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The Recording System
• Validly delivered deed is effective between
grantor and grantee, even if it’s unrecorded
(recording needed only to make deed effective
vs. certain third parties)
• Questions
– How do recording acts operate?
– How does the recording system facilitate the title
search (title investigation) process?
Conflicting Claims/Priority
• [Page 205] Jan. 1: O deeds Blueacre to A
• Jan. 2: O purports to deed Blueacre to B
– B pays O $150,000 (Blueacre’s FMV) and does not
know of O
O’s
s prior deed to A
• Under “first-in-time,” A prevails (rationale:
under derivative title principle, O had no title
left to convey to B)
Types of Recording Acts
Recording Act
• Requires A to record to have assurance of
“first-in-time” rule vs. subsequent buyer (B)
• Recording
gg
gives “notice” to B ((by
y search,, B
can now ascertain A’s ownership interest)
– If A fails to record, statute deems A’s deed
invalid vs. B (statutory estoppel)
• Act specifies what a subsequent purchaser
(SP) must do to qualify for protection (i
(i.e.,
e to
raise an estoppel against prior purchaser (PP))
Type of act
SP protected against PP if:
Pure Race
SP records before PP
Pure Notice
SP buys w/out notice of PP
Race-Notice SP buys w/out notice, records before PP
1
Problem 7
•
•
•
•
Henning
g deeds to Ziegler
g
((not recorded))
Henning then deeds to Key (not recorded)
Ziegler records his deed
Ziegler then deeds to Chambers (not
recorded)
• Key records her deed
• Chambers then records his deed
• As between Key and Chambers, who has the
superior claim to title to the land?
Notice Statute: Step 1
• As between Key and Ziegler, Key would have
prevailed
– Ziegler was “first in time,” but he failed to
record his deed in a timely fashion
– Key then purchased for value, without notice of
Ziegler’s unrecorded claim
– Thus, Ziegler would’ve been estopped to rely
upon “first-in-time”
P ro b le m 7
“ N O T IC E ”
S ta tu te
“R A C E N O T IC E ”
S ta tu te
“R A C E ”
S ta tu te
H e n n in g º Z ie g le r
H e n n in g º K e y
Z ie g le r r e c o rd s
Z ie g le r º C h a m b e r s
K e y re c o rd s
C h am be rs rec o rds
F IN A L R E S U L T
Notice Statute: Step 2
• By same reasoning, Key estopped from
raising “first in time” vs. Chambers
– Key acquired her interest before Chambers
acquired his (was “first-in-time”)
first-in-time ), BUT
– Chambers paid value, w/out either actual or
constructive (record) notice of Key’s claim
– Key’s deed deemed invalid vs. Chambers
2
P ro b le m 7
Notice
Statute
• What if Chambers had failed
to search the title records at
the time he bought?
– Irrelevant; he has no legal
duty to search, but he has
constructive notice of what a
search would have revealed
• Q: If he’d searched, what
would he have found? [Not
Key’s deed, b/c she hadn’t
recorded yet!]
A C T IO N
“N O T IC E ”
S ta tu te
“R A C E N O T IC E ”
S ta tu te
H e n n in g º Z ie g le r
Z
Z
H e n n in g º K e y
K
Z
Z ie g le r r e c o rd s
K
Z
Z ie g le r º C h a m b e r s
C
C
K e y re c o rd
ds
C
C
C h am be rs rec o rds
C
C
F IN A L R E S U L T
C
C
“ N O T IC E ”
S ta tu te
H e n n in g º Z ie g le r
Z
H e n n in g º K e y
K
Z ie g le r r e c o rd s
K
Z ie g le r º C h a m b e r s
C
K e y re c o rd s
C
C h am be rs rec o rds
C
F IN A L R E S U L T
C
“R A C E N O T IC E ”
S ta tu te
“R A C E ”
S ta tu te
“R A C E ”
S ta tu te
Race-Notice Statute: Step 1
• Ziegler prevails as first-in-time
• To be protected by recording act, Key must:
– (1) buy for value (yes)
– (2) ttake
k w/out
/ t notice
ti off Ziegler’s
Zi l ’ deed
d d (yes),
(
) and
d
– (3) record her deed before Ziegler records his
deed (no!)
• Rationale: Encourages prompt recording
3
A C T IO N
Shelter Principle
• Chambers wins under the “shelter rule”
– Ziegler’s title claim >>> Key’s title claim (Key
didn’t get protection of recording act)
– By derivative title, Chambers gets Ziegler
Ziegler’s
s
claim (thus, Chambers’ claim >>> Key’s claim)
– Otherwise, Key’s untimely recording would
create a cloud on Ziegler’s title, making it
impossible for Ziegler to sell his land!
Pure Race Statute: Step 1
• Ziegler prevails over Key as first-in-time
• To be protected by recording act, Key must
– (1) buy for value (yes), and
– (2) record before Ziegler records his deed (no!)
• Rationales:
– (1) encourages prompt recording
– (2) fosters efficiency in title searching (offrecord information becomes irrelevant)
“N O T IC E ”
S ta tu te
“R A C E N O T IC E ”
S ta tu te
“R A C E ”
S ta tu te
H e n n in g º Z ie g le r
Z
Z
Z
H e n n in g º K e y
K
Z
Z
Z ie g le r r e c o rd s
K
Z
Z
Z ie g le r º C h a m b e r s
C
C
C
K e y re c o rd
ds
C
C
C
C h am be rs rec o rds
C
C
C
F IN A L R E S U L T
C
C
C
• “No
No [conveyance] shall be
valid to pass any property
interest as against lien
creditors or purchasers for a
valuable consideration from
the donor,
donor bargainor or lessor
but from the time of
registration thereof in the
county where the land lies ….”
P bl
Problem
3
4
• “A
A conveyance ... shall not
be valid as against any
person, except the grantor
or lessor, his heirs and
devisees and persons having
actual notice of it, unless it
… is recorded in the registry
of deeds for the county or
district in which the land to
which it relates lies.”
Problem 3
Problem 5(b)
• 2010: Henning deeds Blueacre to Wells (no
recording)
• 2012: Middleton (M) gets judgment vs. Henning
• Question: Is Wells’s unrecorded deed valid vs.
Middleton, or does Middleton have a valid
judgment lien on Blueacre?
• “E
“Every conveyance ... is
i
void as against any
subsequent purchaser or
mortgagee of the same
property, or any part
thereof,, in good
g
faith and
for a valuable
consideration, whose
conveyance is first duly
recorded.…”
Problem 3
• In most states (incl.
(incl MO)
MO), recording act
protects only purchasers, i.e., buyers
and mortgagees (“purchase” = take for
value, i.e., by voluntary transfer)
– In these states, it does not protect a
judgment lien creditor (no reliance) or
donee (no detrimental reliance)
• In a few states, recording act protects
both purchasers and lien creditors
5
Problem 5(c)
• Problem 5(b): under MO recording
g statute,
Wells’s
ll ’ unrecorded
d dd
deed
d valid
l d vs. Middleton
ddl
– Middleton is not a “purchaser” entitled to
benefit of recording act (in all but a few
states), so he has no valid lien vs. land
• By contrast, under NC recording statute
( hi h protects
(which
t t lien
li
creditors),
dit
) Wells’s
W ll ’
unrecorded deed is invalid vs. Middleton
– Middleton’s judgment = lien vs. Blueacre
(based on Henning’s record title)
Problem 5(c): Execution Sale
• Problem: court may order execution sale, not
aware of Wells’s title (or that Middleton’s
claimed lien is invalid)
• If Lambert buys at execution sale, he takes free
off Wells’s
W ll ’ unrecorded
d dd
deed,
d if h
he qualifies
lifi under
d
recording act
– In MO: Yes, as he gave value and had no
notice/knowledge of Wells’s unrecorded deed
• 2010: Henning
g deeds Blueacre ((located in MO)) to
Wells (no recording)
• 2012: Middleton (M) gets judgment vs. Henning (as
discussed in Problem 5(b), this doesn’t create
judgment lien vs. Blueacre)
• Court (unaware of Wells
Wells’s
s interest) orders execution
sale; Lambert purchases land at execution sale
• If Middleton’s claimed judgment lien is invalid, does
Lambert get good title, or no title?
The Title Search Process:
Grantor-Grantee Indexing
• In most jurisdictions, recorder indexes deeds in a
grantor index (by grantor last name) and a
grantee
t
iindex
d
(b
(by grantee
t
last
l t name))
• If I’m planning to buy Prof. Whitman’s home (Lot
221, Bluff Creek Estates), how do I search the title
to the home (to confirm his ownership)?
6
Grantee Index: Building the Chain of Title
• Step 1: Find deed by which would-be seller
obtained that interest
– Current owner: Dale and Marjorie Whitman
Living Trust (quitclaim deed from Dale and
Marjorie Whitman), Dec. 17, 2007, recorded
Dec. 21, 2007 [Book 3252, Page 128]
• Step 2: Repeat for each preceding owner
• Donald
o a d L. Schmidt
Sc
dt obtained
obta ed his
s interest
te est by
general warranty deed from B & E Investments,
Inc., dated Sept. 15, 1994, recorded Sept. 15,
1994 [Book 1108, Page 738]
• Search could go back to the original owner
(“
(“root”
t” off title),
titl ) but
b t mostt searchers
h
would
ld go
back only 40-60 years (depending on local title
search practices and duration of state’s
marketable title act, if it has one)
Grantee Index: Building the Chain of Title
• Whitmans obtained their interest by
warranty deed from Edward and Kathleen
Sheridan, dated March 18, 1999, recorded
March 19, 1999 [Book 1510, Page 367]
• Sheridans obtained interest from Donald L.
Schmidt, dated March 13, 1995, recorded
March 14, 1995 [Book 1140, Page 89]
Grantor Index: Adverse Conveyances
• After building chain of title, searcher
then works forward in grantor index to
look for any adverse conveyance
–E
E.g.,
g Did a prior grantor grant a mortgage
that hasn’t been satisfied of record?
– E.g., Did a prior grantor grant an easement
or create a covenant that affects title?
7
• B & E Investments placed declaration of
restrictions on Bluff Creek Parcel
– Recorded October 14, 1992 [Book 933,
Page 307 and 323], not released
• Buyer would take subject to covenants
or easements created by declaration
(thus, must review them to see whether
or not any of them would limit intended
use or affect marketability of title)
• Donald L.
L Schmidt granted a mortgage
to Boone County National Bank, dated
Sept. 15, 1994, recorded Sept. 16,
1994, Book 1108, Page 739
– Secured a debt of $38,000
– But,
B t mortgage
t
was released
l
d by
b a deed
d d
of release dated March 23, 1995,
recorded March 24, 1995 [Book 1141,
Page 580]
• Sheridans granted 3 mortgages or
deeds of trust to Boone County National
Bank, but all have been released
• Whitmans granted two deeds of trust
to Mizzou Credit Union
• No other recorded adverse conveyances
by the Sheridans, before they deeded
the land to the Whitmans
• Quitclaim deed to Whitman Living
Trust in Dec. 2007
– 3/14/1995 ($270,000), released 9/20/1995
– 9/19/1995 ($203,150), released 4/5/1999
– 9/19/1995 ($45,843),
($45 843) released 4/5/1999
– June 27, 2000 (up to $25,000), released
May 24, 2004
– May 17, 2004 (up to $100,000), not yet
released
l
d
8
Tract Index Searching
• Some counties have tract indexes
– Recorder establishes a separate index
page for each parcel in the county
– All instruments affecting title to that
parcel are entered on that index page
– Greatly simplifies search burden
• Why don’t more states
use Torrens, given the
amount of money
invested in land?
• Why
h don’t
d ’ more
counties implement
tract indexing?
Question 1
Torrens System
• A few counties have implemented the
Torrens system of title registration
• Following quiet title action, county official
issues title certificate for a parcel (original
kept on file)
• All future 3rd party interests must be listed
on original certificate
Recording System Problems
• Errors in the preparation, recording, and
indexing of instruments sometimes
defeat the ability of the recording system
to give notice
• Who should bear this risk: the recording
party, or subsequent searchers?
9
• NPC gets judgment vs.
Michael Bolan
Problem 8
• Certification of judgment wasn’t properly
“
“recorded,”
d d ” so it
i didn’t
did ’ give
i
record
d notice
i to
subsequent purchasers
• Note: DeCamps would have found it in doing
a title search only if they searched the grantor
index under sound-alike names (idem sonans)
• Court
C
t refused
f
d to
t require
i this
thi off searchers
h
– NPC dockets judgment, but
i d
in
doing
i
so, misspells
i
ll llastt
name as “Bolen”
• Bolan land later sold to
M/M Belmont, who in turn
sold to DeCamps (who
didn’tt have knowledge of
didn
NPC’s judgment
• Can NPC enforce its lien
by foreclosing DeCamps?
• Chris Jackson grants Bank a
mortgage on Blueacre, which
Bank records
• Later Jackson changes name
to Mahmoud Abdul-Rauf
• He later deeds Blueacre to
Buyers (deed names grantor
as Mahmoud Abdul-Rauf)
– Buyers
y
don’t know of Bank’s
unsatisfied mortgage
• Is Bank’s mortgage valid and
enforceable vs. Buyers, or did
they take free of it?
NPC v. Belmont (Ohio 1988)
– Concern: too great a burden to guess alternate
spellings; computerized searching may not show
alternate spellings
Problem 9
• First Bank not obligated to “correct”
correct its
mortgage to reflect Jackson’s name
change; mortgage still valid vs. Buyers
– Buyers should’ve suspected; searcher would
find no entry in grantee index for a deed
conveying
i
th
the land
l d to
t Mahmoud
M h
d Abdul-Rauf
Abd l R f
– Inquiry would’ve revealed former name
(Chris Jackson), and search under “Chris
Jackson” would’ve revealed Bank’s mortgage
10
• Chris Jackson (record owner of
Blueacre) changes his name to
Mahmoud Abdul-Rauf
Problem 10
– He grants a mortgage on Blueacre
to Bank,
k using name Abdul-Rauf,
bd l
f
(indexed under that name)
– He later changes his legal name
back to “Chris Jackson”
• As “Chris Jackson,” he sells
Blueacre to the Buyers (who
don’tt know of Bank’s
don
Bank s mortgage,
mortgage
and who record)
• Is the Bank’s mortgage valid vs.
the Buyers, or did they take
free of the mortgage?
• Bank’s
Bank s mortgage is “wild
wild,” not recorded
in Blueacre’s “chain of title” (p. 227)
– Search for “Chris Jackson” (record owner)
in grantor index will not find Bank’s
mortgage (indexed under “Abdul-Rauf”)
– Bank’s mortgage is deemed not “recorded”
and thus does not give constructive notice
to Buyers
– Bank should’ve “connected the chain” (i.e.,
have Jackson record a name change first,
then record their mortgage)
Problem 11
• 1980: Stein deeds Blueacre to Randolph,
but Randolph fails to record his deed
• 1985: Randolph conveys Blueacre to
Cameron, who records but does not take
possession of Blueacre
• 2000: Stein dies; his administrator
purports to convey Blueacre to Key
– Key pays value and does not know of
Cameron’s interest in Blueacre
• Who owns Blueacre?
• Cameron’s deed is a “wild deed”
– B/c Randolph never recorded his deed from
Stein, searcher could not find Randolph’s
deed to Cameron on the record
• Cameron’s deed is deemed “unrecorded,”
did not give constructive notice to Key
• Cameron should’ve fixed the chain of title
(record Stein-to-Randolph deed first, then
record the Randolph-to-Cameron deed)
11
Problem 12
• 1980: Wells conveys Blueacre to
Re ben who
Reuben,
ho fails to record
eco d his deed
• 1985: Wells purports to deed Blueacre
by gift to Monahan, who records
• 1990: Reuben records his deed (late)
• 2000: Monahan purports to deed
Blueacre to Lawless, who pays value,
and doesn’t know of Reuben’s interest
• Who owns Blueacre?
Mayfield
Late Recorded Deeds
Late-Recorded
• Majority view: Reuben’s late-recorded deed is
outside chain of title, deemed “unrecorded”
• Problem: would Lawless find Reuben’s deed in
searching
hi
Monahan’s
M
h ’ title?
titl ?
– Yes, but only if he continued searching in the grantor
index under “Wells” for late-recorded adverse
conveyances after 1985!
Problem 13
• 2006: Bluewater deeded Lot 2 to W&A, which
granted
d mortgage to Fi
First City
Ci
• 2002: Pratt deeds Blueacre to Ziegler
• 2009: Bluewater deeds to Lot 2 to Mayfields,
who granted mortgage to Old National Bank
• 2010: First City begins foreclosure; Mayfields
argue First City mortgage is invalid against
them as BFPs
• 2005: Pratt p
purports
p
to deed Blueacre
to Key, who pays value, no knowledge
of Ziegler’s claim; Key records her deed
• Who owns Blueacre?
– Deed and mortgage were recorded
– Recorder realized she’d goofed, removed them
from record, intending to re-record (but didn’t)
– Deed identified parties correctly, and is
accepted by the recorder, who
mistakenly indexes it in grantor index
under name “Bratt,” not “Pratt”
12
• Traditional view: misindexed deed still
provides constructive notice (even
though it is essentially undiscoverable)
– Under this view, Ziegler prevails over Key
g
shouldn’t be p
punished
– Rationale: Ziegler
for the recorder’s mistake
• Decisions in a few states treat a
misindexed deed as not “recorded”
Tract Index Searching
• Note: tract index would eliminate
most of these notice problems
– Abstractors/title
/
insurers create their own
tract indexes
• But, would not entirely eliminate
“misindexing” risk
Misindexing: Policy
• As between recording party and later
searcher, recording party is “cheaper
cost avoider”
– Can “double-check” to confirm deed was
properly
l iindexed
d
d ((and
d iis th
thus findable)
fi d bl )
• But, traditional view: index is not part
of “official” record, so misindexing
doesn’t defeat recording
Off Record Matters
Off-Record
• Even tract indexes don’t show some valid offrecord matters
– Unrecorded claims of someone in possession of
land
– Real estate tax liens
– Judgment liens (in some states)
– Zoning matters (e.g., existence of zoning
violations)
13
“Race”
Race v.
v “Notice”
Notice
The Classic Example
• Under a “pure race” recording act, off-record
information is irrelevant
• B buys Blueacre from O (record owner), but A
is in possession (in fact, A holds a deed from
O, which A never recorded)
notice or “race-notice”
race notice
• In most jurisdictions “notice”
statutes, B is deemed to have “inquiry notice”
of A’s interest
– Unrecorded deed is ineffective against
subsequent buyer, even if that buyer has
k
knowledge
l d
off it
• If recording act adopts “notice” principle, to
what extent do “off-record” matters give a
later buyer “notice” of an unrecorded claim?
– Rationale: Prudent buyer would inspect, inquire
of A (A’s possession is inconsistent w/record title)
Inquiry Notice: Tenant
• Walton buys shopping center from Trump
• One tenant, Fred’s Bar & Grill, has
unrecorded 7-year lease
• Q: Can Walton claim to be a BFP who took
free of Fred’s lease? Would it matter if
Trump had omitted the lease from the
package of leases it provided to Walton in
Walton’s due diligence review?
• Q: Why wouldn’t Fred’s record its lease?
•W
Walton
lt
cannott claim
l i to
t b
be BFP
• Walton takes title subject to Fred’s
rights as tenant under lease (despite
lack of recording)
– Walton is deemed to have notice of
Fred’s lease by virtue of Fred’s
possession (inconsistent w/record title)
14
Inquiry Notice: Hypo
• Leases rarely recorded
– Expensive to record
– Landlord may not want all details of
lease to be of record
– Inquiry notice doctrine protects Ts right
(certainly as long as T is in possession)
– Sometimes, tenant may record
memorandum of lease (1 page)
• Peters takes title subject to rights of the Ts in
possession under their leases (even if those leases
are not recorded)
• Problem: oral modification of lease is enforceable,
if proven (assuming lease is 1-year or less)
• If so
so, Ts have now fully performed their rental
obligation under their amended leases!
• Peters is bound; Ts entitled to remain in possession
for rest of lease term, w/no further rent payment!
• February 15: Wells sells 100
100-unit
unit apartment
complex to Peters for $2 million
– Prior to buying, Peters reviewed original tenant
leases (rent = $500/month)
• March 1: none of Peters’ tenants pay rent!
– In fact, Wells made an oral agreement with each T
on February 2: “pay
pay me $1,500
$1 500 today,
today and that will
satisfy your rent obligation for the rest of your
lease”
• Can Peters evict the tenants who made this deal?
What Should Peters Have Done?
• Peters should have gotten representation
or warranty from Wells (Seller) that there
had been no such lease amendments
– Would provide basis for Peters to recover
from Wells for breach of contract
• Peters should have gotten an estoppel
letter from each Tenant
15
Schwalm v. Deanhardt
Estoppel Letter
• Letter from Tenant to Buyer, as of closing
date (or date just prior), confirming the
terms of the lease
– E.g., original lease is valid, has not been changed, L is
nott in
i default,
d f lt T has
h nott prepaid
id rent,
t etc.
t
• Tenant signing estoppel letter is estopped
from raising a position inconsistent with
representations in estoppel letter
Questions re: Schwalm
• Does it matter in what order the mortgages
were recorded?
• Is it relevant that there was a tenant in
possession of the home?
• Is it relevant that GE Trust obtained land from
Schwalms by quitclaim deed?
• What is suspicious enough to justify holding
Deanhardt had inquiry notice of the Schwalms’
unrecorded mortgage?
• Schwalms sold home to Eddins (who was
d/b/a “GE
GE Trust”)
Trust ), using a quitclaim deed
– GE Trust granted the Schwalms a mortgage to
secure payment of sale price of home
– GE Trust recorded deed, but not the mortgage
• Eddins then borrowed $39K from Deanhardt,
had GE Trust grant Deanhardt a mortgage on
the same land
– Eddins then recorded both mortgages, but in
reverse order (Deanhardt’s first, Schwalms’ second)
• Does Deanhardt’s mortgage have priority
over the Schwalm’s mortgage?
Questions re: Schwalm
• It was irrelevant that Deanhardt’s mortgage
was recorded first (before Schwalms’)
– Kansas has “notice” recording statute
– Deanhardt was a subsequent purchaser (took
mortgage) for value (by loaning $$)
– Order of recording irrelevant; either Deanhardt
lacked notice (protected) or had notice (unprotected)
– Order would matter if act was “race-notice”
16
• Should Deanhardt have “inquiry
inquiry notice
notice”
of the Schwalms’ mortgage based upon
tenant’s possession of land?
– No; tenant’s possession of land wouldn’t
create any suspicion that the Schwalms
might hold an unrecorded mortgage
– Inquiry will show T’s rights, but it won’t
reveal Schwalms hold an unrecorded
mortgage (T wouldn’t know that!)
• Court: other circumstances were
suspicious enough to put Deanhardt
on notice of Schwalms’ mortgage
– E.g., his loan was to Eddins personally,
but GE Trust was granting the mortgage
• Court: Deanhardt didn
didn’tt do careful
investigation (had a “duty to further
inquire into Eddins’ right to mortgage
the property”) [p. 7]
Questions re: Schwalm
• Court: quitclaim deed in Deanhardt’s chain of
title should make Deanhardt suspicious of GE’s
title (p. 7)
• This is wrong,
wrong and bad policy!
– Purpose of quitclaim is to limit liability; it does not
“signal” grantor’s title is defective
– Buyer takes subject to “adverse equities discoverable
by reasonable diligence” regardless of type of deed
• Problem: no buyer has a legal “duty”
duty to
inquire about anything
• The real question: “what would Deanhardt
have discovered, if he had inquired?”
• It’s not clear a reasonable inquiry would
have revealed the Schwalms’ mortgage
– Eddi
Eddins would’ve
ld’
just
j t produced
d
d facially
f i ll valid,
lid b
butt
ultimately fraudulent, documents
– Inquiry of the Schwalms would’ve revealed it,
but why should Deanhardt be expected to
inquire of the Schwalms?
17