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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
dirt@umkc.edu
RECORDING ACTS; CONSTRUCTIVE NOTICE;
MISINDEXED
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?
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posting.
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