Recording Flashcards
Recording Issues
What happens if a grantor conveys property or an interest in property to more than one grantee? Who gets the property?
At common law, the rule was simple: first in time, first in right. In other words, whoever received the interest first was entitled to the property. The second grantee was out of luck regardless of the circumstances. Because this rule encouraged nefarious grantors to commit fraud by placing the losses on unsuspecting subsequent purchasers, the recording acts were enacted to protect bona fide purchasers from prior interests that they could not know about.
What does recording accomplish?
Recording gives notice to the world that title to property has been transferred. So, any subsequent purchaser will have constructive (or record) notice of the conveyance. Because, as you’ll soon see, a bona fide purchaser lacks notice of a prior conveyance, proper recording prevents anyone from becoming a subsequent bona fide purchaser (“BFP”).
3 Types of Recording Acts
Race
Notice
Race-Notice
Race Statute
Under a pure race statute, notice of a prior conveyance by the grantor doesn’t matter. The first party to record wins. Only a few states have a pure race statute. The language of a typical race statute looks like this:
“A conveyance of an estate in land shall not be valid against a subsequent purchaser for value unless the conveyance is first recorded.”
Notice Statute
Under a notice statute, a subsequent purchaser who had no notice of a prior conveyance by the grantor will prevail over a prior grantee who failed to record. Typical notice statute language looks like this:
“A conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded.”
Note that the subsequent purchaser under a notice statute prevails even if they don’t record! As long as they had no notice of the prior conveyance, they win. But if they don’t want the same thing to happen to them, they will have to record to put other subsequent purchasers on notice of their interest.
If B is a bona fide purchaser and we are in a notice jurisdiction, B wins, regardless of whether or not they record before A does.
Race-Notice Statute
To be protected under a race-notice statute, the subsequent purchaser must not have any notice of the prior grant AND record first. Typical race-notice language looks like this:
“Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, whose conveyance is first recorded.”
If B is a bona fide purchaser and we are in a race-notice jurisdiction, B wins if they record properly before A does.
Statute Spotting
An easy way to spot the different statutes is to look for the words “notice” and “first.”
“First” only = race statute
“Notice” only = notice statute
“Notice” & “first” = race-notice statute
Bona Fide Purchasers (BFPs)
To be a bona fide purchaser, a grantee must:
1 - Be a purchaser (or a mortgage lender), not one who received the property by gift, will, or inheritance
2 - Pay valuable consideration
3 - Take without notice (actual, constructive, or inquiry) of the prior conveyance
Bona fide purchasers prevail over prior transferees in notice jurisdictions. They also prevail in race-notice jurisdictions if they win the race to record. If the subsequent grantee does not qualify as a BFP, they are not protected by the recording act and the common law rule of first in time applies.
BFP buys Blackacre for value without notice!
The buyer can still be a BFP even if the value they pay is smaller than expected FMV. Aka a bargain sale can still make the buyer a BFP.
As long as B pays substantial pecuniary consideration, he is a buyer for value!
The Doomed Donee
Recording statutes don’t protect heirs or devisees or donees. Suppose that B gets their last and happens to be the dirty double dealer’s heir/devisee/donee. In a recording statute question, B loses because B cannot be a BFP since B did not pay for value.
EXCEPTION: Shelter Rule = if this applies, then B actually wins.
AIR
A = Actual Notice > B gets literal knowledge of A’s existence prior to B’s closing. If O conveys Blackacre to A then again to B (classic double dealer)
I = Inquiry Notice (both forms of constructive notice) > whether B examines Blackacre or not, B is charged with inquiry notice based on whatever an examination of the land would show. Tells us the buyer of real estate, whether she bothers to check out Blackacre prior to closing or not, still has a duty to do that before title is transferred. If another person is in possession, B is charged with inquiry notice regardless of whether she bothered to inspect or not.
R = Record Notice (both forms of constructive notice) > B is charged with notice of anything (like A’s deed) that would have shown up on the land records. If A’s deed was properly recorded on chain of title, B’s lawyer would have done a title search and discovered or not discovered any conflicting deed/title issues. Without any AIR, B becomes a BFP. Then, answer depends on which recording statute is in place.
More about Inquiry Notice
Inquiry notice is a form of constructive notice. It means that under certain circumstances, a grantee must make inquiries and is charged with whatever knowledge those inquiries would have revealed. The grantee is charged with that knowledge even if they never made any inquiries.
Inquiry from possession: This is the most common type of inquiry notice on the bar exam. Every purchaser is expected to make a reasonable inspection of the property and is charged with the knowledge of whatever the inspection would have revealed and anything that would have been learned from asking the possessor questions. So, if someone else is occupying the property at the time of the purchase, the buyer is deemed to be on notice of whatever interest that occupier has in the property. Presumably the occupier would have told the buyer of their interest if the buyer had inquired.
Inquiry from references in recorded documents: If a recorded document references an unrecorded one, the grantee must inquire into that unrecorded document.
Inquiry from unrecorded instrument in chain of title: A grantee is expected to demand to see the grantor’s title documents and require them to be recorded. If the grantee doesn’t do this, they are on inquiry notice of anything those documents would have revealed.
Mortgages vs. Judgment Creditors and Lienors
Lenders who take a mortgage on property are considered purchasers for value. They are the same as any other BFP. Judgment creditors and lienors, however, aren’t usually protected by the recording acts. Because they aren’t covered by the recording act, their notice or lack of notice of prior claims is irrelevant.
Most states have statutes that require a lien holder to record or file the lien in order for it to be enforceable. Don’t confuse this with the recording act. Such a statute does not mean that the lien is protected by the recording act.
Chain of Title and Shelter Rule
In jurisdictions using a grantor-grantee index system, a purchaser is charged with notice of conveyances of the property by their grantor that were recorded after the grantor acquired the property and before a deed is recorded conveying title from that grantor to another. The purchaser is also charged with notice of the recorded conveyances of the grantor’s predecessor’s in interest during similar periods of ownership.
Deed must be recorded properly to give constructive notice. To record properly, must be in chain of title. The chain of title is the sequence of recorded documents giving notice.
Shelter Rule = one who takes from a BFP gets to prevail against any entity that the transferor BFP would have prevailed against. One who takes from the BFP takes shelter from the BFP’s status and steps into the BFP grantor’s shoes even if she individually on her own does not have BFP status (such as by being a donee).
3 Common Chain of Title Problems
Shelter Rule Problem = O conveys to A, who does not record. Later, O conveys the same parcel to B, a BFP, who records. B then conveys to C, who is a mere donee or who has actual knowledge of the O-to-A transfer. In the contest of A vs. C, who prevails? C
Wild Deed Problem = O sells Blackacre to A, who does not record. Then, A sells to B. B records the A-to-B deed. Is the A-to-B deed connected to the chain of title? NO. A wild deed is a nullity. Same as never recording at all.
Estoppel by Deed = In 1950, O owns Blackacre. He is thinking about selling it to X, but for now decides against it. In 1950, X, who does not own Blackacre, sells it anyway, to A. A records. In 1960, O finally sells Blackacre to X. X records. In 1970, X, a double dealer, sells Blackacre to B. B records. As between X and A, who owned Blackacre from 1960-1969? A owned it. Because of estoppel by deed. Who owns in 1970? B. Because he’s the last BFP to enter. In race-notice state, he’s a BFP who wins the race to record. How is B a BFP? B wins race to record because B’s title searcher would never find A’s deed from X. That’s because A’s 1950 recording is too soon. It’s a nullity and doesn’t connect to the larger chain of title. A title searcher wouldn’t find it. A could have done a title search, and determined X had nothing to convey. Also A could have recorded/amended the records at some point.
Estoppel By Deed
One who conveys realty in which he has no interest (X, the fraud in previous problem) is estopped from denying the validity of the pre-acquisition conveyance when X subsequently receives the property. So when X sold to A originally, X didn’t own it, but once X owned it, then that passed ownership to A via estoppel by deed. Estoppel by deed shoots back in time to A’s rescue.
