title to the Vacant Lot.


Next, the First Circuit considered Father’s argument that Borrower could not grant the loan originator a mortgage on the Vacant Lot because she held no interest in the Vacant Lot.  Father argued that Borrower could not claim title to the Vacant Lot because the town’s quitclaim deed to him in 2005 defeated her purchase from Brother in 2006.  According to Father, because the quitclaim conveyance from the town to him was recorded, a proper title search would have put Borrower and loan originator on notice of his interest in the Vacant Lot.  See Thomas v. Finger, 743 A.2d 1283, 1285 (N.H. 1999) (noting that a bona fide purchaser for value is one who acquires title to property for value, in good faith, and without notice of competing claims or interests in the property).


The Appellate Court rejected this argument and noted that a proper title search in the Vacant Lot at the time of Borrower’s purchase would have uncovered both the 2005 quitclaim deed and the 2002 warranty deed from Father to Brother, by which Father divested himself of any interest in the Vacant Lot.  Since Brother held no interest in the Vacant Lot, and was not a party to Borrower’s mortgage agreement with Mortgagee, the district court properly denied Father’s motion for summary judgment as to his petition to invalidate Borrower’s mortgage agreement with Mortgagee.


Finally, the First Circuit considered whether the district court properly granted Mortgagee’s Motion for Summary Judgment.  It concluded that because Father bore the burden of proof in his quiet title action, he had to offer definitive, competent effort to rebut the motion.  See Cahoon v. Shelton, 647 F.3d 18, 27 n. 6 (1st Dist. 2011).  As Father had failed to establish a valid title, he had no basis to contest either Borrower’s title to property or her mortgage agreement with Mortgagee.  Accordingly, summary judgment in favor of Mortgagee was appropriate.


Accordingly, the First Circuit affirmed the ruling of the district court.





Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874


Admitted to practice law in Illinois





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