> Daily Development for Friday, April 23, 2004
> by: Patrick A. Randolph, Jr.
> Elmer F. Pierson Professor of Law
> UMKC School of Law
> Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri
> dirt@umkc.edu
>
> RECORDING ACTS; ELECTRONIC RECORDING; SEARCH BURDEN: Electronic indices broaden search duty so that a mortgage improperly posted by the recorder under the name of the beneficiary of a trust, rather than the trustee, was found to still impart constructive notice, .
>
> First Citizens Nat'l Bank v. Sherwood, 2003 Pa.Super. 47, 817 A.2d501 (2003).
>
> First Citizens National Bank took a sheriff's deed on a parcel in Troy, Pennsylvania. The bank did not discover a twelve year old mortgage because it was misposted. The land was held by Joel Turrell, as Trustee for Genevieve Van Noy. Turrell had given the mortgage in question to Arthur W. Sherwood. The recorder indexed it under Genevieve VanNoy as mortgagor rather than Turrell. The court stated that this did not mean that the mortgage had not been recorded. "While the Bradford County Recorder of Deeds properly recorded the mortgage, the mortgage itself was misindexed,"the court said.
>
> Sherwood stepped forward to claim the property after the sheriff's sale. The bank filed suit to quiet title, arguing that Sherwood's mortgage did not impart constructive notice.The trial court held that the mortgage did not give notice because of the misposting.
>
> On appeal, Sherwood argued that, "given the fact that the mortgage was
> properly recorded," a diligent search of the records would have
> revealed it. The appeals court agreed, and reversed the decision,
> declaring that the development of the electronic index had put the
> question of constructive notice on a sliding scale. The court had to
> admit that other states hold that notice is provided by the index, and
> thus a misposting deprives the record of its notice, citing Coco v.
> Ranalletta, 189Misc.2d 535, 733 N.Y.S.2d 849 (N.Y.Sup.Ct.2001); and
> Waicker v.Banegura, 357 Md. 450,745 A.2d 419 (2000). But the court
> found that there different views in cases from Florida and Washington
> D.C. Anderson v. North Florida Production Credit Ass 'n.,642 So.2d 88
> (Fla.Dist.Ct.App.1994); In re Harris, 183 B.R.657 (DD.c.1995)._
>
> The court resolved to establish a rule based upon the theory that notice somehow is derived from the record itself, and not the index. It stated that in Pennsylvania the relevant statutes and case law do not clearly answer the question of whether the search of the index, without more, is sufficient to constitute a diligent search ,and therefore notice. 21 P.S.§357,and 16P.S.§9853. If a search is to be considered a diligent search, then the misindexed mortgage lien would make the lien a nullity as to a subsequent purchaser.
>
> While at one time it might be successfully argued that the index should control because to require the purchaser to go beyond the index places an unfair burden on the purchaser, this may no longer be the case. The computerizat ion of all records, whether they be indexes, mortgage records or other relevant documents, lightens for the purchaser the burden which existed only a few years ago. What in the past may have been considered a diligent search may no longer be so considered because of the ease of retrieving computerized information relevant to encumbrances on property.
>
> Thus the question of whether the search is diligent can no longer be approached as a mechanical question; it must now be viewed in its factual context. The fact finder must determine what steps the purchaser should reasonably have taken in pursuing a title search. The purchaser must take all reasonable steps to discover encumbrances in order to have performed a diligent search. If the records in the county are not computerized or are not easily accessible, then the finder of fact may conclude a search of the index is sufficient. If, on the other hand, the records are easily accessible, then a diligent search may require review of those records. We hold that if the fact finder concludes under an objective standard of reasonableness that a diligent search has been made, then the result of that search shall constitute notice.
>
> Reporter’s Comment: Paradoxically, this awful decision was released at about the same time as Antonis v. Liberati, 821 A.2d 666 (Pa. 2003). That decision was based upon a totally opposite analysis, finding an attorney responsible to his client because a mortgage was misposted. In concluding that there was an injury to the client because the misposting resulted in the property passing into the hands of a BFP free of the mortgage, Antonis relied on Prouty v. Marshall, 225 Pa. 570, 74 A. 550 (1909), which the court viewed as standing for the minority view that “the index is part of the record.” The instant court court dismissed Prouty as having been decided under a prior statute. Wisconsin recently rejected the theory espoused by Sherwood, that electronic indexing broadens the scope of records which impart constructive notice. Associates Financial Services Co. of Wis., Inc. v. Brown, - Wis.2d -'App.No. 01-3416
>
> Editor’s Comment: It is always uncomfortable to have something that ought to be certain measured by something that is unherently uncertain - such as judging whether there is constructive notice by determining whether someone’s actions were “reasonable.” But in fact, we do that all the time in evaluating constructive notice.
>
> In fact, in the DD for 4/21/04, we discussed a case in which the 10th Circuit moved from an “uncertain” test to a “certain” test in determining whether an interest was perfected for article nine purposes, and many practitioners had difficulty with that case as well.
>
> When the courts really cause difficulty for the industry in these areas, the “fix” is to run to the legislature. But the editor’s view is that we’re a little premature at this point. We don’t even have much electronic recording or indexing as yet. Let’s get some experience with it before we indulge in legislative fixes that may be a more horrific cure than the problem they address.
>
> This report was based upon an item by J. Bushnell Neilsen in his excellent Title Insurance Newsletter, which can be ordered at www.woodridgelegal.com. Mr. Neilsen is an unabashed advocate for the title industry, and some of his more colorful criticisms of the court were edited out here.
>
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