Real Estate Transactions – Whitman – Spring 2012
The Recording System
Recording Acts
Recording System: Courts place a great deal of reliance on what is reflected in the records; therefore, they also allow purchasers and third parties to rely on those records
Vs. Torrens system: you register your title and go through proceedings and courts issue a registration of title
Every time the property is transferred, then a new certificate is issued w/ the aggregate of title records
Indexing Systems
Grantor/Grantee index system
2 copies: documents are sent to the clerk and filed under both the grantor’s and grantee’s names
Steps to search a title: back w/ buyer, forward w/ seller
Grantee (buyer book): check owner’s name in the buyer’s book each year going back until you find the year they bought the land
Then, do the same w/ prior owners—beware of changed names and deaths!
SOL: most jxns, it’s 50 years IF the chain of title is continuous/lacks no holes
50 years only creates a rebuttable presumption that the title is valid
Grantor (seller book): check each owner from the time they took the land going forward to when the sale in question was recorded—check as to that owner is finished
Then, move on to the next owner
Tract indexing system
Local ordinance or state law
Says that all docs pertaining to a piece of property must be identified by location
Different Kinds of Recording Acts
1. Race Recording Act: places a premium on race to the courthouse
Protects the buyer against prior conveyances, whether actual notice or not so long as the buyer RECORDS FIRST
2. Notice Recording Act
Places NO premium on race to courthouse
Protects a BFP against prior conveyances, whether the BFP records first or not
Recording the document IS notice to all: if it’s recorded, the buyer is NOT a BFP
3. Race/Notice Recording Act
Also places a premium on race to the courthouse, like race statute
Protects the BFP against prior conveyances ONLY IF BFP records FIRS
In general: OàA, then OàB; what does it take for B to win?
Notice: B is a Bon Fide Purchaser (BFP); in order to be a BFP, A must have not recorded so that B by definition has no notice
However, B should record ASAP so that O doesn’t turn around and convey to another BFP, C
Race: B records first
Small minority
Race/Notice: B=BFP and records first
Half of jxns
Bona Fide Purchaser for Value—relevant time frame: at the moment of conveyance: purchaser takes deed without knowledge (actual or constructive) of a prior transfer of property; must pay material value for the property (cannot be a gift; consideration is a different issue)
B can have BFP status based purely on what is recorded on the records
But, you are charged with whatever knowledge you would have if you had done an inspection of the property (therefore, A can’t be living on the property and B claims BFP status)
Shelter principle: Once a BFP perfects title by recording, then buyers from that BFP are protected even if the buyers have actual notice
Generally, we have to look at who could have prevented any problems
A; if A records immediately, will always prevail over subsequent purchasers
Under Notice, if A recorded first, B would have notice, so could not be a BFP
Under Race, if A has recorded, B cannot record first
Under Race/Notice, if A has recorded, B cannot be BFP
Problems with the system
Searching the records is not always sufficient
The recording acts do not equally apply to all types of interest in land
Ex. the presence of an adverse possessor who does not have to record a deed may not be known to buyer so buyer should buy title insurance
Title data is either not recorded or hard to find
Recorder’s Office makes no representation that the documents are correct
Three ways Buyer can protect himself
1. Search the record yourself
2. Inspect the property
3. Title insurance
O ® A (A does not record)
O ® B (BFP, does not record)
B prevails under all statutes, but is at risk in all jurisdictions because he hasn’t recorded; ultimately he is protected from prior purchasers, but is not protected from future purchasers, so he should record to protect himself
X ® A (mortgage executed)
X ® B (general warranty deed, NOT BFP)
B ® C (general warranty deed, BFP)
B records
C records
A records
Notice: C wins
X owns the property, encumbered by A’s mortgage
B is not a BFP so B owns the property encumbered
st avoider
The buyer should have checked to see if the seller recorded
This “wild deed” that they took cannot be found
The seller can turn around and sell to another buyer (who may likely be a BFP)
Court will treat deed from Aà B as unrecorded
Equitable because B should have done a title search and realized that A did not have title to the property on record
2. Late Recorded Deed
Oà A; A ≠ record
Oà B; B ≠ BFP,
B records
A records
Bà C; C = BFP, record
A v. C: who wins?
Decreasing Majority, A; requires work, but only have to look to chain of title to see if someone conveyed an earlier interest
C should be diligent: C will discover O to A by looking at the grantee index to find that O is a grantee
But when C looks at the grantor index, as he should, C will find O to B and won’t find O to A;
It’s arguable that C should take the extra step of finding out previous conveyances before O conveyed
Substantial Minority, C: C would be looking back through index, and would be looking at the grants made before B took title; so would miss A’s filing after B took title
Note: in a notice state, A would win b/c B is not a BFP and B has notice
Vs. if B was a BFP, then the shelter principle applies: when B gets good title, anyone receiving title from him is protected
Shelter principle: Once title comes into the hands of a BFP by virtue of protection of the recording acts, and BFP records, then any subsequent purchasers from that BFP are protected
Ex. O to A; A records
A to Z; Z does not record
A to C; C is BFP AND records
At this point, C has cut off Z’s rights to the property; once a subsequent buyer like D takes title, then it is protected
C to D; D is not a BFP but D records
Notice: D wins
Race-Notice: D wins
Race: D wins
