Pg 56

Question 1

When a mortgagee/creditor gets a mortgage in exchange for a loan, is he deemed to be a purchaser for value?

Answer 1

Yes

Question 2

Who is a mortgagee?

Answer 2

The bank/creditor

Question 3

Who is a mortgagor?

Answer 3

Person that borrowed the money on their own property

Question 4

When can a mortgagee get protection from the recording acts?

Answer 4

If the mortgage is in exchange for a debt at the time the debt is created.

The problem often arises where the mortgage is issued after the debt begins, and then you’re not lending money in exchange for a mortgage, so you’re not paying value

Question 5

If you borrow money from the bank, and the bank gets nervous and asks for security so you issue a mortgage on your property, does the bank have recording act protection on that mortgage?

Answer 5

No, because the bank didn’t pay value for the mortgage. If the mortgage is taken to secure a pre-existing debt, the only way it is taken for value is if it extends the time for the payment

Question 6

How do computerized record searches change notice?

Answer 6

They allow a search outside of the chain of title, so documents that are there can be found, which gives actual knowledge to a prospective buyer and thereby he is bound by their contents

Question 7

Is it necessary that a person pay full market value in order to be a BFP?

Answer 7

No. The majority view is that the amount must be substantial in relation to the property’s value and not grossly inadequate. It must be more than nominal consideration

Question 8

If you buy property for $40,000 and it’s valued at $100,000, can you be a BFP?

Answer 8

Yes because that is a substantial amount.

Question 9

Is it still considered to be “paying value“ (to earn BFP status) if you pay through goods or services?

Answer 9

Yes

Question 10

What are some examples of things that would not be considered to “pay value“ for BFP?

Answer 10

Being a donee, promising to pay, giving a mortgage or a lien to secure a future payment, etc.

Question 11

Is a judgement creditor that is owed money and so he goes to court to get a judgement against the debtor treated as a subsequent purchaser for value?

Answer 11

Split in the courts:
– half the states: judgement creditors cannot benefit from recording acts because they are not reliance creditors since they didn’t go to the public records searching for competing claims before engaging in the transaction that led to the judgment
– the other half of the states: include lien creditors with a special rule that judgement creditors can be protected for subsequent claims, but they lose out to all prior claims, even unrecorded ones

Question 12

If you mortgage land to Annie and she doesn’t record the mortgage, then you buy a car from Betty and you don’t pay for it, so Betty gets a judgement against you for the car and creates a lien against the land, when the land is sold, who has priority?

Answer 12

Annie has priority because Betty is not a purchaser

Question 13

When must value be paid in order for someone to be considered a BFP?

Answer 13

It must be paid contemporaneously with or subsequent to the conveyance

Question 14

If a bank makes an unsecured loan, then asks the debtor to give a mortgage as security, why has the bank not given value?

Answer 14

Because there was no bargain. The only way it would work is if the bank detrimentally changed position. If that didn’t happen then the mortgage would be subordinate to any previous unrecorded conveyance that the debtor made.

Question 15

What is a secured loan?

Answer 15

This is when the bank has a mortgage interest in the property which can lead to potential ownership problems. Unsecured loans do not cause ownership issues

Question 16

What are different ways that you can have notice of a previous transaction that would make you not a BFP?

Answer 16

Actual notice, inquiry notice, and constructive notice

Question 17

If a buyer gets notice of a previous competing claim after he has paid for the property, is he still a BFP?

Answer 17

Yes because the irrevocable detriment was already incurred before he got notice

Question 18

Is adverse possession affected by the recording statutes?

Answer 18

No, because the recording statutes only apply to conveyances, and adverse possession is not a form of conveyance

Question 19

If you should have known something, is that considered to be notice that would make you not a BFP?

Answer 19

Yes. You are charged with notice of everything a competent search of the records would find

Question 20

What are the three types of recording statutes?

Answer 20

– Notice statutes
- Race-notice statutes
– pure race statutes

Question 21

When do you discuss the recording statutes?

Answer 21

If there are recordings and notice is an issue, you should describe all three types of notice for an essay and write out each one, and then argue which one is relevant

Question 22

What is involved in notice statutes?

Answer 22

These protect subsequent purchasers if they are BFPs (which means they had no notice of any previous conveyances and they paid value. It goes without saying that if they did not have notice, that means that the previous conveyance was not recorded. If it was recorded, then the person would’ve had constructive notice and would not have been a BFP).

If a statue doesn’t mention recording, it is a notice statute. I.e.: “no documents affecting real estate are valid against subsequent buyers for valuable consideration, without notice, unless filed in the office of the recorder.“

Question 23

What are the elements of a notice statute?

Answer 23

– Party is a subsequent purchaser, not a first conveyee or a giftee
– and he takes without notice of a prior claimant’s rights

Question 24

Under a notice statute, if the first buyer hasn’t recorded when a second buyer gets the conveyance, then the first buyer records, then the second buyer records, is the second buyer a BFP?

Answer 24

Yes, because he had no notice when he got the conveyance

Question 25

What does it mean to act “in good faith“ in order to be a BFP?

Answer 25

You take the property without notice of someone’s claim. You don’t have good faith if you know or have reason to know that someone else has a claim

Question 26

What are the three different recording statutes and what do they need?

Answer 26

• notice statute: good faith, pay value, no notice
  – race-notice statute: good faith, pay value, no notice, AND record first
  – pure race: pay value AND record first

Question 27

What is a race – notice statute?

Answer 27

Subsequent purchaser prevails if he is a BFP and records first. This is a race to the recording house and is the most common type.

Ie: “every conveyance not recorded is void against subsequent buyers in good faith and for valuable consideration whose conveyance isn’t first duly recorded.“

Question 28

What happens under a race – notice statute if one party satisfies notice and another party satisfies race?

Answer 28

There is a split:
– majority: the race party wins because of the emphasis on recordation
– minority: the notice party wins because of the emphasis on taking without notice

Question 29

What are the elements of a race – notice statute?

Answer 29

Good faith, paying value, no notice, and recording first

Question 30

What is a pure race statute?

Answer 30

Only followed by a few states. Whoever wins the race to the courthouse and records first gets good title and notice doesn’t matter. Subsequent purchases must acquire land for value and record first. FIRST is the key

Ie: “no conveyance is valid against a purchaser for valuable consideration until it is recorded.”

Question 31

What are the elements that are required for a pure race statute?

Answer 31

Must be valuable consideration and record first