Daily Development for
Wednesday, November 26, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

ADVERSE POSSESSION; REQUIREMENT OF CONTINUITY; LIENHOLDERS: A creditor who purchases real property at a trustee's foreclosure sale does not take subject to a claim of adverse possession except where adverse possession title had not been completed prior to the time of the original deed of trust.

Stat-o-matic Retirement Fund v. Assistance League of Yuma, 941 P.2d 233 (Ariz. App. Div. 1 1997).

In 1984, Associates acquired a deed of trust interest in real property, including a parking lot. In 1991, Associates assigned its beneficial interest to plaintiffs. Shortly thereafter, the debtor on the underlying note defaulted. As the highest bidder in the trustee's sale, plaintiffs acquired title by trustee's deed.

Assistance League claimed a portion of the parking lot by adverse possession. Plaintiffs filed a quiet title action in 1994, a few weeks more than ten years after the deed of trust was first granted. Although the record was unclear when the adverse possession began, the court points out that there is nothing in the record to indicate that it began prior to the deed of trust. Presumably, since Associates was arguing that the ten year limitations period had run, the possession must have commenced at least near the time of the deed of trust. Plaintiffs then filed a motion for summary judgment, alleging that, as lienholders, the statute of limitations did not begin to run against their property interest until plaintiffs acquired the right of possession to the property at the trustee's sale.

Assistance League countered that plaintiffs took the deed of trust subject to its adverse possession. The trial court granted summary judgment motion in favor of plaintiffs.

On appeal: held: Affirmed. The Arizona Court of Appeals held that, prior to purchase at the deed of trust sale, secured creditors are mere lienholders rather than title owners. They have no right to bring a possessory claim, and their title should not be barred based upon their failure to do so. Further, the court stated, an adverse possessor succeeds to the property rights that the title owner had. Adverse possessors can gain no more from the title owner than the title owner had himself -- property subject to a lien and the possibility of foreclosure for default. In other words, Assistance League, an adverse possessor, is subject to the rights of plaintiff lienholders. Its adverse possession against the original title holders did it no good, and it had to start its adverse possession period anew against the foreclosure sale.

Comment 1: At the outset of the opinion, the court notes that it was unclear just when the adverse possession actually began, but that there was nothing in the record to indicate that it commenced prior to the deed of trust. Thus, as a pure holding, the case stands for nothing more than the proposition that an adverse possession commenced during the period that property is subject to a lien does not run against the title given under the lien instrument. This proposition likely is consistent with existing law and makes good sense. The standard rule for mortgage instruments is "title in is title out." If the mortgagor's title at time of mortgage was not subject to a running adverse possession, then the mortgagee is not subject to it.

Comment 2: The reasoning of the case, however, goes somewhat further. It appears to conclude that there would have been no adverse possession against the mortgagee *even if the Associate's possession had commenced prior to the deed of trust.* Although this is dicta, the reasoning is noteworthy. The court relies upon an earlier Arizona Court of Appeals decision following it, but very little other authority. Further, the precedent case and the court here view the result as compelled by the language of the Arizona adverse possession statute.

The usual rule of adverse possession applied to life estates is that an adverse possession that commences prior to the life estate arising, but completed during the life estate, is good against both the life tenant and the reversioner. The authorities are less clear as to adverse possession running against a leasehold tenant, but one assumes that here, as well, the adverse possession would run.

The editor admits that the line drawing here is somewhat arbitrary, but then the whole purpose of adverse possession as a title clearing device is to develop, where possible, clear rules that make it easier to clear title without lots of argument. Providing clarity to a fact laden analysis often leads to some arbitrariness at the margins of the analysis. There is, however, some justification for drawing the line of distinction where adverse possession is in existence when the mortgage goes on the land. The lender has the ability to review the property, just as any purchaser would, prior to taking the mortgage. If running adverse possession exists, in most cases it will be detectable by a careful inspection.

We also should not that any cutback in the ability of adverse possession to run due to facts in the record owner's title chain may defeat the legitimate title claim of an adverse possessor. Most adverse possession is not based upon thievery, but upon legitimate expectations of all parties as to who really is the owner of the possessed land. These expectations may be grounded in an original mistake, or on title documents that are lost or technically inadequate, but that support a good faith claim.

To hold that adverse possession does not run against a deed of trust trustee's interest when it began prior to the deed of trust rewards the lender who fails adequately to inspect for possession inconsistent with title and punishes the adverse possessor for events outside of its knowledge and control that have nothing to do with the validity of its claim.

Comment 3: Some might argue that adverse possession is an antiquated and outdated doctrine, and that any case decisions that limit it are salutory. The editor does not agree. Frequently adverse possession works as an efficient and appropriate resolver of title disputes that otherwise would present lengthy and thorny issues to a trier of fact. The notion that possession left undisturbed for ten years "ripens" into ownership is neither particularly unfair nor particularly difficult to protect against in the appropriate case. That's why we shell out all the big bucks to surveyors. This case moves in a different direction and is wrong in doing so.

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