Property Law Developments—Joseph William Singer

The Ninth Circuit has held that the Kawaiisu (a tribe that is not recognized by the federal government) cannot assert title to its ancestral lands because it failed to file a claim under the California Land Claims by the 1851 deadline. Failure to do so, the court held, extinguished tribal title, apparently without compensation. Nor could it base its claim on a later treaty because that treaty (like other treaties with California tribes) was never ratified by Congress. Robinson v. Jewell, 2015 U.S. App. LEXIS 10446 (9th Cir. 2015).

The Sixth Circuit has ruled that nonjudicial foreclosure satisfies constitutional due process requirements because the homeowner/borrower was given notice of the foreclosure and notice of who to cure the default or seek a loan modification and how to redeem the property (get it back) after the foreclosure sale during a six-month redemption period. Garcia v. Fed. Nat’l Mortg. Ass’n,  782 F.3d 736 (6th Cir. 2015). These statutory procedures satisfied the constitutional right to notice and an opportunity to be heard before being deprived of a property right.

The Texas Supreme Court affirmed its ruling that the border between state-owned submerged lands and private lands along the coast is the “mean higher high tide line” or the mean location of the high tide line over the regular tidal cycle of 18.6 years. Porretto v. Tex. Gen. Land Office, 2014 WL 2994436 (Tex. 2014). In various ways, agents of the state of Texas has acted so as to claim public rights in property that is on the “private” or landward side of the line. The Texas General Land Office (GLO) claimed that it owns lands that the Texas Supreme Court says are privately owned; that office also requested that tax records be changed to indicate state ownership of those lands. These statements have made it harder for private owners to sell those lands. However, since the GLO ended its bid to change the tax rolls to claim public ownership of those lands and, “even though the [GLO] lawyers’  statements injured the [landlowners]”, the state did not actually dispossess the owners and therefore did not “take” their property without just compensation in violation of the takings clause.

The court also held that the line separating public and private ownership does not change because of state renourishment of beaches. “The State does not gain the dry beach by dumping sand on it,, nor does it lose what was before the wet beach, even if the renourishment pushes the MHHT [mean higher high tide] line farther seaward, which is usually the purpose of renourishment.”

In K.G.M. Custom Homes, Inc. v. Prosky, 10 N.E.3d 117 (Mass. 2014), the Supreme Judicial Court of the Commonwealth of Massachusetts held that a buyer can choose to seek either specific performance or damages when a seller breaches the promise to sell. The issue was hard because Massachusetts allows only specific performance as a remedy for anticipatory breach and the complaint had alleged only anticipatory breach. Because the issue of actual breach was fully litigated and the court found the seller to have committed an actual breach, the judge was justified in giving the plaintiff a choice of remedies. Massachusetts law also provides that a liquidated damages clause does not prevent an aggrieved party from seeking specific performance of a real estate transaction. The court also affirmed the rule that every contract contains an “implied covenant of good faith and fair dealing.” That covenant “exists so that the objectives of the contract may be realized.”

The Ninth Circuit held that a mortgage servicer that allegedly engaged in robo-signing may well have violated an Arizona statute, Ariz. Rev. Stat. § 33-420, that criminalizes filing false property title documents with the state recording offices. In re Mortg. Electronic Registrations Systems, Inc (Robinson v. Am. Home Mortg. Serv. Inc.), 2014 WL 2611314, 2 014 U.S. App. LEXIS 10934 (9th Cir. 2014). There was  evidence that trustee’s sale documents were notarized in blank and signed later by a person other than the one who was supposed to sign the document. Such signings were also done in bulk (robo-signing) and because not signed by the correct person were forged. In addition, notaries are supposed to witness the signature not notarize a blank document before any signature appears. The case is notable because the servicer was MERS (Mortgage Electronic Registration Systems, Inc.). Judge William Fletcher engaged in a detailed discussion about the advantages and disadvantages of the MERS system.

The Massachusetts Supreme Judicial Court ruled in Martin v. Simmons Props., Inc., 2014 WL 128537 (Mass. 2014), that the servient estate owner is entitled to narrow an easement as long as this does not interfere with the uses for which the easement was initially created. The court applied the traditional rule that easements are encumbrances on land and to be construed narrowly. At the same time, the touchstone was the intention of the parties that created the easement, determined both by the language in the easement and the circumstances at the time of creation of the easement. Because the documents and plan creating the easement did not specify an exact width of the easement or require that it be kept open through its full extent, the easement owner was entitled only to such use as was needed to afford access to the dominant estate. The court also reaffirmed the traditional rule that nonuse of an easement is not sufficient to establish abandonment of it.

The Supreme Judicial Court of the Commonwealth of Massachusetts has ruled that owners may make affirmative defenses to eviction claims by banks that acquired title to their property through a private or nonjudicial foreclosure. Bank of America v. Rosa, 466 Mass. 613 (2013). Those defenses may challenge the way in which the bank acquired title to the property through the foreclosure process and and power of the bank to foreclose in the first place. They may also include any equitable defenses that would defeat the claim for a right to possession of the property (the right to evict).

Several lawsuits have been in progress arguing that MERS violated state recording statutes by not recording mortgage assignments and thus cheating recording offices out of fees they otherwise would have earned. Interpreting Illinois law, the Seventh Circuit rejected that claim as have other courts that addressed the issue. Union County v. MERSCORP, Inc., 2013 WL 6017394 (7th Cir. 2013) (applying Ill. law). The court explained that Illinois law agrees with almost all other states in providing a voluntary recording system that is intended to protect those who record; that system does not require property transactions to be recorded for them to be valid. It merely protects bona fide purchasers from prior claims against which they had no notice.

The Texas Supreme Court held that a transfer of land to a city with an option to repurchase if the property were ever used for non-park purposes constituted a fee simple subject to condition subsequent and that the right of entry was a property right for purposes of the takings clause and compensable when then city failed to honor the condition. El Dorado Land Co., L.P. v. City of McKinney, 395 S.W.3d 798 (Tex. 2013). The deed provided that the conveyance was “subject to the requirement and restriction that the property shall be used only as a Community Park” and gave the grantor the right to repurchase the property at the price the city paid for it or the current fair market value whichever was less if the property were not used for the designated purpose. Although the repurchase right was called an option to purchase, the Texas Supreme Court interpreted it as a right of entry.  When the city built a library on the property, the grantor sought to exercise the option; when the city did not respond to its demand, the grantor sued claiming the city had taken its right of entry without just compensation, and the high court agreed with its claim. The court remanded to determine whether construction of the library violated the conditions in the grant.

The traditional rule is that title to real property is determined by the whole law of the situs of the property, meaning both the substantive law of the situs and its choice-of-law rules. Thus title is determined by whatever law would be applied at the situs. This rule has been rejected in some cases in recent years because personal property on death is determined by the law of the domicile of the decedent and if different rules are applied to real property located elsewhere and personal property, the decedent’s wishes may be ignored or perverted. However, many courts adhere to the traditional rules as occurred in In re Estate of Latek, 960 N.E.2d 193 (Ind. Ct. App. 2012), a court at the decedent’s domicile (Illinois) refused to accept a will for failure to comply with Illinois will execution requirements but the court in Indiana (where the property was located) refused to defer automatically to the determination of the Illinois court. The court affirmed what appears to be settled law that the full faith and credit clause does not require one state to defer to judgments of another state that purport to determine title to land outside that court’s jurisdiction. The Indiana court noted that an Indiana statute allowed wills that were proved valid in other states to be admitted in Indiana but in this case the will had not been proved in Illinois.

The Supreme Judicial Court of the Commonwealth of Massachusetts has reaffirmed the old rule that property rights can be expanded by slow accretion or diminished through slow erosion when property is located on a stream or the ocean. In White v. Hartigan, 982 N.E.2d 1115 (Mass. 2013), beachfront owners claimed a right to use the beach behind their neighbors house because their deed had given them rights to the beach in 1841. The court disagreed, noting that changing boundaries had placed the plaintiffs’ beach under water and that they had no right to “moveable” boundaries ensuring access to the beach behind their neighbor’s house.

State courts have disagreed about whether MERS (Mortgage Electronic Registration Systems) has standing to foreclose on property or to assign whatever interest it has in the mortgage to the bank that holds the mortgage currently so that that bank can bring foreclosure proceedings. Some courts have held that MERS has no property interest in the mortgage but is a mere agent for the mortgage owner so it cannot bring foreclosure proceedings itself or assign the mortgage to anyone else.   Bain v. Metropolitan Mortgage Group, Inc., 285 P.3d 34, 36–37 (Wash. 2012) (because MERS does not hold the note, it can neither initiate nonjudicial foreclosure proceedings not assign an interest in the note to a trustee who can do so). But others have held that MERS may initiate foreclosure proceedings in its own name and/or assign the mortgage to someone else.  Gomes v. Countrywide Home Loans Inc., 121 Cal. Rptr. 3d 819, 826–827 (2011) (MERS may initiate nonjudicial foreclosure under deed of trust); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34 (Fla. Dist. Ct. App. 2007) (MERS may foreclose as agent of the note holder); Residential Funding Co., LLC v. Saurman, 805 N.W.2d 183 (Mich. 2011) (MERS had sufficient “interest in the debt” to initiate nonjudicial foreclosure proceedings); Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487, 494–495, 501 (Minn. 2009)(applying Minn. Stat. §507.413 allowing MERS to initiate foreclosure proceedings).

In Culhane v. Aurora Loan Servs. of Neb., — F.3d —, 2013 WL 563374 (1st Cir. 2013), the First Circuit, applying Massachusetts law, has now held that MERS may assign mortgages because it does own a legal interest in the mortgage. In an opinion by Judge Selya, the court held that MERS has the “legal interest” in the mortgage because it is named as the mortgagee but that the bank that actually issued the note and has the right to enforce the mortgage to secure the loan has the “beneficial interest” in the mortgage. The court reasoned  that the party that owns the note or is entitled to enforce it (not necessarily the same party) has the equitable right to the protection of the mortgage giving it a right to foreclose and that MERS is merely holding title to the mortgage for the benefit of that party. At the same time, MERS has a sufficient interest to hold the mortgage title for the benefit of the owner of the “beneficial interest” in the mortgage. It is not clear if that would mean that MERS could bring foreclosure proceedings in its own name or that means that the right to foreclose cannot be separated from rights in the note.

In Federal Home Loan Mortgage Corp. v. Schwartzwald, 2012 Ohio 5017, 2012 Ohio LEXIS 2628 (Ohio 2012), the Supreme Court of Ohio joined other courts that have refused to allow banks to foreclose if they cannot prove by written evidence at the time of foreclosure that they have a legal right to foreclose. In this case, Federal Home Loan commenced a foreclosure action before it obtained an assignment of the promissory note and mortgage securing the loan, although it attempted to “cure” that defect by obtaining the assignment later. The Supreme Court of Ohio reversed lower court rulings that had decided that the cure would allow the foreclosure to proceed; instead, it held that state law required lawful standing at the time the foreclosure action was brought. It cited cases from other states that denied standing to MERS (Mortgage Electronic Registration Systems) because it did not possess any interest in the note or the mortgage. The court dismissed the foreclosure claim without prejudice, so the lender can refile now that it has obtained a written assignment of the mortgage and lawful possession of the note. The court’s ruling suggests, however, that a bank that cannot provide proof that it “owns” the rights in mortgage and/or the note may not be able to foreclose, leaving to another day the question of whether the lender can use alternate evidence to prove its property rights and how a borrower/homeowner can clear title to the property that appears to still be encumbered by a mortgage.

In Eaton v. Fed. Nat’l Mortgage Ass’n (Fannie Mae), 2012 Mass. LEXIS 488 (Mass. June 22, 2012), the Supreme Judicial Court of Massachusetts held that a foreclosing party must be in physical possession of both the note and the mortgage (or be acting on behalf of someone who does) when bringing a foreclosure proceeding. However, the ruling applies only prospectively to foreclosures that occur in the future, with the exception that the plaintiff in Eaton that convinced the Court to clarify this rule can take the benefit of it. The refusal to apply the rule retroactively was based on the belief that the law may have been unclear beforehand and that it was the case that many people acted without regard for this principle in the past.

A dispute has arisen between South Essex Register of Deeds John O’Brien and the Massachusetts Real Estate Bar Association (REBA) over O’Brien’s refusal to allow seemingly “robo-signed” mortgage documents to be recorded in the Registry of Deeds. REBA contends that state law allows the recording of any document “purporting” to be signed by an authorized signatory to a mortgage or a mortgage assignment. Mass. Gen. Laws ch. 183, § 54B. But Register O’Brien points to 1,300 documents received that were signed “Linda Green” but which exhibit different handwriting styles and different titles, and some were filed after 2010 when it was believed that Green stopped working for a mortgage company. O’Brien takes the position that he will not record documents signed by “known robo-signers” and he will also forward suspicious documents to the Attorney General’s office for investigation of mortgage fraud. Scott Pitman & MIchael Pill, To record or not to record robo-signed documents? 40 Mass. Lawyers Weekly 9 (Sept. 26, 2011).

Idaho, Indiana, Mississippi and Montana have all passed statutes prohibiting enforcement of any transfer fee covenants entered into after the dates the legislation goes into effect. See 2011 Idaho Sess. Laws 107; 2011 Ind. Acts 136; 2010 Miss. Gen. Laws 348; 2011 Mont. Laws 259. Transfer fee covenants are promises inserted in deeds to pay a fee to the original seller of the property any time it is sold in the future. Such fees were abolished in New York State in 1852 in the case of DePeyster v. Michael, 6 N.Y. 467 (1852) as a vestige of feudalism.

In an extension of its earlier ruling in U.S. Bank Nat’l Ass’n v. Ibanez, 941 N.E.2d 40 (Mass. 2011) that a foreclosure is invalid unless the party seeking foreclosure proves that it owns the mortgage (has the right to foreclose) at the time of the foreclosure, the Supreme Judicial Court of the Commonwealth of Massachusetts ruled in the case of Bank of New York v. KV Bailey, 2011 WL 3307553 (Mass. 2011),  that a homeowner could challenge an eviction from his home even though it was foreclosed in a private sale to determine whether the mortgagor/lender had the power to foreclose. Because Massachusetts uses private foreclosure rather than court-supervised foreclosure, the ruling extends court supervision of foreclosure to homeowners by effectively requiring foreclosing parties to have proof of the right to foreclose before the foreclosure sale. It does so by denying power to evict an occupying homeowner without proof of the right to possession of the premises. Because the law generally protects a peaceable possessor of land unless the one seeking possession can show a better title denial of the right to evict has the effect of regulating the prior foreclosure process, which, in turn, will require that the market for transfers of mortgages comply with the requisite formalities of the statute of frauds.

In the case of Bevilacqua v. Rodriguez, 2010 WL 3351481 (Mass. Land Ct. 2010), the court held that parties cannot cure an invalid foreclosure by a quiet title action.The bank that brought the foreclosure action had no proof at the time of the foreclosure that it owned the mortgage (the right to foreclose) because it had no written assignment from the prior mortgagee. For that reason, the foreclosure was invalid under the rule adopted by the Supreme Judicial Court of the Commonwealth of Massachusetts in U.S. Bank National Ass’n v. Ibañez, 458 Mass. 637 (2011). Ibañez held that foreclosures are invalid if the mortgagee bringing the foreclosure action cannot (at the time the foreclosure action) produce a written document proving that it was assigned the benefit of the mortgage from the prior mortgage holder. Thus when the bank sought a declaratory judgment that the foreclosure was valid, the court rejected its claim. That meant that a subsequent purchase of the property by a third party did not convey good title to the third party. Bevilacqua restates the Ibañez rule but goes further and holds that the third party cannot bring a quiet title action to seek a judgment that it has title to the property. Because it has a quitclaim deed from a seller who has no valid title, it cannot legitimately argue a basis for a quiet title action, leaving title with the party who held it prior to the invalid foreclosure.