Daily Development for Tuesday, October 4, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri
FEDERAL FORFEITURE; "INNOCENT OWNER" DEFENSE; TORRENS SYSTEM: Although,
as to property held in ordinary, or "abstract" title, a mortgagee, upon
the making of a mortgage loan, may become an "innocent owner" and may
avoid federal forfeiture of the mortgagor's property due to mortgagor's
criminal acts on the property, the same is not true of mortgagees of
Torrens land. Such mortgagees must register their mortgages in the
Torrens system before they have knowledge of the alleged criminal acts,
or else they are subject to forfeiture under federal civil forfeiture
U.S. v. 392 Lexington Parkway South, St. Paul, Minnesota, Ramsey County,
2005 Westlaw 2179155 (9/7/05)
Gore acquired certain property in 2002 and borrowed money about the same
time from Long Beach, giving Long Beach a mortgage on the property. The
property consisted of some land that was subject to the Minnesota
registered title system, known as Torrens, and some land that had not
been subjected to that system, which the court described as "abstract"
Long Beach failed to record or register its mortgage at the time it
took the mortgage. A year later, Gore, already indicted for cocaine
trafficking, took out a second loan secured by the property and gave a
mortgage to MG III. MG III had no actual knowledge of the indictment or
the drug activity. Astonishingly, MGIII also failed to record or
register its mortgage promptly .
Six weeks after the MG III loan, the U.S. Government filed a lis pendens
on the property stating that the Government had undertaken an action to
forfeit Gore's interest in it. A month after that, MG III filed its
mortgage for recordation and for registration on the Torrens portion.
Long Beach didn't get around to recording until Gore defaulted in and it
sought foreclosure several months after the MG III filing.
The mortgagees noted that the federal statute defines "innocent owners"
as including mortgagees and says that "an innocent owner's *interest in
property* shall not be forfeited." They argued that when they took
their mortgages they obtained an interest in the property within the
meaning of the federal law, and that the only relevant question was
whether they had knowledge of the mortgagee's criminal problems at that
In fact, the court concluded that both mortgagees had not actual or
constructive notice of the criminal issues at the time that they took
their mortgages. But it concluded that the question of whether those
mortgages represented an "interest in the property" depended upon state
law. It conceded that as to the property that was "abstract" land, a
mortgage interest in the land becomes valid upon conveyance of a
mortgage in Minnesota. But, under Minnesota's Torrens system, the court
concluded, there is no interest in property unless and until a mortgagee
actually registers the mortgage with government authorities.
At the time that the mortgagees registered their mortgages, a lis
pendens had been filed, the Government had filed its lis pendens and the
mortgagees could not be "innocent purchasers" under the federal law
because they had constructive notice of the forfeiture claim.
Comment 1: It does seem bizarre that the same mortgagee is protected as
to some land and not as to others as a consequence of the dual recording
system in Minnesota. Clearly this was not the intent of the drafters of
the system, but it must be conceded that the focus on the registration
requirement as a condition of validity of one's interest is a vital
element of registration systems.
Comment 2: We're all comfortable in the U.S. with our own system, but
required registration has a lot to recommend it, especially in a more
sophisticated and organized society, when it really isn't unreasonable
to expect people to carry out transactional formalities. There are
other problems with Torrens, however. First, it's expensive for the
government. (But perhaps less so as computer technology develops.)
Second, all the existing properties would have to go through a
registration process, and this requirement has killed the proposal for
registration in most places it has been raised.
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