The Recording System

(BFP) Value

Two routine value questions: (1) The Bargain basement sale; and (2) The case of the doomed donee: recording statutes do not protect donees, heirs, or devisees unless the shelter rule applies.

The Recording Statutes: The Notice Statute

"A conveyance of an interest in land shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded." If, at the time B takes, he is a bona fide purchaser, he wins. It won't matter that A may ultimately record first, before B does. It won't matter, in the A vs. B contest, that B never records.

The Recording Statutes: The Race-Notice Statute

"A conveyance of an interest in land shall not be valid against any subsequent purchaser for value, without notice thereof, whose conveyance is first recorded." What must B do to prevail? B must be a bona fide purchaser when he takes and wins the race to record.

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. (1) As between X and A, who owned Blackacre from 1960-1969? (2) Who owns Blackacre in 1970? (3) Why does B win in a notice state? (4) Why does B win in a race-notice state? (5) B's title searcher would not find A's deed. Why not?

(1) A under the rule of estoppel by deed. - The rule: One who conveys realty in which he has no interest (here, X back in 1950), is estopped from denying the validity of that conveyance if he subsequently acquires the title that he had previously purported to transfer (here, the 1960 O to X sale). (2) B, as long as he is a BFP. (3) He's the last BFP to take. (4) He's a BFP who wins the race to record. (5) A's 1950 recording is a nullity. Remember: A's 1950 recording is a nullity. She recorded too early. Thus, her deed won't be connected to the chain of title. (One is entitled to assume that no one sells land until they first own it. Thus, B's title searcher would have no reason to discover X's 1950 pre-ownership transfer to A).

On March 1, O conveys to A, a bona fide purchaser who does not record. On April 1, O conveys the same parcel to B, a bona fide purchaser, who does not record. On May 1, A records (1) Who takes Blackacre in a notice jurisdiction? (2) Who takes in a race-notice jurisdiction?

(1) B, the last bona fide purchaser to take. (2) A, a bona fide purchaser when she took and who wins the race to record.

O, our initial grantor and dirty double dealer, then sells Blackacre to C. Assume that C has no actual or inquiry knowledge of the O-to-A or A-to-B conveyances. C records. (1) O has skipped town. In the contest of B vs. C, who prevails? (2) Does it matter whether this is a notice or race-notice jurisdiction? (3) Why does C win in a notice state? (4) Why does C win in a race-notice state?

(1) C. (2) No. (3) C is the last BFP to take. (4) C is a BFP who wins the race to record properly.

Remember Two Brightline Rules:

(1) If B is a bona fide purchaser, and we are in a notice jurisdiction, B wins, regardless of whether or not she records before A does. (2) If B is a bona fide purchaser, and we are in a race-notice jurisdiction, B wins if she records properly before A does.

In our model, what if A has not recorded, or has not recorded properly at the time B takes? Assume that B is a bona fide purchaser. (1) Does B win? (2) What result in a state with a notice statute? (3) What result in a race-notice statute?

(1) It depends on the recording statute. (2) B wins. (3) To win, B must be a bona fide purchaser and win the race to record.

Note three chain of title problems:

(1) The shelter rule. (2) The problem of the wild deed. (3) Estoppel by deed.

Bona Fide Purchaser

A bona fide purchaser is one who: (1) Buys for value; and (2) Without notice that someone got there first.

(BFP) Record Notice

B is on record notice of A's deed if at the time B takes, A's deed was properly recorded within the chain of title.

B is O's heir, or devisee, or donee. In a recording statute question, what happens to B?

B loses unless the shelter rule applies.

Who do the recording acts protect?

Bona fide purchasers and mortgagees (creditors).

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. (1) In the contest of A vs. C, who prevails? (2) What is the shelter rule trying to do?

C, in both a notice and race-notice jurisdiction. C steps into B's shoes because B was a BFP who recorded first. (2) Protect B, the BFP, by making it easier for B to transfer title successfully.

The Problem of the Wild Deed

O sells Blackacre to A, who does not record. Then A sells to B. B records the A-to-B deed. The A to B deed, although recorded, is NOT connected to the chain of title, because it contains a missing grantor. The O-A link is missing from the records. The A to B deed is therefore a wild deed. If a deed, entered on the records, has a grantor unconnected to the chain of title (O to A), the deed is a wild deed. It is incapable of giving record notice of its existence. Any future sales by O to another party will result in that third party winning in both systems, because the deed recorded by B is a nullity.

The Shelter Rule

One who takes from a BFP will prevail against any entity that the transferor-BFP would have prevailed against. In other words, the transferee "takes shelter" in the status of her transferor, and thereby "steps into the shoes" of the BFP even though she otherwise fails to meet the requirements of BFP status.

(BFP) Actual Notice

Prior to B's closing, B learns of A.

(BFP) Notice

The three forms of notice that a buyer may potentially be charged with are: A I R: Actual Inquiry Record

Chain of Title: Back to our original model, note that in either a notice or race-notice jurisdiction, B's status as a subsequent bona fide purchaser will be defeated if A had promptly and properly recorded before B takes. In other words, A's proper recordation puts later buyers on record notice.

To give record notice to subsequent takers, the deed must be recorded properly, within the chain of title. The chain of title is the sequence of recorded documents capable of giving record notice to subsequent takers. How is the chain of title established in most states? A title search of the grantor-grantee index.

(BFP) Inquiry Notice

Whether he examines Blackacre prior to closing or not, B is on inquiry notice of whatever an examination of Blackacre would have revealed. The buyer of real estate has a duty to inspect the premises before transfer of title, to see, for example, whether anyone else is in possession. If another is in possession, B is charged with inquiry notice of that fact, regardless of whether B actually bothered to inspect or not. Thus, in our model of the double dealer, if A had taken possession, B would be on inquiry notice of that fact, thereby defeating B's status as a bona fide purchaser. Inquiry notice also means that if a recorded instrument makes reference to an unrecorded transaction, grantee is on inquiry notice of whatever a reasonable follow-up would have revealed.

B paid $50,000 cash for Blackacre, when its fair market value is estimated at $100,000. Is B a purchaser for value?

Yes, as long as B pays substantial pecuniary value.