Title Search Process
Title search begins by knowing who has owned the property throughout history. This is called the chain of title.
Types of Recording Acts
Recording a deed doesn’t make it valid, it just gives future purchasers notice of who owns the property. There are three different types of recording acts.
Race Statute
“The first to record wins.” Only Delaware, Louisiana, and North Carolina have pure race statutes.
A conveys to B and C. C records first, C wins.
Notice Statute
“The last bona fide purchaser wins.” A bona bide purchaser is a subsequent buyer who takes the property without notice of another party’s interest (because the previous purchase was not recorded).
A conveys to B and then to C (both bona fide purchasers). B records. C records. C will win.
Notice can be found through actual notice, constructive notice (regardless of actual notice, purchaser is deemed to have been notified—typically through a recording), or inquiry notice (should have asked and the facts would have readily presented themselves).
Race-notice Statute
“The first bona fide purchaser to record wins.” So to win, a purchaser must pay value, without notice of prior claims, and record first.
A conveys to B and then to C (both bona fide purchasers). B records. C records. B will win.
Bona Fide Purchasers
Record Notice
If a property is properly recorded, any potential purchaser has constructive notice of those interests.
Pelfresne v. Village of Williams Bay
917 F.2d 1017 (7th Cir. 1990).
Facts
A village sued Schiessle saying the property was unsafe and sought an order to raze (tear down the buildings on the property), notice was provided that legal action was pending on the property. Schiessle sold the property to two others who were added onto the litigation. Based on a technicality, the case was dismissed, but promptly refiled. However, the Village failed to file a notice that litigation was pending. The two others sold the property to another. Then the Village obtained the raze order and a monetary judgment, but failed to record the order on the property. At this point, the third party sold to Pelfresne (the nephew of Schiessle).
Analysis
The defendant may have had actual notice because he was the nephew of Schiessle, but the facts are not present. Further, there is no constructive notice because the raze order was missing from the proper location within the records. However, he may have been on inquiry notice because red flags would have been raised because of the situation—the judgment against several owners of the land and Pelfresne’s relationship to Schiessle.
Shelter Rule
Chergosky v. Crosstown Bell, Inc.
463 N.W.2d 522 (Minn. 1990).
Facts
The Teien’s owned the property and leased it to Northwestern Bell with the option to purchase at the end of the lease. Later, Teien later formed a company called Crosstown Bell and transferred title from his person to the entity. However, he became in need of money and sells the property (on contract) to Chergosky without recording the contract. Under the contract, if Northwestern exercised the option, Chergosky would convey the property back to Teien.
Again, Teien gained a mortgage from Summit bank, who did not have notice of the contract with Chergosky because it was not recorded. Thus, Summit is a bona fide purchaser.
Eventually, Northwestern Bell attempted to exercise the option, but there was a dispute about whether the option was timely exercised.
Next Griffith comes into the picture and takes 70% ownership of Crosstown, which also gave him an interest in the property (he also knew about the contract with Chergosky). Griffith then purchased the notes from Summit bank.
Analysis
Currently Griffith is arguing that the shelter rule applies, thus giving him priority over Chergosky. The rule is that if you acquire a property from a bona fide purchaser, then a subsequent purchaser will also be a bona fide purchaser (even if they had knowledge of the transactions).
However, the court says he assumed the obligations of the deed through taking ownership of Crosstown before he purchased the notes from Summit bank.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
