The Recording System Validly delivered deed is effective between grantor and grantee, even if unrecorded, but To be effective vs. reliance 3d parties, deed must be recorded Questions How do recording acts operate? How does the recording system facilitate the title search (title investigation) process? What are the consequences of errors in the execution and recording of a deed, mortgage, or other conveyance? Recording Act Each state has a recording act, which creates a statutory estoppel rule that can displace the first-intime rule if a deed is unrecorded E.g., O conveys to A, who fails to record; later O conveys same land to B. In an action in A v. B: Under derivative title, A would prevail, b/c following O s deed to A, O had no title to convey to B But, because A failed to record, recording act may deem A s deed invalid vs. B (giving B superior claim) Recording acts are either (1) pure race, (2) pure notice, or (3) race-notice in their operation. The act specifies what action the subsequent purchaser (SP) must take to prevail over a prior purchaser (PP) from the same grantor Type of act Pure Race Pure Notice Race- Notice SP protected against PP if: SP records before PP SP purchases w/out notice of PP SP purchases w/out notice of PP and SP records before PP Applying the Recording Acts February 1: O conveys Blueacre to A, who does not record February 8: O purports to convey Blueacre to B, who pays value (and who has no knowledge of A s unrecorded deed), but who does not record February 10: A records her deed to Blueacre February 12: B records his deed to Blueacre As between A and B, who has the superior claim? 1
Pure Notice Recording Statute As between A and B, A would have prevailed under first in time, but A failed to record B then purchased Blueacre for value, and without notice of A s unrecorded claim Under a pure notice statute, A s unrecorded deed is ineffective vs. B A is thus estopped to rely upon first in time as basis for priority As a result, B now owns Blueacre What if B was lazy/imprudent and failed to search the title records at the time B purchased Blueacre? B s failure to search is irrelevant Buyer has no legal duty to search the title records before buying land Buyer deemed to have constructive notice of what search would ve shown If B had searched, B would not have found A s deed (which was unrecorded) Notice Statute Race-Notice Statute A prevails over B under first-in-time, because B does not qualify for protection of recording statute To be protected by race-notice recording statute, B must: (1) buy Blueacre for value (yes) (2) take Blueacre w/out notice of A s deed (yes), and (3) record his deed before A records her deed (no!) Recording statute does not displace first in time here; A s deed still valid vs. B, thus A owns Blueacre Pure Race Statute Likewise, under pure race statute, A prevails over B based on first-in-time rule To be protected by recording act, B must (1) buy for value (yes), and (2) record his deed before A records her deed (no!) Which type of statute makes more sense: a pure notice statute, a race-notice statute, or a pure race statute? Why? 2
Recording Statute Rationales Pure notice (Missouri): estoppel should protect reliance; BFP s reliance occurs at time of transfer If prior claimant hasn t recorded, prior claimant should be estopped from claiming title vs. BFP (without regard to whether BFP has recorded) Race-notice/race Reasonable reliance requires BFP to also record in a timely fashion, thereby promoting more complete title records 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. What type of recording statute does this state have? Problem 3(b): What Type of Recording Act? Problem 3(b): This recording act creates a pure notice recording act It provides that the first-in-time conveyance, if not properly recorded, is not valid except as against: Grantor (this codifies common law rule that unrecorded deed is still valid as between Grantor and Grantee) Heirs and devisees of the Grantor (who would not have paid value), and Persons having actual notice of the unrecorded deed Thus, if the subsequent purchaser gives value and has no actual notice of prior purchaser s unrecorded deed, subsequent purchaser is protected Every conveyance [of an interest in real property]... is void as against any subsequent purchaser or mortgagee of the same property, or any part thereof, in good faith and for a valuable consideration, whose conveyance is first duly recorded.... What type of recording statute does this state have? Problem 3(c): What Type of Recording Act? 3
Recording statute in Problem 3(c) creates a racenotice statute It provides that the first-in-time conveyance is not valid if: Subsequent purchaser or mortgagee acts in good faith Subsequent purchaser or mortgagee gives value, and Subsequent purchaser or mortgagee is the first to record (as between the prior-in-time and subsequent persons) By timely recording, the first-in-time grantee can thus prevent any later grantee from qualifying for protection under recording act A deed concerning lands or tenements shall have priority from the time that it is recorded in the proper office without respect to the time that it was signed, sealed and delivered. This is a pure race recording statute [Del. Code Title 25, 153] What Type of Recording Act? Problem 4 Time 1: Henning conveys Blueacre to Wells, but Wells fails to record her deed Time 2: Middleton (M) gets a judgment vs. Henning Time 3: Blueacre is sold at a sheriff s sale to satisfy M s judgment; Lambert buys Blueacre at the sale Q: At Time 2, does Middleton have a lien against Blueacre? Q: At Time 3, is Wells s deed valid vs. Lambert? Recording Acts: Who s Protected? Most recording acts protect only purchasers for value, i.e., buyers and mortgagees Note: purchase in this context means to take by a voluntary transfer Most do not protect a judgment lien creditor or a donee (no detrimental reliance); the rights of these parties remain subject to derivative title principle By contrast, acts in some states explicitly protect either lien creditors (e.g., NC) and/or donees (e.g., CO) 4
Problem 4(a): In most states, Middleton (as a lien creditor) is not protected by recording act Thus, at Time 2, Middleton s judgment vs. Henning did not attach to the land; title had passed to Wells and Henning no longer had an interest Middleton thus had no valid judgment lien vs. Blueacre Problem 4(b): When court ordered sheriff s sale (as court was unaware of Wells s unrecorded deed), and Lambert bought at the sale, Lambert takes title free of Wells s unrecorded deed (if he qualifies for protection under the state s recording act) Search: Grantor-Grantee Indexing In most jurisdictions, the recorder indexes deeds alphabetically and chronologically in a grantor index (by the grantor s last name) and a grantee index (by the grantee s last name) If I m planning to buy a home from Prof. Bowman, how do I search the title to the home to confirm Prof. Bowman s ownership? The Grantee Index: Building the Chain of Title Step 1: begin with Grantee index, find the entry for the deed by which Bowman obtained his title, to identify his predecessor (Bowman s grantor) Step 2: After locating Bowman s grantor, repeat Step 1, searching under the name of Bowman s grantor, to to identify her/his predecessor Step 3: Repeat... Step 4: Repeat... Building the Chain of Title Search could go back to original owner ( root ) In reality, most searches go back 40-60 years, depending on local practice The search period will vary, depending upon (a) local title search practices and (b) the provisions of the state s marketable title statute (if the state has one) Logic: if there is an adverse conveyance arising from an owner more than 60 years back in the chain of title, it is unlikely to be valid (can you see why?); cost of deeper search unmerited 5
Search: Grantor-Grantee Indexing If each deed is indexed in BOTH the grantor index AND the grantee index after it is recorded, then what s the purpose of having to search in both indexes? The Grantor Index: Searching for Adverse Conveyances After building chain of title, searcher must search forward in time, in the Grantor index, looking for adverse conveyances (i.e., interests granted by each Grantor to 3rd parties during that Grantor s period of ownership) E.g., Did a prior owner grant a mortgage, or become subject to judgment, that hasn t been released/satisfied? Or grant an easement or covenant that would limit use of land or marketability of title? Tract Indexes A few recording offices keep tract indexes [p. 244] Recorder sets up a separate index page for each parcel of land in the county Any deed, mortgage, easement, covenant, declaration, or other instrument affecting title to that parcel gets entered on that index page, in chronological order Tract indexing is superior from an ease of search process, so why don t recording offices create tract indexes? Tract Indexes/Title Plants Cost for the recorder of deeds to retroactively recreate a comprehensive tract index would be prohibitive In addition, many local title companies (e.g., Boone Central Title) have constructed their own internal tract index ( title plant ) for all parcels for which title insurance has been issued in that county These companies would be unsupportive of a public tract index (which would diminish the value of their proprietary title plant) 6
Torrens System (Title Certificates) A few counties nationwide have implemented the Torrens system of title registration (not authorized in Missouri) Following a quiet title action, a county official issues a title certificate for the parcel Original certificate is kept on file in recording office Certificate certifies the owner of the parcel To be valid vs. transferees, any new 3d party interests must be entered onto the recorded certificate In the U.S., title certification has become universal for automobiles (cars are subject to certificate of title statutes in all 50 states) Given the amount of money invested in land, and the desire for certainty, why isn t Torrens more widely used? Concern: cost of quieting title (necessary to establish certified title) is substantial Quiet title action must join ALL parties holding an interest of record Cost likely to exceed $5,000 (even if the case is uncontested), and likely more By contrast, the cost of title insurance for Buyer is almost inevitably a substantial cost savings by comparison As a result, there s little incentive to establish new Torrens titles (except in large developments where Developer can distribute cost across many parcels) Accidents happen! Errors can occur in the preparation, recording, and indexing of deeds, mortgages and other real estate instruments If these errors prevent the system from giving effective notice, who bears the risk of loss: the recording party, or subsequent purchasers relying on the recording system? Recording System Problems 7
NPC gets judgment vs. Michael Bolan NPC records notice of the judgment lien, but misspells Bolan s name (spelling it B-O-L-E-N) Bolan later sold his home to Belmont (who did not know of NPC s unsatisfied judgment) Q: Did NPC s judgment lien ride through the transfer, or did Belmont take free of that lien under the recording act? Problem 7 NPC v. Belmont (Ohio 1988) Certification of judgment, though recorder accepted it, wasn t properly recorded due to misspelling of debtor s name, so it was not effective vs. Belmont (it didn t give constructive notice of NPC s lien) Problem: Belmont would ve found it only if he had searched under sound-alike names (idem sonans); too great of a burden to anticipate/guess alternate spellings; searcher should be able to search under CORRECT legal name Rationale: NPC (judgment creditor/prior in time) was cheaper cost avoider (spell it right!) Chris Jackson borrowed $500K from Superiority of Tract Indexes Problem 8: Name Changes Notice that the misspelling problem in Problem 7 would NOT have been a problem if the jurisdiction used a tract index With a tract index, the certification of the judgment would ve been indexed on the index page for the tract of land in question and thus would ve been found in a search despite the misspelling of Bolan s name Likewise, lien would have to have been noted on title certificate (if home was covered by Torrens) Bank, granted Bank a mortgage on Blueacre; Bank recorded mortgage 2 yrs later: Jackson changed his name to Mahmoud Abdul-Rauf 2 yrs later: By a deed that identifies him as Mahmoud Abdul-Rauf, he deeded Blueacre to Buyers Buyers didn t know Bank held an unsatisfied mortgage on the land Did Buyers take Blueacre free of Bank s mortgage, or subject to it? 8
Bank s mortgage was properly recorded and gave constructive notice to Buyers, who took subject to it Bank was not obligated to correct its mortgage to reflect Jackson s name change Why does this result make sense? Buyers dealing with Mahmoud Abdul-Rauf should ve been suspicious; they should ve found no entry in the Grantee index for any deed purporting to convey Blueacre to Mahmoud Abdul-Rauf Inquiry of Mahmoud for proof of his title would ve revealed his former name (Chris Jackson), and a search under that name would ve revealed Bank s mortgage Chad Johnson (owner of Blueacre) changed name to Chad Ochocinco He got mortgage from Bank, signed it as Chad Ochocinco ; Bank recorded When his career imploded, he changed his name back to Chad Johnson As Chad Johnson, he sold land to Buyers, who didn t know of Bank s unsatisfied mortgage Did Buyers take free of the Bank s mortgage? Problem 9: Name Changes Problem: Bank may have recorded its mortgage, but the mortgage was wild (i.e., not recorded within the chain of title and thus is not REALLY recorded ) He acquired the land as Chad Johnson and is now selling it as Chad Johnson A searcher looking for Chad Johnson (the record owner) in grantor index won t find Bank s mortgage (indexed under Chad Ochocinco ) if Bank didn t record a notice of name change in the land records before it records its mortgage B/c Bank didn t record within the chain of title, it failed to give constructive notice of its mortgage to Buyers (who took free of the mortgage!) Bank should ve first recorded a name change notice that linked the Johnson deed and the Ochocinco mortgage 2010: Pratt deeded Blueacre to Ziegler Deed identified parties correctly But, Recorder of Deeds indexed the deed under the name Bratt, not Pratt, in the name indexes 2017: Pratt sold Blueacre to Key by deed (Key did not know of the prior deed to Ziegler); Key recorded immediately Who owns land: Ziegler or Key? Problem 11 9
Misindexing Traditional view (weight of authority): Misindexed deed like Ziegler s still provides constructive notice of ownership to subsequent buyers like Key (even though she can t discover it in a title search) Under this view, Ziegler prevails over Key (who has constructive notice and thus isn t protected by the recording act) Rationale: Ziegler did what he was supposed to do, and shouldn t be punished for the recorder s mistake Is this a sensible result? Misindexing: The Counterview As between Ziegler (the grantee of the misindexed deed) and Key (the later purchaser who relied on the index), Ziegler is the cheaper cost avoider Ziegler knew he d recorded the deed, so he could have gone back to the record and double-checked to confirm his deed had been properly indexed (and thus was findable by future searchers) By contrast, Key couldn t do anything to find that deed (and thus must insure against this misindexing risk by buying title insurance) Under notice and race-notice recording statutes, in most states, notice can derive from off-record matters This can include actual knowledge of a prior unrecorded claim It can also facts and circumstances such as should place a reasonably prudent buyer on inquiry of a prior unrecorded claim Inquiry or Off-Record Notice Inquiry Notice from Possession O conveys to A, who does not record but who takes possession of the land O later purports to convey to B, who pays value and does not know of A s prior unrecorded claim B is deemed to have notice of A s unrecorded claim based upon A s visible possession (which is inconsistent with O s apparent record title) Rationale: Inquiry by B regarding A s possession would have revealed A s rights 10
Inquiry Notice Does this doctrine make good sense? On the one hand, it does encourage buyers to inspect the land and to further investigate anything suspicious about the seller s claim of title (and the law should encourage buyers to be careful) On the other hand, in resolving disputes between conflicting claims, courts cannot merely rely on the record, but must make judgments (not always obvious or predictable) about what sort of inquiry is reasonable Inquiry Notice: What Result? Senior citizen places title to home in name of his daughter, with whom he lives in the home; daughter agrees dad has life estate (but this is not on face of the deed) Later, daughter sells home to Buyer (who does not know of the dad/daughter agreement) Is Buyer a BFP, or does Buyer take with inquiry notice of dad s rights? Estoppel Letters Often, a buyer will obtain an estoppel letter when the buyer wants to clarify the expected nature of a 3 rd party s rights E.g., in previous example, Buyer might ask Dad to provide estoppel letter in which Dad represents to Buyer that Dad has no interest in the home If Buyer then completes the purchase and Dad later asserts his claimed life estate, Buyer can introduce letter and court will estop Dad from asserting his prior claim Other Uses of Estoppel Letters Someone buying a building occupied by tenants will ask each tenant for an estoppel letter confirming validity/contents of each tenant s lease Someone buying land subject to an easement the location of which was not specifically identified in the deed might ask the easement holder for an estoppel letter confirming the precise location of the easement 11