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Daily Development for Wednesday, June 18,
2003
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
ATTORNEY/CLIENT; MALPRACTICE; RECORDER'S
ERROR:
Attorney is liable when recorder
fails to properly index a recorded
document and the interest is lost due to transfer to a
BFP.
Antonis v. Liberati, 821 A. 2d 666 (Pa. Cmnwlth.
2/4/03)
Attorney was retained by client to assist in the
recording of a mortgage
for his client
mortgagee. Attorney delivered the deed in proper form
for
recordation. Thereafter, client
contacted attorney several times for
reassurance that the mortgage had been recorded, and attorney
reassured
client that "everything was in
order."
In the process of recording the documents, however, a
clerk in the
Recorder's office misspelled
the name of the mortgagor. As a result,
mortgagor later was able to sell the property to a party who had no
actual
or constructive notice of the
mortgage. Mortgagor later died without
having paid the note secured by the mortgage.
A Pennsylvania trial court ruled that the bona fide
purchaser cut off the
rights of the
client mortgagee.
Client then sued the recorder and lawyer for the loss,
as well as the
mortgagor's
estate.
The trial court found for client against all parties,
but the Pennsylvania
Commonwealth Court,
on appeal, reversed the judgment against the
recorder, finding that, by established precedent in Pennsylvania,
the
recorder is not liable for the
negligent act of its subordinate, despite the
fact that a Pennsylvania statute states "it shall be the duty of
the recorder
to index in its appropriate
place and manner very deed and mortgage
thereafter recorded in his office, at the time the same is
recorded, and in
case he neglects to do
so he and his sureties shall be liable in damages to
any person aggrieved by such neglect." The
appeals court held that this
statute does
not impose liability for negligent indexing, and in any event
the recorder is protected by the Pennsylvania Tort
Claims Act.
This was good news for the recorder, and consistent
with authority
nationwide. But the
court had a different message for the lawyer.
The lawyer argued either that he was entitled to a
judgment or a new
trial. He claimed
that the trial court erred both in finding that he had any
duty beyond delivery to the recorder and in refusing
to admit expert
testimony on the question
of duty. The lawyer further argued that the
mortgagor's fraud should have been identified as an
intervening cause of
the
injury.
The appeals court disagreed. Expert evidence is
not required, it said
when the issue of
negligence is clear enough to be decided as a matter of
law. Like the trial court, it relied upon
language in a 1909 Pennsylvania
decision
that was the basis for the original finding that the BFP beat
the
mortgagee. In that case, the
court said that the mortgagee ought to
protect itself:
"It is an easy matter for a
mortgagee. . . either in person, *or by a
representative,* to look at the record and
see that the instrument
has been properly entered . . . there is
every reason why it should
be made the duty of the mortgagee to see
that his instrument is
properly recorded. . . The obligation of
seeing that the record of
an instrument is correct must properly
rest upon its holder. If he
fails to protect himself, the consequence
cannot justly be shifted
upon an innocent purchaser."
Comment 1: The rule that a BFP prevails over a the
holder of a recorded
but improperly
indexed instrument is probably a minority rule, but it is
one that most commentators view as a more appropriate
result, for much
the same reason as set
forth in the excerpt from the earlier Pennsylvania
opinion above. Although, in many circumstances,
it might not be said
that checking the
record to ascertain proper indexing is "an easy thing," it
certainly is much something that the party interested
in recording can
accomplish to protect
against fraud, while the BFP is completely
helpless.
Comment 2: The loose language of the 1909 Pennsylvania
Supreme
Court that checking for indexing
error is "an easy thing" belies modern
day realities, when, especially in Pennsylvania in recent
history,
recorder's offices have lagged
more than a year behind in filing and
indexing documents delivered for record. It does seem
erroneous for a
modern court to rely upon
this offhand remark about the simplicity of the
task placed upon the mortgagee's lawyer and to fail to take
testimony on
the real burden that is
involved.
Nevertheless, one suspects that the attorney in fact
made no effort of any
kind to check back
with the recorder, and would not have found an error
even if the misindexing had occured within 24 hours
of recording. This
is probably
consistent with the practice in most areas. In fact, in
most
areas, the attorney relies upon a
closing agent even to deliver the
documents for record. Under those circumstances, would the
attorney be
liable for failing to check
whether the agent did its job properly? One
suspects that the answer would be "yes" in this
court.
Comment 3: What's wrong with this picture?
What's fundamentally
wrong is that there
is a functional disconnect between recorder's offices
in many areas and attorneys working on real estate
transactions. The
recorders seems
focused on efficiency and cost control, and increasingly
are imposing greater burdens upon attorneys and
others in the real estate
business to
assist them in those goals while not working to assist
practitioners in carrying out their client's business
goals. We have been
seeing
burdensome templates and filing memoranda, varying from
county to county, and filing standards that impose,
for instance, different
margin
requirements from one county to the next, necessitating
separate
and different originals in
matters involving multi-county filings. We
have seen recorders demanding that attorneys commit their clients
to one
of a limited list of
characterizations of a legal instrument, without any
recognition that instruments might have several
characterizations or that
"none of the
above" may be the most accurate description.
Now that there is a national recording group - the
Property Records
Industry Association
(PRIA), it is hoped that there will be greater
cooperation with the practicing bar. Even though initial
relations could
be described as careful,
it is hoped that more recent developments,
particularly PRIA's active participation in the drafting of the
Uniform
Electronic Real Property
Recording Act, will lead to more affirmative
interaction. Unfortunately, as reported here recently, PRIA
has shown
great resistance to the
development of any national standards for the
recording industry generally and seeks substantial control over
even the
establishment of statewide
standards. The problem, at least at the top,
appears to some concern that lawyers desire to seek
efficiency and
facilitate transactions
may lead to a situation in which recorders are left
to do the most difficult tasks without adequate
income to support their
efforts.
If lawyers want recorders on their side, and they
should, the best
approach should be to
work with recorders to insure that they have
adequate funding to work with new electronic recording
methodologies,
and to develop those
methodologies with an eye to certainty and safety
instead of cost cutting for institutional
survival. The recorders, for their
part, need to recognize that their function is to facilitate
transactions, not
to wrap them in lead
lined red tape. There's a solution to
everyone's
objectives here, but
thoughtful people need to get together to find it.
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