Purchase by One Borrower
The case of Salter v. Quinn, 334 Mass. 220, 134 N.E.2d 749 (1956) seems to suggest that if one of multiple borrowers bids in at a foreclosure sale that the title thereby acquired is held by that person in trust for his or her co-borrowers. Actually, this is not the holding of the case.
The foreclosure in Salter was by entry only (the sale having been deemed to be defective for a technical reason), so when one of the borrowers took a deed from the mortgagee who had made the entry that deed amounted to an assignment of the mortgage (the three year period of redemption not having expired) and so the "cotenants [were] actually in possession or [were] entitled to immediate possession." This is an important point. The court held that a purchase of anencumbrance by one cotenant (in this case the purchaser at the sale) while other cotenants are actually in possession or are entitled to immediate possession is deemed to have been made for the benefit of all the cotenants and that the cotenant who makes that purchase is deemed to be holding the encumbrance for the others in a fiduciary capacity. In holding that the purchaser could rightly reject the title, the court said: "The facts concerning the title of the [seller] and the probably interest of [the other cotenants] in such title plainly appear in the records of the registry of deeds . . . . This we think is enough to put the careful conveyancer on his guard and cast doubt upon the record title."
The doctrine announced in Salter presents a conveyancing nightmare, which is easily spotted—provided you know what you're looking for! In Salter the question was whether the owner of property could tender a good marketable record title where the scenario just stated occurred in the chain some thirty years before. The court said that the title was defective.
In Salter the borrower essentially bought the encumbrance. The entry ultimately ripened, and when it did that then resulted in the purchaser/borrower holding the fee title in trust for the co-borrowers. The important point to remember about the case is that the purchaser (one of the borrowers) took a deed from the mortgagee not in connection with a completed foreclosure by sale, but rather while the entry was still ripening.