REAL ESTATE TRANSACTIONS & FINANCE
Fall 2015
Title Search and the Recording System
Reading Assignment: NWBF pp. 222-258.
1.
Why don’t all states issue title certificates for land (i.e., the Torrens system) in the same way
that states issue title certificates for vehicles? The Torrens system is used only in a few counties in
a few states, while certification of title for vehicles exists in all 50 states. Why?
2.
Classify the following recording statutes. Are they pure notice, race-notice, or pure race
statutes? Why?
(a)
“No (i) conveyance of land, or (ii) contract to convey, or (iii) option to convey, or
(iv) lease of land for more than three years shall be valid to pass any property interest as
against lien creditors or purchasers for a valuable consideration from the donor, bargainor
or lessor but from the time of registration thereof in the county where the land lies ….”
(b)
“A conveyance of an estate in fee simple, fee tail or for life, or a lease for more than
seven years from the making thereof, or an assignment of rents or profits from an estate or
lease, 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.
(c)
“Every conveyance of real property or an estate for years therein, other than a lease
for a term not exceeding one year, 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.…”
(d)
“Every instrument in writing that conveys any real estate, or whereby any real estate
may be affected, in law or equity, proved or acknowledged and certified in the manner herein
prescribed, shall be recorded in the office of the recorder of the county in which such real
estate is situated. Every such instrument in writing, certified and recorded in the manner
herein prescribed, shall, from time of filing the same with the recorder for record, impart
notice to all persons of the contents thereof and all subsequent purchasers and mortgagees
shall be deemed, in law and equity, to purchase with notice. No such instrument in writing
shall be valid, except between the parties thereto, and such as have actual notice thereof,
until the same shall be deposited with the recorder for record.”
3.
Assume the following examples arise in a state with a pure notice recording act:
(a)
Telephone Company holds a recorded easement over Henning’s land and has
installed underground telephone lines pursuant to this easement. Henning contracted with
Borison to plant azaleas in his yard. While digging, Borison (who was unaware of the
location of the telephone lines) accidentally cut the lines. Telephone Company sues Borison
for damages, claiming that Borison should have known of the underground lines because of
the recorded easement. What result? See Mountain States Telephone & Telegraph Co. v.
Kelton, 79 Ariz. 126, 285 P.2d 168 (1955).
(b)
Henning, owner of Blueacre in fee simple, conveys Blueacre to Wells, who fails to
record her deed. Two weeks later, Middleton obtains a judgment against Henning for
damages suffered in a car accident caused by Henning’s negligence. Middleton’s judgment
constitutes a lien upon all of Henning’s land within the county. Can Middleton claim the
benefit of the recording act — in other words, can Middleton claim that the lien of his
judgment attaches to Blueacre because Wells’s unrecorded deed is ineffective against him?
Why should a recording statute protect (or not protect) lien creditors? See Texas Am.
Bank/Levelland v. Resendez, 706 S.W.2d 343 (Tex. App. 1986).
(c)
Same as problem (b), but assume that Middleton asks the court to order an execution
sale of the land to satisfy his judgment lien, and further assume that the court (unaware of
Wells’s title claim) orders the sale. At the sale, Lambert purchases the land without
knowledge of Wells’s unrecorded deed. What result? See Valley Nat’l Bank v. Avco Dev.
Co., 14 Ariz. App. 56, 480 P.2d 671 (1971).
(d)
Henning, owner of Blueacre in fee simple, conveys Blueacre to Pushaw, who fails
to record his deed. Two weeks later, Henning purports to convey Blueacre to Dean as a
birthday gift. Who owns Blueacre, Pushaw or Dean? Compare Fritz v. Mazurek, 156 Conn.
555, 244 A.2d 368 (1968) and Bagwell v. Henson, 124 Ga. App. 92, 183 S.E.2d 485 (1971)
(recording act does not protect donees) with Eastwood v. Shedd, 166 Colo. 136, 442 P.2d
423 (1968) (recording act interpreted to protect donees).
4.
The “Shelter Principle.” The protection of a recording act extends not only to the bona fide
purchaser, but also to grantees who take from that person. For example, suppose that Osman, owner
of Blueacre in fee simple, conveys Blueacre to Anderson, who fails to promptly record her deed.
Osman later conveys Blueacre to Litton, who had no knowledge of the prior conveyance to
Anderson, and Litton promptly records his deed. The “shelter principle” permits Litton to convey
a good title to a grantee even if that grantee had actual knowledge of Osman’s unrecorded deed to
Anderson or otherwise failed to qualify as a bona fide purchaser. Do you understand why this rule
is necessary to protect Litton’s rights under the recording act? See Corey v. United Sav. Bank, 52
Ore. App. 263, 628 P.2d 739 (1981) (discussing and applying the “shelter” principle).
There are some grantees, however, who cannot take advantage of the “shelter principle.” Under the
preceding facts, for example, the “shelter principle” would not permit Osman to acquire title from
Litton free of Anderson’s interest. Do you understand why?
5.
Review Problem. Consider the following problem to test your understanding of the operation
of the various types of recording acts: Henning, owner of Blueacre in fee simple, conveys Blueacre
to Ziegler, who does not record. Henning subsequently conveys Blueacre to Key, who purchases
in good faith for valuable consideration. Key likewise fails to record her deed. Later, Ziegler
records his deed and conveys Blueacre to Chambers, who purchases in good faith and for valuable
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consideration. Key finally records her deed only a few moments before Chambers records his deed.
Who prevails under a pure race statute? A pure notice statute? A race-notice statute?
6.
National Packaging Corporation (NPC) obtained a judgment against Michael Bolan in the
amount of $3,331.76 plus interest. NPC then certified the judgment in Hamilton County, with
Bolan’s name incorrectly spelled “B-O-L-E-N” in the docket book. At the time the judgment was
certified, Michael Bolan owned property in Hamilton County at 8107 Camargo Road and 815 Indian
Hill Road. Bolan’s ex-wife, Elaine (now Elaine Belmont), brought a foreclosure action against the
property located at 815 Indian Hill Road to collect overdue child-support payments. The property
was sold in a sheriff’s sale to L. Michael and Elaine Belmont (Bolan’s ex-wife and her new
husband). Because NPC’s judgment was filed under an incorrect spelling of Bolan’s name, NPC
did not receive notice of the sheriff’s sale. The Belmonts subsequently sold the Indian Hill Road
property to Richard E. and Vera DeCamp. Shortly thereafter, NPC brought its own foreclosure
action against the Indian Hill Road property. The DeCamps moved for summary judgment against
NPC, claiming that they took title to the land free of the lien of NPC’s judgment against Bolan.
How should the court rule, and why?
7.
Chris Jackson owns Blueacre in fee simple absolute. Shortly after graduating from college,
he borrows a substantial sum of money from First Bank, granting First Bank a mortgage on Blueacre
and signing the mortgage “Chris Jackson.” First Bank properly records his mortgage. A few years
later, Chris becomes a convert to Islam and changes his name to Mahmoud Abdul-Rauf. He later
conveys Blueacre to Bob and Betty Buyer, using a deed that describes him with the name
“Mahmoud Abdul-Rauf.” The Buyers pay value and have no actual knowledge of Mahmoud’s prior
name or First Bank’s mortgage on Blueacre. Under these circumstances, should the Buyers take title
to the land free of First Bank’s mortgage? Why or why not?
8.
Chad Johnson owns Blueacre in fee simple absolute. Shortly after the fame of becoming a
star NFL wide receiver went to his head, Chad changed his name to Chad Ochocinco. He then
borrowed a substantial sum of money from First Bank, granting First Bank a mortgage on Blueacre
and signing the mortgage, “Chad Ochocinco.” First Bank properly recorded this mortgage. After
several years, Chad had lost a step; the “Ochocinco” name became seen as pretentious and he
resumed using the name “Chad Johnson.” He later conveys Blueacre to Bob and Betty Buyer, who
pay value and have no actual knowledge of the mortgage Johnson executed under the name Chad
Ochocinco. Under these circumstances, should the Buyers take title to the land free of First Bank’s
mortgage? Why or why not?
9.
Blueacre is an undeveloped parcel of land that Stein purchased in the 1960s as an investment.
In 1990, Stein conveyed Blueacre to Randolph, but Randolph failed to record the deed. In 2000,
Randolph conveyed Blueacre to Cameron. Cameron immediately recorded his deed, but did not take
possession of Blueacre. In 2014, upon Stein’s death, Stein’s administrator — unaware that Stein
had conveyed Blueacre — conveyed Blueacre to Key, who paid value and took possession of
Blueacre without knowledge of Cameron’s prior claim. A dispute over ownership of Blueacre
subsequently arises between Key and Cameron. As between the two, who has the superior claim
to ownership of Blueacre, and why?
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10.
Pratt, owner of Blueacre in fee simple absolute, conveyed Blueacre to Ziegler by warranty
deed. The deed spelled their names correctly, and Ziegler promptly presented the deed to the
recorder for recording, but the recording clerk mistakenly enters the deed into the grantor index
under the name “Bratt.” Several years later, Pratt purported to convey Blueacre to Key, who paid
value and accepted the deed without actual knowledge of the earlier deed to Ziegler. As between
Ziegler and Key, who has the superior claim of ownership of Blueacre, and why? Would your
analysis of this problem change if the recorder’s office had entered the deed into the grantor index
under the last name “Pratts”? What if the recorder’s office had simply lost Ziegler’s deed altogether
before indexing it?
11.
The purchase of land is usually a significant event for the buyer, and buyers usually visit and
inspect the property personally before going forward with a purchase. In the process of inspecting
the property, the buyer could discover potential defects in the seller’s title. Such defects might
include the presence of someone in possession under an unrecorded claim of title, the presence of
tenants claiming under a lease from the seller, an encroachment by a neighboring landowner, or the
existence of a reciprocal servitude implied from a common scheme of development. Not all
purchasers of land make a careful visual inspection, however, and someone purchasing land for
investment purposes might never actually visit the property personally. Should a buyer of land be
deemed to have constructive (or “inquiry”) notice of title defects that they would have (or should
have) discovered had they conducted a careful personal inspection of the land? What types of facts
should provide notice of adverse claims to a prudent purchaser? How suspicious must the
surrounding facts be to justify imputing notice of an adverse claim? Consider the following
problems:
(a)
Rosalie purchases Blueacre as a home, but has the grantor execute the deed to her
son Jimmy, as grantee, to avoid creditors. [Assume that under this jurisdiction’s law,
because Rosalie provided the purchase price and did not intend to make a presently
effective gift, Rosalie is the true equitable owner of Blueacre and Jimmy thus holds
legal title as a trustee for her.] Jimmy later purports to convey Blueacre to Deborah,
who pays value in good faith and without actual knowledge of Rosalie’s equitable
interest in the land. What facts would be relevant in determining whether Deborah
will take title to Blueacre free of Rosalie’s interest?
See, e.g., Diamond v.
Wasserman, 14 Misc. 2d 781, 178 N.Y.S.2d 91 (Sup. Ct. 1958); Yancey v. Harris,
234 Ga. 320, 216 S.E.2d 83 (1975).
(b)
Trump owns Trump Plaza Shopping Center. One tenant, Fred’s Bar and Grill,
operates in the shopping center pursuant to an unrecorded seven-year lease. Trump
contracts to sell the shopping center to Walton, who is unaware of Fred’s tenancy —
Walton has never seen Trump Plaza (he lives in another state) and Trump
inadvertently omitted Fred’s lease from the package of leases that it gave Walton to
review. Thus, Walton incorrectly assumed that the space in which Fred’s was
operating was vacant. After closing, Walton discovers Fred’s in possession and sues
to evict Fred’s, because Walton has lined up a new tenant willing to pay higher rent.
Can Walton evict Fred’s by claiming that it purchased Trump Plaza without notice
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of Fred’s lease? See, e.g., Grand Island Hotel Corp. v. Second Island Dev. Co., 191
Neb. 98, 214 N.W.2d 253 (1974).
(c)
Wells, owner of Jayhawk Place (a 100-unit apartment complex), agrees to sell the
apartments to Peters. Wells provides Peters with the original leases, all of which
provide for rent of $500/month. Based upon his review of the leases, Peters
purchased the complex for $2 million. Shortly after closing, Peters received rent
checks from 50 tenants in the amount of $400, and upon investigating, discovered
that Wells had entered into oral agreements with each of those tenants, reducing their
rent to $400/month. [All of the applicable leases were for less than one year.] How
much can Peters collect from these tenants in rent? See, e.g., Grosskopf Oil, Inc. v.
Winter, 156 Wis. 2d 575, 457 N.W.2d 514 (App. 1990); Vitale v. Pinto, 118 A.D.2d
774, 500 N.Y.S.2d 283 (1986).
(d)
Henning conveys Blueacre to Pushaw, who builds a chain link fence around
Blueacre. Pushaw’s neighbor, Key, sues Pushaw for an injunction to force him to
remove the fence, claiming that the fence violates a “no chain-link-fencing”
restrictive covenant benefitting Key’s land. Henning’s predecessor in title (Fischer)
had agreed to the restrictive covenant with Key’s predecessor (Wells) back in 1972,
but the instrument creating the covenant was never recorded. The recorded deed
from Fischer to Henning had conveyed Blueacre to Henning “subject to restrictions
in favor of Wells,” but did not specify what those restrictions were. Can Key enforce
the covenant against Pushaw? Compare Harper v. Paradise, 233 Ga. 194, 210
S.E.2d 710 (1974) with Colo. Rev. Stat. Ann. § 38-35-108.
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