Many of us are too familiar with the public spectacle of a real estate foreclosure auction. Following weeks of published notices, an auctioneer appears at the property and displays a red flag, onlookers gather, bidders are qualified, announcements are made, and the bidding proceeds. But not all foreclosures follow this ritual, as a real estate investor learned from a recent Land Court judgment.
HS Land Trust v. Gonzalez involved an unusual situation where a mortgage lender foreclosed by entering upon the property alone, without a public auction, under the mortgagee’s power of sale. Massachusetts law allows an alternative method of foreclosure, often referred to as “foreclosure by entry,” where the lender peaceably enters upon the property in the presence of two certifying witnesses, then records a certificate of entry at the local Registry of Deeds. If three years pass without the borrower contesting the lender’s entry, the foreclosure is complete and the lender owns the property free of the borrower’s claims.
The borrowers mortgaged their property in 1988 to Santos Gonzalez, a private lender. Gonzalez peaceably entered the property in 1990 to foreclose his mortgage, then recorded a certificate of entry. For reasons unknown, Gonzalez never foreclosed by auction under the power of sale. After his entry, Gonzalez retreated and did nothing. He did not reside at the property, collect rents from it, maintain it or pay taxes on it. He did not notify the city of his ownership. The borrowers did not contest his entry, and later sold the property.
Over an 18-year period, the property was transferred several times, mortgaged, subdivided and converted into condominiums. In spite of this activity, it appears that title examiners overlooked Gonzalez’s recorded certificate of entry.
An institutional lender foreclosed on one of the condominium units in 2008, and then sold the unit to HS Land Trust. Gonzalez resurfaced in 2010, and notified HS Land Trust of his claim. During the ensuing litigation, HS Land Trust maintained that Gonzalez’s foreclosure by entry did not convey ownership to him, because he failed to take overt actions commonly associated with property ownership and possession. It also argued, as an alternative theory, that even if Gonzalez’s foreclosure by entry was valid, HS Land Trust owned the property by adverse possession under the 20-year statute of limitations.
Land Court Rules
The Land Court disagreed. Citing several cases, including an 1864 case where a lender had secretly foreclosed by entry at night, the court held that peaceable entry with two attesting witnesses and recording the certificate, after three years, completed the foreclosure. The court disposed of the adverse possession argument, finding that the adverse possession began in 1993, three years after Gonzalez’s entry, so the 20-year period would not expire until 2013. The court held that Gonzalez owned the property.
The Land Court’s docket shows that HS Land Trust is appealing this judgment, but its likelihood of success is questionable, given that Gonzalez properly recorded his certificate of entry with the public records in 1990. The Land Court’s judgment exemplifies another reason – among many – that real estate investors should purchase title insurance.
Christopher R. Vaccaro is an attorney in Stoneham.
