Property II.2 - Recording System

By the end of the search, buyer will know:

(1) Do I have good title? (2) Is there an issue that needs resolving? (3) Do I walk away?

Process PART 2: Then go look at the deeds

(1) Look at names of grantors (2) Find the date of the instrument => the date interest was acquired for priority purposes, when the deed was EXECUTED (3) Find the date instrument was recorded => the date for constructive record notice purposes, date the instrument was RECORDED Once you have researched the number of years back necessary, checked all the deeds, then you need to search the opposite way and link up the sales

PART 3: THEN Go to the grantOR indexes...

(1) Start with the last person giving title found in the grantee index, check if they made any conveyances AFTER the date they received the instrument but BEFORE the date the proceeding grantee recorded THEIR interest • Start with the date the deed was EXECUTED => see if they did anything (ANY ENCUMBRANCES) from the date they got it to the date they conveyed it (Go date of DEED to date of RECORDING) (2) Search the index using the next grantor's name to see if they made any conveyances AFTER date of instrument, but BEFORE next date of recording => on through chain

Process PART 1: Steps the potential buyer should take to confirm the seller has good title

0. You cannot start with the grantor index, because YOUR grantor should only be reflected as a grantEE to date => big problem if your grantor is already IN the grantor index START: Go to grantEE index... (1) Find the current seller's name in the appropriate volume of the grantee index. Front cover of the indexes tell you: i. What types of instruments are indexed, ii. What letters of the alphabet, iii. For what time periods (2) Find who the seller took title from and when they took title. • Searching the indexes: Get the names of ALL grantees / grantors listed; Ensure that when looking at a particular transaction, the property description matches up; Get the page and volume numbers of where you can find the actual deeds (3) Then, find who THAT person took title from and when. (4) Complete this process until you have searched back in time for a sufficient number of years (~60 years / as far back as possible)

Proper Recording - To be properly recorded and provide constructive record notice, MUST:

1. Contain no technical defects a. No defective property description (mother hubbard clause issue - jx split, Luthi case) b. No misspellings of names (idem sonans - jx split) 2. Be properly indexed (jx split) 3. Satisfy the formal requirements for recording (no patent defects) 4. Be recorded in the chain of title a. Was the deed recorded too late, too early, or is it a wild deed?

Questions of Inquiry Notice:

1. Did a duty to inquire arise? 2. IF so, what is a reasonable investigation? • What did they have to DO to act reasonable • Consult public records / ask the parties involved 3. What would the reasonable investigation reveal?

Notice Statute: [TX has]

1. Subsequent purchaser (or creditor) 2. Good faith 3. No actual notice, constructive record notice, or constructive inquiry notice of prior interest at time the subsequent interest was acquired 4. For good and valuable consideration To cut in line, must satisfy 1-4

Race-Notice Statutory Examples:

A conveyance of real property not so recorded is VOID as against any subsequent purchaser or mortgagee in good faith and for valuable consideration from the same vendor, his heirs, or devisees, of the same real property or any portion thereof whose conveyance is first duly recorded.

Notice Types

Actual: when one is personally aware of a conflicting interest in real property, often due to another's possession of the property Constructive Record Notice: notice one has based on properly recorded instruments Constructive Inquiry Notice: based on facts that would have a reasonable person to make inquiry into the possible existence of an interest in real property

Constructive Record Notice under Tex. Property Code § 13.002

An instrument that is properly recorded in the proper county is: • Notice to all persons of the existence of the instrument AND • Subject to inspection by the public NOTE: must be PROPER recording => recording MUST satisfy back of card (Cannot mess up name / fail to describe land / etc.)

A deed is valid and good against the grantor upon delivery without recordation

As we do this, we may have people cutting in line => person who got deed from seller may lose, but with recording system a deed is still valid against grantor upon delivery WITHOUT recording system Deed valid between buyer and seller with delivery + intent + acceptance + SOF => BUT even if deed is valid, can lose it when someone cuts in bc title is relative - Seeing exception to first in time first in right rule

Quitclaim Deeds and Good faith

Can a QCD create issues that should / do give people pause? MAJORITY: A quitclaim deed in and of itself has no impact on BFP status => treat them normally like warranty deed, no impact on good faith MINORITY - TX: person accepting QCD does NOT take in good faith o As a matter of law, a person accepting a QCD does not take in good faith. Further, the holder of a title in which there appears a QCD may not assert the claim of BFP as against an outstanding title that existed when the quitclaim was executed Not JUST looking at B, looking down the road to see if there is a quitclaim anywhere in chain of title • BUT New Law => Four-year SOL for competing claims - TX still in minority but softened some Four years after RECORDING the QCD, you can be in good faith

Mother Hubbard Clauses:

Catch-all, common in oil and gas leases as a way to put language in the deed/lease to include many without specifically describing them all => Relevant to giving notice AND to how property mistakenly described/omitted may be included with conveyance Jx-Split: MHC's with respect to SOF => NO clear majority for us; (Luthi) NOT sufficient for CRN in Kansas TX: Allows MHC to bring in SMALL, tiny pieces of land, but NOT a large piece of land => MHC can remedy property description for SOF with small errors or small tracks, but LARGE pieces of land must be specifically described in the lease See a MHC => Point to note: make sure to comply with jx to see if there is a SOF issue Issue spotting: issue with respect to property description and SOF

Property Description => for property conveyance there must be a description of the property

Don't have to record for conveyance to be effective => Need description of property because of SOF - it is one of the parts required in writing => Incorrect property description does NOT give notice Generally: Description must be sufficiently detailed/accurate so that a title searcher can find the recorded document NOTE: Tract index is how you search property description => not all jx's have them and there can be issues, most jx's only have grantor/grantee indexes

Race Recording Statute:

Earliest type of recording statute, originally only kind still used today in Louisiana and North Carolina Basic Rule: First purchaser for value to properly record FIRST wins => STILL check proper recording Even a subsequent purchaser with ACTUAL knowledge of the prior interest wins if they properly record first. (No good faith requirement / element against notice)

Title Search

History of all the past owners of the land going back to a certain point in time - How far back in land depends on what people require / other factors All conveyances entered into by the various owners & Whether any other interests exist in the land (Are there easements/mortgages/judgment liens) Ultimately tells you: (1) Who is the current owner, and (2) What exactly does she own

Policy Rationale for Exceptions:

If there are two competing claims between two parties, one of whom is going to lose out on the interest in the land, the law chooses the bona fide purchaser (BFP) or good faith creditor (GFC), even though second in time, because the party first in time could have easily protected himself and prevented the problem. •Not going to create concurrent owners, one must win over the other => law chooses BFP/GFC that satisfies all statutory requirements

Discover issue in chain of title: see your seller has already conveyed to someone else => Legal pathways to rescind contract for sale/get damages:

If you already signed the sales contract: • STILL in executory period => DON'T go through => Marketable Title: person doesn't OWN what they purported to OWN => Seek recission [For some reason] Did search AFTER closing, have a GWD with all six covenants • Sales contract is gone with doctrine of merger • Issue with covenant of seisin and right to convey - go after grantor looking at DEED warranties

NOTE: See QCD with respect to second in time

In the Maude case no QCD issue there If in TX, must STOP and say there is issue with respect to QCD and unless four years have passed, NO one in the column can cut in line bc that would not be BFP with QCD on Maude's side => issue with good faith element

Lewis v. Superior Court (seller financing issue)

Lewis paid part of purchase price and part with promissory note, bank not involved => straight line between buyer giving some money and promissory note and seller giving home (NOTE: where bank is involved, no issue with good and valuable consideration - limited to seller financing, there would not be the promissory note with a bank, seller gets full $$ from bank AND if Lewis loses this case, promissory note does NOT continue like it would w/ bank loan) Lis pendens: notice to the world at large that you have a lawsuit pending against the owners of real property => Lis pendens on home indexed AFTER Lewis's closed, Lewis made big payments on note and spent $$ renovating home, THEN learned about lis pendens & brought action to quiet title Note: FF with lis pendens properly recorded AFTER Lewis because it had not been indexed by time of Lewis recording => CA part of MINORITY =Can Lewis cut in line? Did Lewis pay good & valuable consideration? Was the promissory note sufficient to be good and valuable consideration? Def tried to rely on Davis case based on old belief that having not paid full purchase $, not harmed, this court rejected that & distinguished on facts that Davis had AN, this case only CN Ct: Lewis committed to paying full price w/ note then relied on expectation of getting property making improvements allowing him to win, (1) in reliance he changed position making expenditures improving and (2) real property is unique, restitution insufficient

Index Issue => Failure of CLERK to index:

MAJORITY: A non-indexed document gives notice MINORITY: A non-indexed document is NOT properly recorded • Minority is recognizing that risk / fault should be assigned to the person who can PREVENT this from happening (NY, CA) Doctrine of Idem Sonans:/= When an improperly spelled name sounds substantially like the true name, the spelling error is ignored. The document still provides constructive record notice MAJORITY: Apply doctrine of idem sonans Growing MINORITY: Reject the doctrine of idem sonans (Orr) o Burdensome: allowing idem sonans, the buyer has to think of all the possible ways to spell a name other than the correct way o The persons recording are in the BEST place to not have a misspelling, not going to place the burden on the buyers to do a search for every possible misspelling => also not going to punish the innocent party and allow the negligent party to win

Too Late: counts as not properly recording

MAJORITY: Allow C's of the world to stop when they found O gave to B and STOP there o Too late scenario on exam: (Majority) A did not properly record => C did not have CRN of A bc they could stop when they found B MINORITY: Burden on C's of the world to keep going and searching => date of deed execution to date of recording [standard] and BEYOND NOTE: in Race-Notice, C would still have properly recorded because A's recording was outside of time period for title search

Too Early: also counts as not properly recording

MAJORITY: will not make Z go through all the time periods BEFORE the grantor got their interest o A must fix the problem by having cleared chain of title => when A brought from Z they should have seen in chain of title Z didn't have it • A needed to re-record once Z DID get the issue [CAN re-record to really fix and clarify chain of title]

Inquiry Notice

May be some small overlap with good faith element, but important to distinguish o Facts/ circumstances / something that happens you see => law imposes a DUTY on you to inquire further and act reasonably o Charged with notice of what a reasonable investigation would have uncovered Scenarios it Arises: • Notice from a reference in a recorded document: Purchasers are charged with notice of the terms in properly recorded instruments which form an essential link in their chain of ownership to other instruments, maybe even unrecorded instruments. • Notice from possession of land: There is a duty to inquire as to the reason for actual possession by someone other than the Grantor.

Invalid Acknowledgment: States are mixed, but generally:

No CRN => A recorded document that fails ON ITS FACE (patent defects) to meet the formal requirements for recording (and never should have been recorded in the first place) gives no CRN Yes, provides CRN => A recorded document that appears on its face to meet formal requirements, but suffers from a hidden (latent) defect Depends on whether you can TELL you didn't comply with formal requirements Latent Defect: it is actually defective, but you cant tell just by looking at the document [Provides CRN] v. Patent Defect: fails on its face => not giving CRN when it is obvious it did not comply

Board of Education v. Hughes (wild deed)

O(Hoeger) owned land subject to unpaid taxes, H offered to buy - sent check w/ deed to be executed and returned, did not have grantee name => O executed deed but still did not insert grantee name, cashed check => H filled in name prior to recording DW paid O for QCD, executed and delivered, DW sold it to Board with warranty deed, then recorded own O-DW deed after H had recorded Issue: H did not have grantee line filled in, deed from O did not comply with SOf until he recorded and filled in grantee name => did H have notice of the Board when he recorded? Board had a WILD DEED => H would never see DW or Board in index bc DW did not record until AFTER Board had recorded => H would only look at O's name, would not see DW or Board NOTE: race-notice jx, so no proper recording means Board can't win => had it been notice, Board could win because they were BFP & no need to record 1st in notice jx

Orr v. Byers (bad at spelling)

Orr recorded judgment lien against William Duane Elliott, but recorded as Eliot => Byers bought property from E, did not see lien bc Orr's attorney misspelled name Issue: Did B have CRN even though E was improperly spelled? *NOTE: B missed payment on loan, bank had stepped in to foreclose by this point => Orr and bank both wanting property for $$ Orr claimed CRN bc idem sonans & names were so similar => Ct disagreed w/ cited authority, opted for MINORITY approach not applying idem sonans => CA rejected idem sonans bc of the burden it would place on buyers

Luthi v. Evans (mother hubbard oil and gas)

Owner (O) of several oil and gas leases assigned interest to Tours, described seven specifically then included mother hubbard clause conveying all of O's interest to T even those not described => T recorded - as between O and T, T had K lease because of MHC Though between O and T the K lease was effective, there is an issue of whether MHC was sufficient to give NOTICE to subsequent purchasers => impact on subsequent purchaser B Burris later got K lease from O and recorded, no actual notice of T => KS let B win in notice jx Though T recorded 1st, T did not PROPERLY record first => defective property description bc MHC & Burr will get to cut in line for the K lease because it was only part of MHC KS required description of tract to be entered into the index for it to give CRN => MHC did not give constructive record notice to B that T had an interest (B looking at index would not be aware K lease had been assigned to T)

Note on Judgment Liens: Getting large judgment, get a judgment lien against def, on all that def's property

Put a judgment lien on property - must record that so that buyers moving forward will know there is a lien on it => attaches to all property in the county as an automatic lien (almost like MH clause) • As soon as you record a judgment, as a matter of law it attaches; is an encumbrance that must be recorded • Holder of judgment lien, if it is recorded properly, will have priority as first in time over later judgments/debts on property being paid off • To find, will be looking at the PERSON => separate index based on all the property THAT person owns in the county

Statutory Exception to the General Rule: The person who is first in time wins in the priority dispute UNLESS the second in time can find a way to cut in line.

Recording statutes say what has to happen for there to be an exception to the 1st in time winning property (1st in time wins UNLESS exception) => Is the interest one that is required to be recorded? If YES, look at the recording statute. (Encumbrances: treat them as HAVING to be recorded unless told otherwise) Statute shows what second in time has to prove to successfully satisfy the statute

Formal Requirements for Recording: Formal requirements that must happen BEFORE you can record

Requirement legislature put into place => without this evidentiary proof, not effective • Acknowledged before a notary public or similar official (most jx's require notary) • Declaration: (1) by the grantor that he actually signed the deed or other document OR (2) by a witness that she saw the grantor sign it

Race-Notice Recording Statute:

Similar to notice, 1-4 the same but ALSO must have proper recording => Must be the FIRST to properly record 1. Subsequent purchaser (or creditor) 2. Good faith 3. No actual notice, constructive record notice, or constructive inquiry notice of prior interest at time the subsequent interest was acquired 4. For good and valuable consideration 5. Properly recorded first

BFP v. GFC => Good Faith Creditors

Some states also protect GFC's => must know if you're protecting a creditor and not sure if they can cut in line, CHECK STATUTES in your jx TX protects GFC's in addition to BFP's BFP is more common => exchanged some value (consideration) at the time they acquired interest in the land - direct trade-off [Here's the interest, here's the money] GFC: Some value but NOT at the time they acquired interest in the land => the property interest initially is out of the picture (Credit card debt / personal loan / lawsuit judgment / hospital lien) GFC's got property interest LATER after you didn't pay

Actual Knowledge, CRN, Inquiry Notice

Someone is personally aware of a conflicting interest in real property, often due to another's possession of the property (She will tell us when someone has this) CRN: Notice one has based on properly recorded instruments o Question of whether later buyers are charged with CRN o HAD they done record search would they have found prior person Inquiry notice: Notice based on facts that would have a reasonable person make inquiry into the possible existence of an interest in the property

Shelter Rule: Ties into recording statutes, but it's a short cut way to remedy things

Someone who is NOT a BFP, but who takes an interest in the property FROM a BFP may be sheltered in the latter's protective status o BFP: someone who satisfies requirements of the recording statute o Shelters people who come later who don't satisfy elements, likely bc of issues with notice o Actual notice does not prevent subsequent purchasers from being sheltered in BFP status (Even though C had actual notice and otherwise could not cut in line, C can be sheltered in previous owner B's status as BFP)

Harper v. Paradise (inquiry notice w/ old lost deed)

Susan owned, conveyed LE to Maude, remainder to her children in 1922 that deed was lost, after Susan died the children as heirs got together and executed new 1928 deed giving Maude FSA new deed: "to take the place of the deed made and executed during lifetime" => After recording new deed, Maude took out security deed using deed to secure loan with Thornton - defaulted, Thornton got deed and sold to P => After Maude died, children wanted to take property, brought action claiming Maude only had LE, remainder took effect => Issue: can P cut in line bc of no CRN? INQUIRY Notice: facts triggering duty to inquire: language in 1928 QCD expressly referencing an earlier deed put them on notice of duty to inquire further => P should have acted reasonably inquiring further before purchasing NOTE: P tried to claim AP, but that wouldn't work against remainders bc only AP'd LE See a fact in a deed referencing some property interest => Do a reasonable investigation

Other Systems of Title Assurance:

There are multiple levels of title assurance so that buyers know they are actually getting what is in the sales k (Ex: getting FSA, not LE) o Marketable title, Deed warranties, Title insurance, Recording system Most important during executory period => shows issues with marketable title Can also show issues after closing with deed warranties, but a buyer SHOULD discover those during executory period because that is when they should check Not JUST about ownership of property => MORE than just the deed, has encumbrances, covenants, judgment liens, mineral leases, leases

Treating MHC's differently as policy: How burdensome do we want to make this on subsequent purchasers?

To learn of MHC, would need to see several leases then ALSO go look at actual assignments though the land in question was not indexed Ct: legislature did not intend search to be that burdensome when they set up the recording system - and statute required description of tract TX: MHC would have been sufficient => In TX with EXACT same Luthi scenario where B wants K lease not described but if he had looked in the assignments would have seen MH clause - T would win, TX would say it gave CRN

Title Searches:

Very local in nature (in Waco at the McLennan County Public Records Office) Documents after 1996 are available online May have personal database with title company that has transferred public records

Wild Deed: Missing link in chain of title

When grantee records, but person before then had NOT recorded => the subsequently recorded deed could not be found in a title search of the property because there was a missing link b/w grantor and grantee w/ the non-recorded deed See "Unrecorded" => THINK Wild Deed o When you get your deed from an unrecorded grantor => everyone in chain of title had to record for YOUR recording to be proper, otherwise it's a wild deed => fails element 4 and is not properly recorded in chain of title

Ex: GFC with credit card debt

You get $10k line of credit from credit card co. => use the card, spend $10k Can't pay the bill, co. sues you and gets judgment you cannot pay • NOW: company looks at your assets to sell to pay judgment Abstract of judgment filed in the county records (MUST be recorded) => That creates a lien on ANY real property you own in the county => Creditor looks for other assets to seize or sell to satisfy the judgment NOTE: No interest in your real property at the TIME the credit line was advanced interest arose LATER when the real property was sold to satisfy judgment

Purpose of Recording System: What if we lose piece of paper with deed?

o It is a PLACE to hold important documents if owner can't find them o Way for owners at large to protect themselves buying property to see who ACTUALLY owns it o Finding out if your purchase of the property is good against the world at large o Determining when second interest in the same property - NOT valid o OR, when exception to first in time will apply => When people do NOT properly record, they LOSE even if they were first in time, subsequent BFP's can win

Who Has Priority: Will we allow a subsequent purchaser to cut in line?

• A person cannot convey more than what she has => When a second interest in the SAME piece of real property is created, the GENERAL rule is first in time, first in right • Whether a second interest is VALID [second in time gets to cut in line] depends on whether any exceptions to the first in time, first in right rule applies

Consideration: Legal question => what is consideration?

• Cash / negotiable instrument (check) / Labor or services or goods / other property / loan of $ in exchange for lien (promissory note with mortgage or deed of trust) Must be "more than a mere peppercorn" & Required in notice and race notice jx's to cut in line • If gifted property, can NEVER be BFP to cut in line => must make sure you properly record if you get it as a gift (If gifted and first in time, just record) => Req's of good and valuable consideration is only when it is someone trying to cut in line • Antecedent debt or a judgment that does not qualify as consideration => it was NOT given up in exchange for the conveyance of an interest in real property

Seller Financing: Buyer paying seller directly, cash / promissory notes / other form

• Court treats seller financing as though it was bank financing => No difference between those, but still must have (likely) 50% of FMV to count as good and valuable consideration LEWIS: Eliminate distinction, seller financing and bank-backed mortgage treated the same • Even if you have seller financing and PN without full price paid, can still be BFP -> As long as there is no issue with percentage of FMV being TOO small, no issue

Good Faith

• Good faith: looking for facts that show second in time purchaser may have had a reason to think there is an issue (can look like it overlaps with good and valuable consideration) o May require actual knowledge, or constructive knowledge with sufficient facts to constitute bad faith CA: purchaser has to have actual knowledge there are suspicious circumstances afoot to have breached GF (Very hard to show actual knowledge => not based on RP standard, must show actual subjective knowledge of subsequent purchaser) TX: No actual knowledge standard => Not clear what the standard is, but actual is NOT required so constructive can be sufficient; Facts that are sufficient to put someone on constructive knowledge that fraud/something fishy is underfoot (easier to show)

Good and Valuable Consideration:

• Home value based on appraisal - percentages of that total amount in slide are what it refers to • TX: need to pay a certain amount to show it wasn't a gift o If the purchaser paid less than 20% of FMV => likely NOT sufficient o If the purchaser paid more than 50% of FMV => likely sufficient o Between 20%-50% of FMV => gray area, look at all of the facts and circumstances May win or lose, fact specific - making sure grantor isn't trying to help a family member cut in line / trick the system

Forgeries and Good Faith

• If a deed is a forgery, it is void and passes nothing, even to one who would otherwise qualify as a BFP. If there is a forgery in the chain of title, no one in that chain of title can take in good faith, even if the later purchaser is completely unaware. • Important to keep forgeries from having an impact on land titles. To get good title, quiet title action with AP is likely needed => AP is likely the best way to prevail • Patent defect => no. 3 on card for proper - if incorrect person signs it, it is a total forgery and NOTHING passes Forged deed in the chain of title ruins all title, too serious to allow chain to survive => NO good faith with a forged deed in chain of title, can never cut

Rational for more protection for BFP than the first in time:

• It is the injury that results from the payment of money (or some giving up something of value) that creates the equity supporting the preference given to the holder of the second in time interest. o A 1st in time, does not record => B purchases, then sells to C => A could protect himself, We have B paying some value => what is equitable is giving B and C some relief because they paid Equity will favor a party who innocently parted with their money over a person whose negligence was the occasion of the harm.