Daily Development for Monday, June 30, 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

DOCUMENTS: Pennsylvania appeals court concludes that misindexed
documents may provide constructive notice if, through reasonable
diligence, a subsequent searcher would discover them.  It all depends
upon whether search means other than index search are available - such
as electronic records.

First Citizens National Bank v. Sherwood, 817 A.2d 501 (Penn.
Cmmnwlth. 2/5/2003)

The property was held by "X, as trustee for Y."  It was sold on an
execution sale and Sherwood obtained a sheriff's deed.  The deed,
however, was recorded under the name of "Y" and not "X."
Thereafter, X as trustee for Y executed a mortgage to bank.

The question was, of course, whether the recording and indexing under
the wrong name provided constructive notice.   The court noted that
established precedent in Pennsylvania supported the conclusion that a
misindexed deed did not provide constructive notice.  The same rule, it
further stated, is followed in New York, and Maryland, but not in
Florida.  But it indicated that it viewed the rule in Pennsylvania as one of
common law interpretation, and not compelled by statute, unlike, in the
court's view,  in New York.

New Jersey case law, according to the court, has also found that there is
no constructive notice of a misindexed document, but the rule is more
nuanced.  The basis for the holding was that the effort of searching the
entire record, rather than just the index, would be overwhelming and
effectively impossible.  Consequently, the court concludes, if the search
process were more tractable, permitting the searcher to go beyond the
index in some practical way, there would be no reason to view the index
as the end of a hypothetical search and therefore no reason to conclude
that a misindexed document would not provide constructive notice if
other reasonably available search means would disclose it.

The court therefore departed from Pennsylvania precedent, apparently
rationalizing this departure from the rules of precedent on the grounds
that a new recording statute had been enacted in the meantime. It held
that whether a misindexed instrument provides constructive notice
depends upon the methods available to searchers to discover the
instrument through a "diligent search."  Just what is a diligent search?
The court concluded that a good way to deal with this issue is on a case-
by case basis.

     "[T]he 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."
Comment 1: Note that this case was decided by a different judicial
district than the Pennsylvania district that brought forth (only a day
earlier) Antonis v. Liberati, 821 A. 2d 666 (Pa. Cmnwlth.  2/4/03)
(attorney may be liable for malpractice for failing to verify that mortgage
was properly indexed.) (The DIRT DD for 6/18/03)   In that case, a prior
trial court decision had determined that the misindexed mortgage did not
provide constructive notice, and there had been no appeal.

Comment 2: The notion that such a fundamental question as whether the
index provides constructive notice should be decided on a case by case
basis strikes the editor as absurd.  The whole purpose of our recording
system is to provide certainty.  Now all titles in Pennsylvania subject to
this system are exposed to a new uncertainty - whether a court later find
that a searcher might have undertaken a different form of search and thus
unearthed certain erroneously filed documents.  Sad, sad sad.

Comment 3: It is true that the dawn of electronic record keeping does
make searching much easier, and therefore that recorded documents that
ultimately a decision might be made to eliminate the reliance upon an
index.  But should this decision be made by the "rough justice" of a case
by case analysis?  If we're going to change our established system, upon
which the entire state's  real estate industry relies, shouldn't that be done
through legislative means?

Readers are encouraged to respond to or criticize this posting.

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