Title Standard Spotlight
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Fall 2002, Volume 1, Number 3
Title Standard Spotlight
by Ward P. Graham, New England Region Counsel
In this issue of The Massachusetts Focus, the spotlight goes on MCA Title Standard No. 53, Indefinite References - Trusts and Title Standard No. 33, Transfers by Trustee. While there are a number of types of references in convey-ancing documents that may be considered indefinite, indefinite references, for our purposes, usually arise in the context of trusts by virtue of a deed or mortgage to a person "as trustee" or "as trustee for John Smith" or, more recently, "as trustee of the Homebody Realty Trust" or "as trustee of the Shieldmefromcreditors Family Trust" or "as trustee of the Enrichthegrandchildren Estate Planning Trust," etc. The primary characteristic of these grantee clauses is that there is no indication that a written trust instrument exists and there is no recording reference to indicate that a written instrument is recorded so that you can find it and determine any limitations on the trustee's powers to deal with the subject property. In order to deal with these situations when you're involved in a transfer or mortgage from such trustee(s), it is important to always review both title standards in relation to each such transaction.
Indefinite Trust References and the Myth of Individual Ownership
As stated in the legislative history of G.L.c. 184, §25 (the "Indefinite Reference Statute"),
This is a common and particularly troublesome defect with court opinions in different directions, leaving a prospective purchaser from A [who was granted the property as "A as trustee"] uncertain whether he will get a title or simply a lawsuit. In 1897, in Swazey v. Emerson, 168 Mass. 118, at p. 120, Mr. Justice Holmes said that the word "trustee" under the recording act is not notice that there is a trust but merely that there "might be" one so that there is not a defect. In 1927, in Cleval v. Sullivan, 258 Mass. 348, the court, without discussing or mentioning the Holmes' [sic] opinion, said there was notice which spoiled the marketability of the land. The Holmes' [sic] opinion was based squarely on the recording act, seems the sound one and is followed in the draft act which we submit.
As to conveyances to trustees, the Indefinite Reference Statute provides:
No indefinite reference in a recorded instrument shall subject any person not an immediate party thereto to any interest in real estate, legal or equitable, nor put any such person on inquiry with respect to such interest, nor be a cloud on or otherwise adversely affect the title of any such person acquiring the real estate under such recorded instrument if he is not otherwise subject to it or on notice of it. An indefinite reference means … (3) a description of a person as trustee or an indication that a person is acting as trustee, unless the instrument containing the description or indication either sets forth the terms of the trust or specifies a recorded instrument which sets forth its terms and the place in the public records where such instrument is recorded, …
It has been suggested that a grant to a trustee with no recording reference to the trust because the trust is not recorded would put the title in the grantee individually. This concept has created a school of thought that the application of the Indefinite Reference Statute would be to cause title to the property to be held by the grantee individually, whether or not the trust had, in fact, been recorded. The ambiguity as to the nature of the grantee's title would then necessitate that the trustee execute any deeds or mortgages of the property both as trustee and individually.
First of all, if such a result were intended, the drafters of the statute, being very experienced real estate attorneys and having given the statute much thought and analysis, would have provided for it. I have not found any reported case to that effect and, based on the legislative history as discussed in the 34th Judicial Council report, such a strong result was certainly not intended. Indeed, such a result would run directly contrary to the basic impetus of the statute, which was to make titles more certain, not less. What was intended was to allow a purchaser to be able to take title from the "indefinite trustee" without being bound by any limitations on the trustee's authority or having the title be subject to any equitable claims that might exist in an off-record trust and to provide the purchaser with an unclouded and marketable title to the property acquired from the trustee. It is more of a situation that the "indefinite trustee" is deemed to hold the title and be able to deal with it as if he owned it individually so that he or she can convey it or mortgage it with the same freedom as an individual owner and the title of a person taking a deed or mortgage from the trustee is protected unless such person is "an immediate party" to the trust instrument or is "otherwise subject to it or on notice of it." Thus, it should be just fine to have the "indefinite trustee" execute a deed "as trustee" without the necessity of including "individually" because the latter adds nothing. In addition, we have another statute and a title standard that supports this concept.
G.L.c. 184, §34, entitled, Protection of Persons Purchasing Land from Trustees, provides:
Any recordable instrument purporting to affect an interest in real estate executed by any person or persons who, in the records of the registry of deeds for the county or district in which the real estate lies, are or appear to be the trustees of a trust shall be binding on the trust in favor of a purchaser or other person relying in good faith on such instrument, notwithstanding (a) inconsistent provisions of the trust, unless said trust is recorded in said registry of deeds, with the place of recording referred to in some instrument in the chain of title to the real estate affected, (b) any amendment, revocation, removal or resignation of trustee, appointment of additional trustee, or other matter affecting the trust, unless the same is recorded in said registry of deeds and noted on the margin of said trust in said registry, or (c) any inadequacy in the consideration recited. As used in this section the term "trust" shall not include a trust under a will. [Emphasis added.]
Pursuant to that statute, MCA Title Standard No. 33, Transfers by Trustee, provides:
A transferee from the trustee of record of a non-testamentary trust need not inquire into whether
(1) said trustee has authority to transfer, including whether any required conditions have been satisfied; or
(2) there are any unrecorded trust amendments; or
(3) the trust is in existence, provided that:
(a) the recorded declaration of trust recites that third parties may rely without inquiry on the acts of said trustee; or
(b) the conveyance is by all persons appearing of record to be the trustees and the declaration of trust is not recorded or registered in the registry district where the land lies or, if so recorded or registered, there is no reference to the place of recording or registration of the trust in any instrument in the chain of title.
Thus, a bona fide purchaser or mortgagee, at least where there are no intervening liens or attachments against the "indefinite trustee" individually, ought to be able to rely on a deed out from the trustee "as trustee" without the necessity of having the trustee sign "individually" as well.
In addition to the foregoing, one should also be able to rely in such circumstances on the Doctrine of Estoppel of Fiduciary. Under this doctrine, when a fiduciary deeds property, particularly if with covenants of title (lawfully seised in fee simple) or covenants of authority (lawfully authorized and empowered to make sale or conveyance), the fiduciary will be estopped to set up a title, or a claim against the title, held in his or her individual capacity prior to the conveyance by that person as the fiduciary. This doctrine would seem to apply particularly well in the typical indefinite reference situation where the trustee is usually conveying by at least a quitclaim deed and where the only reason the trustee would have title individually would be based on a heavy interpretation of the Indefinite Reference Statute and in spite of the obvious intent of the trustee to gain, hold and convey title in a trustee capacity. This view is even stronger if the trustee had mortgaged the property as trustee during his or her ownership.
Of further assistance in this regard, as well as with regard to the provisions of G.L.c. 203, §§1 and 2, we also have the benefit of MCA Title Standard No. 53, Indefinite References - Trusts. This title standard essentially allows for the curing of an indefinite reference situation by establishing that the trust is already recorded and then recording an affidavit identifying the recording information for the trust as well as seeing to a marginal reference notation to the affidavit in the instrument of conveyance that had originally omitted the recording information for the trust. If the trust was recorded contemporaneously with the conveyance, no affidavit or marginal reference is required. The trust and any amendments, etc., may also be recorded subsequently along with the affidavit and the marginal reference.
According to the Title Standard, if these procedures are followed, the title is not vested in the trustee individually once the affidavits are on record or, in the case of the contemporaneously recorded trust, right from the beginning. A Caveat cautions that, in using the cures in paragraphs (1) and (3), prior to the recording of the affidavit, we need to be aware that third parties, including intervening lienors may have relied on the Indefinite Reference Statute and, presumably, may claim in interest derived from the "indefinite trustee's" assumed individual ownership. As pointed out in the 34th Judicial Council Report, "It is almost more important to know what conveyancers think the law is than to know what it actually is." Thus, as there is still this school of thought out there among some members of the bar that an indefinite reference creates individual ownership, if you run into the situation where there are intervening lienholders or, perhaps, the death of the "indefinite trustee" (which would preclude our ability to rely on G.L.c. 184, §34 and Title Standard No. 33 and which would raise issues as to the rights or claims of heirs, devisees, creditors and estate tax authorities), call one of your friendly Stewart Title underwriters and we'll discuss the situation.
1 34th Report of the Judicial Counsel (1958), Pub. Doc. 144, pp. 27-33, reprinted in 43 Mass. L. Q. No. 4 (1958). This document and the statute both deal with several other indefinite reference issues, but we will only deal here with the trust related portions. [Back to Text]
2 Id., at 31. The "draft act" is now G.L.c. 184, §25, and was adopted intact. [Back to Text]
3 See, e.g., Eno & Hovey, Massachusetts Real Estate Law with Forms, 28 Mass. Practice §15.12 (3rd Ed., 1995). The only case cited in support of this proposition in fn. 3 of this section is Berenson v. Nirenstein, 326 Mass. 285, 93 N.E. 2d 610 (1950), but the case predates the Indefinite Reference Statute and did not involve a conveyance to a trustee but rather dealt with a breach of fiduciary duty action in which a constructive trust was imposed on a broker who purchased stock for himself when he was hired to do so for his client. [Back to Text]
4 Eno & Hovey, supra, §§2.19 and 5.53. See also, e.g., the last paragraph of MCA Title Standard No. 53, Indefinite References - Trusts, wherein it is stated that the cures provided for in the standard would result in the title not being vested in the trustee individually, the negative implication, of course, being that, absent the cures, the title would be held individually. Unlike Eno & Hovey, this title standard (discussed in more detail below) makes an exception for trusts recorded simultaneously with the deed containing the indefinite reference. [Back to Text]
5 The entire Judicial Report is focused on protection of subsequent owners and their titles. There is no discussion whatever of benefiting the trustee individually (which, if an off-record trust did exist, would likely violate the trustee's fiduciary responsibilities), the trustee's heirs or devisees, or the trustee's creditors, all of whom would be potential unintended beneficiaries of the notion that an indefinite reference creates individual ownership in the named trustee. [Back to Text]
6 See, H.H. Thayer, et al, Crocker's Notes on Common Forms, §151 (8th ed., MCLE 1995 & Supp. 1997, 2000) and Kaufman v. Federal National Bank of Boston, 287 Mass. 97, 191 N.E. 422 (1934). [Back to Text]
7 Dealing with the necessity of a written trust with respect to real estate (§1) and the necessity of recording it (§2). [Back to Text]
8 Title Standard No. 53, para. (1). [Back to Text]
9 Id., para. 2. [Back to Text]
10 Id., para. 3. [Back to Text]
11 34th Judicial Council Report, supra, at 30, quoting from Richard B. Johnson's article, The Mechanics of Title Examination, reprinted in the 6th and 7th editions of Crocker's Notes on Common Forms. [Back to Text]