The Recording System • Validly delivered deed is effective between grantor and grantee, even if it is 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 execution/recording errors? • Recording acts are either (1) “pure race,” (2) “pure notice,” or (3) “race-notice” in their operation • Act specifies what action subsequent purchaser (SP) must take to qualify for protection vs. prior purchaser (PP) from same grantor Type of act SP protected against PP if: Pure Race SP records before PP Pure Notice SP purchases w/out notice of PP Race-Notice SP purchases w/out notice of PP and SP records before PP Recording Act • Each state has a recording act (a statutory estoppel rule that displaces the “first-in-time” rule where a deed is unrecorded) • E.g., O conveys to A, who fails to record; later O conveys same land to 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, the recording act may deem A’s deed invalid vs. a subsequent purchaser like B 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? 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 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!) • Thus, recording statute does not displace “first in time”; A’s deed is still valid vs. B under “first-in-time,” and thus A owns Blueacre • What if B was lazy/imprudent and failed to search the title records at the time B purchased Blueacre? Notice Statute – B’s failure to search is irrelevant – Buyer has no legal duty to search the title records before buying land – Buyer is deemed to have constructive notice of what a search would have revealed • If B had searched, B would not have found A’s deed (which was unrecorded) 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? 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 • “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 . . . .” Problem 2(c): What Type of Recording Act? • “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 2(b): What Type of Recording Act? Problems 3(b), 3(c): Who Is Protected? • 1) Henning conveys Blueacre to Wells, but Wells fails to record her deed • 2) Middleton (M) gets a judgment vs. Henning • 3) Blueacre is sold at a sheriff’s sale to satisfy M’s judgment; Lambert buys Blueacre at the execution sale • Is Wells’s unrecorded deed valid against Middleton? • Is Wells’s unrecorded deed valid against Lambert? Recording Acts: Who Is Protected? • Most recording acts protects 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 (no reliance on the records) or a donee (no detrimental reliance); the rights of these parties remain subject to derivative title principle • By contrast, recording acts in a few states explicitly protect either lien creditors (NC) and/or donees (CO) Title Search: Grantor-Grantee Indexing • In most jurisdictions, the recorder indexes deeds alphabetically and chronologically in a grantor index (by grantor’s last name) and a grantee index (by grantee 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? • Problem 3(b): In most states, Wells’s unrecorded deed was nevertheless valid vs. Middleton (who was only a lien creditor and not a purchaser) – Middleton’s judgment vs. Henning did not attach to the land (title had passed to Wells) – Middleton thus had no valid judgment lien vs. Blueacre • Problem 3(c): When court ordered sheriff’s sale (unaware of Wells’s unrecorded deed), and Lambert bought at the sale, Lambert takes title free of Wells’s unrecorded deed, if he qualifies under the recording act! Grantee Index: Building the Chain of Title • Step 1: begin with Grantee index, find the deed by which Bowman obtained his interest, to identify his predecessor (Bowman’s grantor) • Step 2: After locating Bowman’s grantor, repeat Step 1, this time finding the deed by which Bowman’s grantor obtained her interest, to identify her predecessor • Step 3: Repeat .... • Step 4: Repeat .... Building the Chain of Title • Search could go back to the original owner (“root” of title) • In reality, most searches go back only 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 (e.g., adverse possession); cost of “deeper” search unmerited • 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 Grantor Index: Adverse Conveyances • After “building” the chain of title in the Grantee index, the searcher then works forward in time, in the Grantor index, looking for adverse conveyances (interests held by third parties other than proposed Seller/Grantor) – E.g., Did a prior grantor grant a mortgage that hasn’t been released/satisfied? Become subject to unsatisfied judgment? – E.g., Did a prior grantor grant an easement or covenant that would affect the land? Limit its use or marketability? • NPC gets judgment vs. Michael Bolan – NPC files notice of the judgment lien, but misspells Bolan’s name (recorded notice spells his name “B-O-L-E-N”) • Bolan later sold his home to Belmont, who did not know that NPC had an unsatisfied judgment vs. Bolan • Q: Is NPC’s judgment lien still enforceable against the home, or did Belmont take free of that lien? Problem 6 NPC v. Belmont (Ohio 1988) Tract Indexes • Certification of judgment, while accepted for recording, wasn’t properly “recorded” due to misspelling by judgment creditor, so it was not effective vs. the buyers • A few recording offices maintain tract indexes [p. 244] • In this situation, NPC (judgment creditor/filer) is arguably the “cheaper cost avoider” (could’ve spelled name correctly) • Tract indexing is superior; why don’t recording offices create tract indexes? – Problem: searcher would only find the certification if he/she searched under “sound-alike” names (idem sonans) – Court: too great of a burden to anticipate/guess alternate spellings; searcher should be able to search under CORRECT legal name • Chris Jackson borrows $500K from First Bank, and grants First Bank a mortgage on Blueacre; First Bank records • Later, Jackson changes his name to Mahmoud Abdul-Rauf • Still later, he deeds Blueacre to Buyers, by a deed that identifies him as Mahmoud Abdul-Rauf – Buyers don’t know that Bank holds an unsatisfied mortgage on Blueacre • Is Bank’s mortgage valid, or did Buyers take free of it under the recording act? Problem 7: Name Changes – Recorder establishes a separate index page for each parcel of land in the county; all instruments affecting title to that parcel are entered on that page of the index, in chronological order – In Problem 6, misspelled certification of judgment would still appear on tract index page for the parcel! • First Bank’s mortgage was properly recorded and gave constructive notice to Buyers, who took subject to it • After taking/recording its mortgage, First Bank was not obligated to “correct” its mortgage to reflect name change • Why does this result make sense? – Buyers from “Mahmoud Abdul-Rauf” should’ve been suspicious; they would have found no entry in grantee index for any deed conveying the land to “Mahmoud Abdul-Rauf” – Inquiry for proof of his title would’ve revealed his former name (Chris Jackson), and a search under that name would’ve revealed First Bank’s mortgage • Chad Johnson (owner of Blueacre) changes his name to Chad Ochocinco – He takes out a mortgage loan on Blueacre from Bank, and signs the mortgage as “Chad Ochocinco”; Bank records – Later, he changes his name back to “Chad Johnson” Problem 8: Name Changes • As “Chad Johnson,” he sells Blueacre to Buyers, who search under “Chad Johnson,” don’t discover Bank’s mortgage, and complete purchase of Blueacre • Is Bank’s mortgage valid vs. Buyers (or did Buyers take free of that mortgage)? Problem 10 • 2010: Pratt deeded Blueacre to Ziegler – Although the deed identified the parties correctly, the Recorder of Deeds indexed the deed under the name “Bratt,” not “Pratt” • 2015: Pratt deeded Blueacre to Key (who paid value and did not know of the prior deed to Ziegler); Key recorded her deed promptly • Is Key protected by the recording act? • Problem: Bank may have recorded its mortgage, but the mortgage is a “wild deed” (i.e., it is 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”) or a record of name change in land records – Bank thus did not give constructive notice of its mortgage to Buyers (who took free of the mortgage!) – Bank should’ve “connected the chain” (i.e., before taking mortgage, it should’ve required Chad Johnson to record a document noting his name change, thus providing the “missing link” in chain of title) Misindexing • Traditional view (weight of authority): Ziegler’s misindexed deed still provides constructive notice of his ownership to Key (even though she can’t discover it in title search) – Under this view, Ziegler prevails over Key (who isn’t a BFP 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 relying upon the index), Ziegler is the “cheaper cost avoider” – Ziegler knew he had attempted to record, so he could have “double-checked” to confirm his deed had been properly indexed (and thus was findable) – Key couldn’t do anything to avoid this risk (though she could buy title insurance) • 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, why don’t more states issue title certificates for land? Question 1 Torrens System (Title Certificates) • A few counties (but not in MO) have implemented the Torrens system of title registration • Following a quiet title action, a county official issues a title certificate for a parcel – Original certificate is kept on file in recording office – Certificate “certifies” the owner of the parcel • To be valid, any interests must be entered onto the original certificate • Under notice and race-notice recording acts statutes, a later purchaser with “notice” of a prior unrecorded claim is not protected by the recording act • Should “notice” be limited to the record alone, or can a later purchaser be deemed to have “notice” of an unrecorded interest based on off-record information? Inquiry or “OffRecord” Notice Inquiry Notice from Possession • 2010: Henning deeds Key to Blueacre; Key does not record, but takes possession • 2014: Henning deeds Blueacre to Ziegler • Should Key’s possession of Blueacre provide Ziegler with “notice” (and thus prevent Ziegler from being protected by the recording act)? – Rationale: A reasonable buyer in Ziegler’s position would inspect the land, and would have found it suspicious that Key (not the record owner) was in possession; inquiry of Key would have revealed her claim • General rule: Buyer takes title subject to rights of tenants in possession under their leases (even if those leases are unrecorded) • Problem for Peters: oral modification of leases by Wells was enforceable (assuming leases were one year or less in duration, and thus not covered by Statute of Frauds) • As a result, by paying $400/mo. for March, tenants have met the agreed rent for March, and are not in default (thus, Peters cannot evict them!) • What should Peters have done differently? Inquiry Notice: Hypo • Wells sells 100-unit apartment building to Peters for $2MM – Prior to buying the building, Peters reviewed a packet containing all of the original tenant leases (rent = $500/month) as part of his “due diligence” investigation – Closing occurs Feb. 20 • On March 1, tenants pay only $400 for rent – Secretly, Wells made an oral agreement with each T, on February 2, to reduce their rent to $400/month • Can Peters evict the tenants if they don’t pay $500/mo? What Should Peters Have Done? • Peters could have gotten an estoppel letter from each Tenant, before buying the building – Estoppel letter is a letter from Tenant to Buyer (i.e., Peters) confirming that the terms of original lease are valid, lease has not been modified or amended, no default exists under the lease, T has no defense to payment of rent, etc. – T signing estoppel letter would be estopped from later raising oral modification against Peters Estoppel Certificates • In buying an apartment building, a buyer like Peters might decide not to bother obtaining estoppel certificates from the existing tenants • In buying an office building or shopping center, a buyer like Peters would NOT complete the purchase without getting estoppel certificates from every tenant • Can you explain the difference?