The court looked to case law for its initial determinations. In Massachusetts, the grantor of a mortgage gives legal title to the property at issue to the mortgagee (the lender), while the grantor of the mortgage retains equitable title to the property. However, the grantor of property can only convey what is actually owned by the grantor (as in, one person cannot grant property owned by another). With that guiding principle in mind, the court held that when the plaintiff granted the mortgage in 2015, the plaintiff could only grant a mortgage on that property which the plaintiff owned as of 2015. As the court further held that the adverse possession elements for two areas claimed by adverse possession by the defendants were separately met in 2006 and 2012, prior to the grant of the mortgage, the court also held that those two areas were taken by adverse possession free and clear of the mortgage.
However, what about the area acquired by adverse possession after the grant of the mortgage in 2015? The answer to that question was less clear in the case law, but the mortgage lender argued that the adversely possessed property was taken subject to the mortgage. The court agreed.
In answering this question, the court considered two cases dating back to 1829 and 1864 that seemed to hold that an adverse possessor took property free and clear of a mortgage regardless of when the mortgage was granted. However, the court found that those nineteenth century cases were no longer good law due to more recent statutes dealing with the conveyance of land.
More specifically, the court held that a lender who lacks possession of a mortgaged property generally is unable to protect the mortgaged premises from an adverse possessor’s activities. Moreover, there was no case law that the court or the defendants could point to that gave the lender the right to oust an adverse possessor from the property, nor was there anything in the mortgage that gave the lender the right to challenge adverse possessors. In fact, the court specifically found that the right to challenge adverse possessors remained plaintiff’s responsibility under the mortgage. Additionally, an adverse possessor has constructive knowledge that there is a mortgage on the property when that mortgage is recorded and can choose to either continue or suspend its adverse use of the property. These considerations led to the court holding that adversely possessed property acquired after the grant of a mortgage is taken subject to the mortgage.
While this holding is a victory for lenders in Massachusetts seeking to protect themselves from adverse possession after they acquire a grant of mortgage, lenders must remain diligent when considering a potential property, as all of the elements of adverse possession could be met prior to the grant of a mortgage and prior to a lawsuit. In such an instance, lenders could come to find that portions of the mortgaged property are not owned by their borrower or encumbered by their mortgage, potentially impacting the loan-to-value ratio.