• The First Circuit Holds That Actions Taken to Foreclose Do Not Create an Adverse Claim Between the Mortgagor and Mortgagee
  • August 7, 2013
  • Law Firm: Hinshaw Culbertson LLP - Chicago Office
  • The U.S. Court of Appeals for the First Circuit in Lemelson v. U.S. Bank National Association, Trustee, in affirming a dismissal pursuant to Fed. R. Civ. P. 12(b)(6), ruled that the efforts by defendant, a bank as trustee, to foreclose on plaintiff borrower/mortgagor's home did not constitute an "adverse claim." The borrower had filed an action pursuant to a seldom used Massachusetts "try title" statute, Mass. Gen. Laws ch. 240, ยงยง 1-5, seeking an order invalidating an assignment of his mortgage loan. To sustain the "try title" action, the borrower was required to plausibly allege that the record title to the property was clouded by an actual or potential adverse claim to title. The borrower attempted to argue that the actions taken by the bank as trustee to foreclose pursuant to the power of sale in the mortgage resulted in an adverse claim to title.

    The First Circuit rejected the borrower's argument because in a title theory state like Massachusetts the "mortgage splits the title [to a property] in two parts: the legal title, which becomes the mortgagee's and secures the underlying debt, and the equitable title, which the mortgagor retains." The court held that both legal title and equitable title were prima facie consistent with each other and were actually two separate, but complimentary claims to the property.

    Thus, a borrower in a title theory state is hard-pressed to allege that a mortgagee's actions taken to foreclose pursuant to the terms of the mortgage create an adverse interest in title. Indeed, there cannot be an adverse claim before the foreclosure is complete because the borrower's equity of redemption, namely, the right to redeem, "endures so long as the mortgage continues in existence" and the legal title held by the mortgagee is defeasible if the borrower exercises the right to redeem.

    Lemelson v. U.S. Bank National Association, ---- F.3d ---- (1st Cir. July 1, 2013)