Daily Development for Monday, October 30, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

Thanks to Ginny Housum in Minnesota for the tip on this one.

RECORDING ACTS; CONSTRUCTIVE NOTICE; APPEALS OF JUDGMENTS SHOWN IN RECORDS: Transferee of real property is on constructive notice of fact that any judgments shown in the record might be subject to appeal, and has duty to inquire of court records to determine status of any such appeal. Transferee therefore will be bound by the outcome of any such appeal.

Slachter v. Swanson, 2000 WL 1187811, 25 Fla. L. Weekly D2008 (Ct. App., Fla., 3d District, 82300).

In 1984, Millman purchased property in Dade County, Florida, and executed a mortgage to Slachter Mortgage Co. In December 1984, the mortgagee assigned the mortgage to the plaintiff, Marion Slachter, but the mortgage was not recorded until 1990.

In 1986, the original mortgagee brought a foreclosure against Millman, which was dismissed. In 1987, Millman sued the original mortgagee for wrong foreclosure, and got a judgment for $350,000. In 1992, Millman obtained a trial court order discharging the Schlachter mortgage, which was recorded in the real estate records. The original mortgagee appealed, and on appeal the judgment discharging the mortgage was reversed in 1993, but at that time no entry of the reversal was entered in the land records. The trial court did not enter a judgment discharging the Schlachter mortgage until 1997.

In 1995, Millman sold the real estate to Swanson, and signed affidavits stating there were no mortgages on the property. In 1995, a search of the land records would have found a court order discharging the Schlachter mortgage, and no information concerning the reversal of that order.

In 1998, Schlachter brought a foreclosure action against Swanson. The trial court granted summary judgment in favor of Swanson, finding that he was a bona fide purchaser for value without knowledge of the Schlachter mortgage. Swanson argued that he was entitled to rely upon relied on the affidavits and the "official record," in the land records office, which showed the mortgage as discharged. Schlachter argued that the Swanson could not rely upon the recording of the 1992 discharge of the mortgage, since Swanson was on inquiry notice of the possibility of a pending appeal to reinstate the lien.

The Court of Appeals agreed with Schlachter. It found that Swanson indeed was on implied actual notice that an appeal would be taken of the discharge of the mortgage. Although it indicated that a purchaser generally may rely upon a chain of title found in the official land records, it concluded that a subsequent purchaser is required to look outside the records where information in the records so dictates, and the presence of a court judgment imposes a duty to determine the finality of that judgment. "[T]he failure to make such inquiry in order to determine the true status of the title to the property described in the recorded instrument constitutes a negligent omission." the Court of Appeals noted that all Swanson had to do was to check with the clerk's office to see if the mortgage discharge had been appealed.

Comment 1: Experienced lawyers will know that there is nothing really new here. The scope of inquiry notice is quite broad, and few, if any, jurisdictions will permit parties to rely upon the state of title as shown only in the real estate records.

Comment 2: Despite the fact that the law here is probably generally recognized the case is worth noting because the lesson might not be generally followed. Appeals often take years and years to run their course, and, when reversal occurs, the state of title will, of course, can be dramatically affected. This underscores, of course, the reason God invented title insurance, so the experts can take these risks.

Comment 3: Although the court states repeatedly that the buyer was on "implied actual notice" of the possibility of appeal and reversal of the judgment shown in the land records, one assumes that a title company would not be able to invoke any "actual notice" exclusion from coverage. Inquiry notice is really a form of constructive notice, and the sort of thing that title companies contract to insure.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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