We are all aware of the basic premise that one must own real property in order to mortgage it. However, what happens in a case where the mortgage is signed and delivered a few days before the deed to the property? Conventional wisdom would suggest that the mortgage lender is simply out of luck as the borrower, not being the owner at the time the mortgage was given, had no legal ability to mortgage the property. Obviously, this would be a very harsh result in a situation that arose more than likely from an oversight or error in the closing process.
This exact fact pattern was considered in a recent case from Florida’s Third District Court of Appeals, BCML Holding, LLC v. Wilmington Trust, N.A. There, the mortgage was executed and delivered five days prior to the execution and delivery of the deed in a situation where the borrower was purchasing the property which was a condominium unit. Later, the borrower defaulted on payment of condominium assessments and the association foreclosed its lien and subsequently sold the property to BCML . The mortgage also went into default and the lender filed a foreclosure action, naming BCML as the current owner. BCML raised the defense that the mortgage was given prior to the time the mortgagor actually owned the property and therefore was void.
The Court applied a doctrine recognized in Florida as the “doctrine of after acquired title” which is frequently applied in situations to prevent a seller of property who is not in title at the time the deed is given, but later does obtain title, from claiming that the deed was void to the detriment of the buyer of the property. The BCML decision found in favor of the foreclosing bank, confirming the application of the doctrine to mortgages. Also of interest is the fact that the Court applied the doctrine to defeat the claim of BCML even though it was a subsequent purchaser of the property and not involved in the mortgage transaction. Also interesting to note is the fact that Wilmington was not the original lender. Rather, it acquired the loan from the lender who initiated the mortgage loan. All in all, a good case for banks to keep in mind.