Consumer Finance Litigation

In BCML Holding LLC v. Wilmington Trust, N.A., the purchaser of a property at an association foreclosure sale for unpaid assessments contended that the first mortgage was void ab initio because title to the property wasn't acquired until after the first mortgage was signed. The Third District Court of Appeal held the after-acquired title doctrine applies to a non-party to the original mortgage who is a subsequent purchase of the property. On July 11, 2007, Gonzalo and Daniela Malesich ("Malesich") executed a note and purchase money mortgage which conveyed an interest in a condominium unit in Miami Beach ("Subject Property") to MERS, as the nominee for the lender. The mortgage instrument contained a provision that "the Borrower is lawfully seised of the estate hereby conveyed and has the right to mortgage, grant and convey the Property. . . ." However, at the time of the conveyance Malesich did not own the Subject Property. Five days later, on July 16, 2007, Malesich received a warranty deed from the owner of the Subject Property and the deed was subsequently recorded in the official records on August 1, 2007. The mortgage was later assigned from MERS to Citibank, N.A. In 2010, the condominium association commenced foreclosure proceedings against Malesich for unpaid condominium assessments. The condominium association obtained a judgment in its favor and was the highest bidder at the foreclosure sale. In 2012, after the issuance of the certificates of sale and title, the Subject Property was sold to Appellant, BCML Holding, LLC ("BCML"). On April 3, 2013, Wilmington, successor trustee to Citibank, filed its own foreclosure action against Malesich for defaulting on the July 11, 2007 mortgage. BCML and the condominium association were named as defendants. The date of the alleged default was October 1, 2008, well before the association's foreclosure action of 2010. BCML answered the complaint, asserting several affirmative defenses, including estoppel. BCML also asserted counterclaims for declaratory relief and to quiet title, based on the allegations that Malesich did not own the property on July 11, 2007 (when it conveyed an interest in the property) and therefore the mortgage was void ab initio. The trial court heard arguments on cross-motions for summary judgment on BCML's counterclaims and ruled the after-acquired doctrine applied and granted summary judgment in favor of Wilmington and dismissed BCML's counterclaims with prejudice. BCML then appealed the ruling. It is well established that under the doctrine of after-acquired title, "if a grantor purports to transfer ownership of real property to which he lacks legal title at the time of the transfer, but subsequently acquires legal title to the property, the after-acquired title inures, by operation of law, to the benefit of the grantee." Ackerman v. Abbott, 978 A.2d 1250, 1254 (D.C. 2009). The doctrine is a species of estoppel by deed. Id. As the Florida Supreme Court held in Trustees of Internal Imp. Fund v. Lobean, 127 So. 2d 98, 102 (Fla. 1961), legal estoppel contemplates that if I execute a deed purporting to convey an estate or land which I do not own or one that is larger than I own and I later acquire such estate or land, then the subsequently acquired land or estate will by estoppel pass to my grantee. While this doctrine has been described as a species of estoppel by deed, it has also been characterized as a doctrine grounded in the covenant or warranty of title made by the grantor when conveying the property. See, e.g., Pitts v. Pastore, 561 So. 2d 297, 301 (Fla. 2d DCA 1990) (observing that "a mortgage with covenants of warranty, such as the mortgage involved in this case, permits any title acquired by the mortgagor, after the execution of the mortgage, to inure to the benefit of the mortgagee."). BCML unsuccessfully argued that the after-acquired title doctrine was not applicable to a non-party of the original mortgage and subsequent purchaser of the Subject Property. Moreover, BCML asserted that it was not in privity or a successor in interest and therefore cannot be bound by Malesich's covenant or the act of acquiring title after the mortgage was executed. Lastly, BCML argued that the after-acquired title was not applicable because the transaction was a purchase money mortgage. Under Florida law, a "purchase money mortgage given as part of the transaction in which the premises were purchased is an exception to the general rule that, where a mortgage contains full covenants of warranty, title acquired by the mortgagor after the execution of the mortgage inures to the benefit of the mortgagee." Nelson v. Dwiggins, 149 So. 613, 614 (Fla. 1933). The appellate court ruled the exception is not applicable because it did not represent the type of transaction contemplated by the Florida Supreme Court when it established the after-acquired title doctrine. The exception is applicable when the mortgage is given by the buyer of the property to the seller of the property to secure the unpaid balance of the purchase, and the conveyance and mortgage are executed simultaneously. The appellate court considered the purpose of the exception which "is based on the idea that it would be unjust to allow a purchase-money mortgage to be foreclosed on any greater title than the seller had conveyed, merely because it contained a covenant of warranty." Nelson v. Dwiggins, 149 So. 613, 614 (Fla. 1933). The court also recognized that "there is a generally recognized exception of purchase-money mortgages given as a part of the transaction in which the premises mortgaged are purchased." (emphasis added). Fla. Land Co. v. Williams, 92 So. 876, 877 (Fla. 1922). Accordingly, the court concluded that the exception is limited to those purchase money mortgages involving a simultaneous sale of the property by the mortgagee to the mortgagor, a situation not present in this case.