Recording, Security Interests in Real Property, Rights of Support, & Water Rights Flashcards
Purpose of Modern Recording Statutes
To protect subsequent purchasers from the common law rule of “first in time, first in right”
Mechanics of Recording
- clerk files a copy of the deed
- Clerk then index’s the information into Grantee and Grantor index
BFP (Bona Fide Purchaser)
Purchaser for value who takes without notice of the earlier tansaction
Types of Recording Acts
- Notice
- Race
- Race-Notice
Notice Recording
- Protects subsequent grantees who are BFPs
- the sole inquiry here is notice
- Recording is only important here as it imparts notice
Look for the words:
- Without notice
- Good faith
Race Recording
- Notice is irrelevant
- Whoever records first will keep the property
- Subsequent pruchaser does not have to be a BFP
Look for the words “in good faith” or “notice” - if they are not included then it is a race statute
Race-Notice Recording
2 part test - Protects all subsquent grantees who are BFPs provided who:
- Take without notice; and
- are the first to record
Look for the words:
- Without notice
- Good faith
- recorded first (first recorded)
- If this is not present then it is a notice statute
Subseuqent mortgages
Recording Statutes protect subsequent mortgages
Judgement Creditors
Judgement creditors are not protected by recording statutes
Concept of Legal Blinders
When examining chain of title, we look during the period of record ownership by the grantor. Things recorded too early or after title passes are outside that window and thus do not impart constructive (record) notice
Inpsection of the Property
To qualify as a BFP, he must make physical inspection of the property to investigate any unexplained possessions or uses
A security interest
Device used to secure a loan in the property
Reflected by a promissory note given by the borrower and the security interest is reflected in a seperate written instrument
3 types of security interests in real property
- Mortgage
- Deed of Trust
- Land Sale Contract
Mortgage
Given by the debtor (mortgagor) to the creditor (mortgagee).
If loan not paid in full, Sheriff sells land at a court ordered foreclosure sale
An Equitable Mortgage is an absolute deed with a Seperate Promise of Reconveyance
Equitable Mortagages and Sale Leaseback with Options to Repurchase must be foreclosed on like mortages and therefore receive the protections of a mortgage
Deed of Trust
Given by the debtor to a 3rd party trustee who holds the Deed of Trust until the loan is paid in full.
If the loan is not paid in full, the trustee can do one of two things:
- can obtain a court order for foreclosure of the property; or
- can sell the property by himself at a public auction
Land Sale Contract
Arrangment where the debtor signs a contract promising to make payments to the seller/lender, but the seller keeps title to the property until the loan is paid in full
Debtor’s Right to Redemption - or the Equity of Redemption
At any point up until the foreclosure sale, the debtor can redeem the property by paying the amount that was due and payable, known as the amount in arrears (plus interest) unless there is an acceleration clause in which the debtor must pay off the entire mortgage to redeem the property
The right of redemption cannot be waived in the mortgage or the deed of trust, but can be subsequently waived if there is consideration
Any attempt to waive during the mortgage or deed of trust is known as clogging the equity in redemption and is prohibited
Priorities on Payment of Multiple Mortgages
Common Law rule of First in Time, First in Right generally applies unless that order is changed by the applicable recording statute
Priorities Changed by Contract - Voluntary Subordination
A senior mortgage may agree to subordinate a junior mortgage - a mortgage that comes later in time
Purchase Money Mortgages (PMM)
Mortgage taken out to buy the property.
Recieves priority over all other mortgages that were executed prior to the PMM, even if they were recorded first.
A PMM by a seller usually gets priority over a PMM by a 3rd party lender, such as a bank
Changes in Serior Mortgages
If a mortgagor does anything to increase a senior mortgage, then that senior mortgage loses priority over junior mortgages, but only to the extent of the modification
Foreclosure Effect on Interest
Foreclosure eliminates the junior interests, but not the senior.
Buyer takes property subject to senior interest.
Holders of a junior interests have a right to pay off any senior mortgage being foreclosed in order to keep their interest from being wiped out. Thus junior interests are necessary parties to a foreclosure. If they are not made party to the foreclosure, then their junior interests are not eliminated by the foreclosure.
Payment of Proceeds from a Foreclosure Sale
- Pay the cost of foreclosure
- Pay off the mortgage that was foreclosed on
- Pay off the junior interests - in order of priority
- Pay any remaining balance to the borrower/mortgagor
Anti-Deficiency Statutes
If the mortgage is foreclosed on, and there are insufficient proceeds to pay off the mortgage, then the Mortgagee/Creditor can sue the Mortgagor/Borrower personally for the balance due
Land Sale Contract Forefiture Clause
If the debtor misses a payment the seller can cancel the contract, keep all the money paid to date, and retake the property.
If a seller enforces the forefiture clause, he is limited to that remedy and cannot obtain specific performance
Mortgagor’s (Grantor’s) Transfer of the Property
Whenever the grantor transfers the property, the grantee takes the property subject to the mortgage.
Grantee is not personally liable to the mortgage unless he specifically assumes it.
Grantee is subject to losing the property in a foreclosure sale if the mortgage is not paid off
Mortgagee’s (Creditor’s) Transfer of Note
Mortgagee can always transfer the note, and the mortgage will always follow the note it secures
Due On Sale Clauses
If Mortgagor transfers the property without the Mortgagee’s consent, the entire balance of the loan becomes immedietly payable and due
Due on sale clauses are enforcable
Security Interests in a Fixture
A seller of a fixture who provides a PMM in the chattel must make a UCC Article 9 fixture filing within 20 days after attachment (installation).
If filed in timeley manner, the seller may take the fixture without regard to the earlier mortgage. Sellers interest will be subordinate if filed after 20 days.
Rights of Support
- Lateral Support
- Subjacent Support
Lateral Support
Supports from the side.
Landowner has a right to have the sides of his property supported from the sides and strict lability applies.
With respects to improvements on the land, the landowner will be strictly liable for these improvements only if the land would have collapsed anyways, even without the weight of the improvements.
Subjacent Support
Support of the surface from the bottum.
Arises in mineral extraction scenarios.
Strict liability if land is not supported.
The right to have land supported extends to the improvements that were existing on the land as of the date the mineral rights were severed from the Fee Simple.
Water Types
- Rivers & Lakes
- Underground Water (Percolating Water or Water from a Well)
- Surface Water (Runoff or Flood Water)
Rivers & Lakes
Majority Rule: Riparian Rights
- Riparian refers to those that border a lake or stream
- A riparian owner may use all the water needed for domestic purposes
- Limited to standard of reasonable use for non-domestic purposes (commercial/industrial)
Minority Rule: Prior Appropriation
- First person who makes beneficial right of the water has right protected against those who come later
Underground Water
Landowner entitled to reasonable use of ground water, but must not export it elsewhere
Surface Water Approaches
- Natural Flow Approach
- Common Enemy Approach
Surface Water Natural Flow Approach
Requires landowner not make any changes at all in the flow of the flood water as it rushes across the surface of the land.
Because impossible to follow, courts allow a reasonable means to deal with surface waters
Surface Water Common Enemy Approach
Landowner can do anything he wants with surface water, whether reasonable or not
