by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

RECORDING ACTS; INQUIRY NOTICE; MORTGAGE ASSIGNEES: Assignee's failure to record an assignment of an already recorded mortgage does not, in and of itself, create a void in the record so that a subsequent grantee of the mortgagor can be treated as a bona fide purchaser without notice; an unsatisfied recorded mortgage puts subsequent purchasers on inquiry notice that someone may have a claim. Smith v. F.D.I.C., 61 F.3d 1552 (11th Cir. 1995).

Smith foreclosed his second mortgage on property on which there was a recorded first mortgage, thereby taking title subject to the first mortgage. FDIC was owner of the first mortgage. Because the FDIC failed to record either the conveyance of the mortgage interest from the original mortgagor to the FDIC as receiver or the conveyance from the FDIC as receiver to the FDIC Corporation, Smith argued that he was protected from foreclosure of the first mortgage because he was not on notice of it pursuant to Florida's recording statute.

Florida statutes stated that an assignment of a mortgage is not valid as against bona fide "creditors or subsequent purchasers." The court determined that, although Smith did not have constructive notice (due to the failure to record in the public records), Smith was on inquiry notice on the date that he purchased the property at the foreclosure sale because he possessed knowledge sufficient to trigger a duty of inquiry into the state of title. Smith would have discovered that the original mortgagee had failed and that the FDIC was acting as receiver. The court then posits a lengthy hypothetical inquiry that, in its view, would have resulted in Smith's discovery of the FDIC's interest.

The court's hypothetical "inquiry" is made more difficult by the stipulated fact that Smith's lawyer, in an effort to find the owner of the mortgage, contacted the FDIC, which denied that it was the owner of the mortgage. Although this happened after the foreclosure sale purchase, Smith argued that had Smith contacted the FDIC earlier, it would have given the same erroneous information. The court held that Smith, having received that information, should have look harder, checking, for instance, who was paying the property taxes.

Comment: The case is right for the wrong reason. It is unnecessary to hypothesize an elaborate search for a new assignee. The fact was that Smith foreclosed (bought his interest in the property) with knowledge of an unsatisfied senior mortgage. The fact that Smith did not know who owned the mortgage did not make Smith a bona fide purchaser of a free and clear title. The purpose of statutes such as the Florida recording statute is to protect persons who rely upon releases from record owners of mortgages which have been assigned to unrecorded assignees. There was no such release here. Thus, Smith was not a bona fide purchaser because he knew of a prior mortgage, not because he should have found the FDIC.

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