Opinion ID: 2111220
Heading Depth: 1
Heading Rank: 6

Heading: The Mortgage Exception

Text: Under the mortgage exception to the merger doctrine, the mortgagee of the dominant estate is protected from losing its interest in an easement otherwise extinguished when fee title to the dominant estate and fee title to the servient estate have been united in one fee owner. [2] This exception is grounded in equity and is intended to protect the mortgagee of the dominant estate from losing the value of its interest in an easement that is otherwise extinguished. See Duval v. Becker, 81 Md. 537, 32 A. 308, 309-10 (Maryland 1895) (stating that allowing an extinguishment of the mortgagee's interest would jeopardize, if not wholly destroy the stability of every mortgage as security). Thus, even though fee ownership of the dominant and servient estates was eventually merged in BSR, Midwest Federal's interest in the parking easement was not extinguished. If Midwest Federal's mortgagee interest [3] in the apartment building would have become possessory, Midwest Federal would have had the benefit of the parking easement and the servient estate, the office building/parking lot, would have had the burden of the easement. Therefore, under the mortgage exception, Midwest Federal retained its inchoate interest in the parking easement until the mortgage was satisfied. Pergament argues, however, that the mortgage exception to the merger doctrine prevented BSR's interest in the easement from being extinguished and therefore prevents his interest, as BSR's successor, from being extinguished. Pergament would extend the mortgage exception to the merger doctrine so that as long as Midwest Federal had a protected mortgage interest in the parking easement, the easement could not be extinguished as to anyone who later acquired the apartment property. Under Pergament's theory, a mortgage acts as a shield to defeat the merger doctrine. Relying on Schwoyer v. Smith, 388 Pa. 637, 131 A.2d 385 (1957), both the district court and the court of appeals agreed with Pergament that the mortgagee's interest in the easement prevented the merger doctrine from extinguishing the easement even as to the fee owner and its successors. Upon close reading, however, Schwoyer does not support the lower courts' expansion of the mortgage exception to the merger doctrine. In Schwoyer, as in our case, the dominant and servient estates were united in one ownership, then sold to separate owners. Id. at 386. One of the owners sought to enforce an easement running to the benefit of the dominant estate and burdening the servient estate. Id. The owner of the servient estate argued that the merger doctrine extinguished the easement because the previous owner of the servient estate had acquired the dominant estate. Id. at 387. The Pennsylvania Supreme Court rejected the merger argument and held that the easement was not extinguished. Id. at 389. The critical distinction between Schwoyer and our case is that in Schwoyer, the dominant estate was acquired by mortgage foreclosure. Therefore, the party that acquired the dominant estate by mortgage foreclosure obtained all the rights and interests the mortgagee held, including the rights and interests in the easement. By contrast, Pergament acquired the apartment property from the mortgagor, BSR, and therefore acquired only those interests BSR held at the time of the conveyance. Under the doctrine of merger, BSR's interest in the easement was extinguished and therefore BSR's successor in interest, Pergament, could not have acquired any interest in the easement from BSR.