Daily Development for Monday, September 19, 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
dirt@umkc.edu

RECORDING ACTS; NOTICE; CONSTRUCTIVE NOTICE; INDEXING: Pennsylvania Supreme court rules that “index is not part of the record” in Pennsylvania.  Misindexed mortgages still provide constructive notice. 

First Citizen’s Nat’l Bank v. Sherwood, 879 A.2d 178 (Pa. 2005)

This case resolves, presumable permanently, the construction of the present Pennsylvania scheme of recording laws.  The court holds that a mortgagee provides constructive notice by properly delivering a proper document for recording, and the fact that the Recorder’s office later misindexes the mortgage, so that it can’t be found by subsequent title searchers, does not affect the priority of the first mortgage against subsequent purchasers.

This decision places Pennsylvania with the majority of jurisdictions that interpret their own recording acts to provide that the “index is not part of the record.”  There is a substantial and respectable minority, however, and many scholars are of the view that making the index part of the record is the best result from a policy standpoint.  They argue that, as between two innocent parties, the party that ought to bear the consequence of the potential error by the recorder’s office is the one in a position to cure that error.  A mortgagee that records its mortgage can later return to the recorder’s office to check the index and, if necessary, to request its correction, in order to be sure that there is proper constructive notice of its claim.  A subsequent purchaser has no ability to correct that which, to it, is as a practical matter undiscoverable.  Therefore, scholars argue, the burden ought to be on the recording mortgagee, and the way to accomplish this is to rule that !

 a mort
gage is not constructive notice if not discoverable in the index.

The court does not pick sides in this policy debate, at least not openly.  It purports simply to interpret the Pennsylvania statute, 21 P.S. Sec. 357, to provide that recording is not necessary.  It states simply that when a a written instrument relating to real property  is recorded, the effect is to give constructive notice to subsequent parties. 

The opposing interests, and two judges in dissent, argued that this statute is superceded in application by a more specific statute, 16 P.S. 9853, which states that when a written instrument is indexed, such indexing will be notice to all parties of the recording itself.  The proponents of the “index” view argued that the obvious obverse of this precept is that unindexed instruments to not provide constructive notice.  The dissenting judges noted that this statute appears in a chapter denominated “mortgages” in the statute book, while Sec. 357 appears in a chapter denominated “deeds and conveyances.”    The dissent further argued that chapter 357, because of the location in the conveyancing chapter, applies only to permanent interest in real property.  The majority responded that indeed a mortgage in Pennsylvania is permanent, because Pennsylvania has adopted the “title theory” of mortgages, giving the mortgagee good title to the property itself when the mortgage arises.  Th!

 us, th
e mortgage should be evaluated by the conveyancing statute’s terms, and in any event Section 357 is much newer and therefore supercedes Section 9853 to the extent that they are in conflict. 

Comment 1: Certainly this case is not about statutory interpretation.  The court could easily have interpreted the statutes to require proper indexing.  The majority attempts to reconcile the two chapters before it concludes that one superceded the other.  In fact, they could peacefully coexist if the dissenters’ view was adopted.

This has got to be about policy - and the concern that to make the index part of the record would render all title plants in limbo for a longer period of time as the documents are recorded and then delivered out to the title plants.   The title companies are likely to be the ones who would have been condemned to this limbo, as they’d be expected to insure good title to the property and bear the risk of unrecorded mortgages later popping up.  Unlike ownership or leasehold estates, mortgage holders do not take possession, so there is no opportunity to learn of them except through recording.

Comment 2: The more important aspect of this case is that it reverses, and thus removes from precedent, the absolutely horrible lower court decision, reported as the DIRT DD for 6/30/03.  The decision held that whether or not an misindexed deed ought to provide constructive notice depended upon whether it reasonably could be found through a search of an electronic index - leading to courts to decide on a case by case basis whether a reasonable search was possible.  The injury done to predictability of title was patent in this case, and the editor tap danced all over it.  He is happy to see this decision chase the earlier Sherwood case into oblivion.

Comment 3: Note that the case also eradicates the danger to attorneys who fail to follow up to be sure that indexing did occur, as happened to the Pennsylvania attorney in Antonis v. Liberati, the DIRT DD for 6/18/03, a case whose precedential significance now also vanishes. .   All DD’s can be found on the DIRT website https://e2k.exchange.umkc.edu/exchweb/bin/redir.asp?URL=http://www.umkc.edu/dirt

Comment 4:  Although stated as an opinion of the Pennsylvania Supreme Court, the heading indicates that the opinion is by the "Middle District" of that court, so perhaps this is a small panel, and there may be a further appeal.

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