Daily Development for Thursday, September 12, 2002
By: Patrick A.
Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu
RECORDING ACTS; CONSTRUCTIVE NOTICE; INDEXING: An error in
indexing can prevent a record or an instrument delivered for recording from
constituting constructive notice, whether the error was committed by the
recording clerk or induced by one of the parties.
Coco v. Ranalletta 733 N.Y.S.2d 849 (Sup. 2001).
A junior mortgagee moved for judgment that its junior
mortgage be declared superior to a senior mortgage filed prior in time because
the junior mortgagee asserted that it did not have constructive notice of the
senior mortgage because of an error in the indexing of the senior
mortgage. The senior mortgage contained
an error in the spelling of the mortgagor's name. The name was set forth as Ranaletta instead of the correct
Ranalleta. This error was carried
through into the index.
Even though the computer system allowed for phonetic index
searching where the incorrectly filed senior mortgage would presumably have
been discovered, the court held that the incorrect indexing placed the
recording of the senior mortgage outside the chain of title, and thus the
correctly indexed junior mortgage was a superior lien to the incorrectly-
indexed senior lien.
The first recorded mortgagee argued that in fact common
methods of searching title used by title companies in New York included
searches by use of the first five letters in a name, and would have produced
the recorded first mortgage, even though the name was incorrectly spelled. The
court concluded that the community standard for title insurance company
searches might be relevant for an action against a title insurance company for
negligent searches, but is not relevant for determination of whether
constructive notice exists.
The court seems to make something of the fact that the error
here was made by the mortgagee in the preparation of the document and not by
the recorder, but it then appears to conclude that the outcome would be the
same if the recorder had made the mistake.
Comment: This is not the uniform rule. A number of jurisdictions hold that a
document in proper form delivered for recordation is assumed recorded, and
subsequent errors by the recorder will not affect its status as constructive
notice. Some have criticized this rule
because it does not place the risk of loss on the party in the best position to
prevent the loss -
the party who records the questioned instrument. That party can always check the recorder's
office after delivery of the document to see that it is properly indexed. Subsequent purchasers have no ability to do
this.
This criticism has less strength if the error in the
recorder's office occurred at some time substantially after the original
recording during some revision of the indexing system, such as data entry to
create a computerized index.
Further, the rule would have no particular force when the
error in the index results from an error in the instrument itself. In any
event, New York changed this rule by adoption of a statute in 1924 that states
that the index is part of the record.
Comment 2:
Increasingly, recorders are pushing through statutory changes that
permit them to require the use of "templates" filled out by the party
delivering an instrument for record, upon which the recorder will rely in
providing information about filed instruments.
This practice is somewhat controversial, as some recorders are requiring
templates that do not permit full information about the nature of the
instrument or place constraints upon recording that inhibit transactions,
particularly those involving large number of parcels in various counties. Obviously a lot of what's going on relates
to the advent of various types of electronic record keeping.
In August, the National Conference of Commissioners on
Uniform State Laws initiated a drafting project for a Uniform Land Recording
Act that may or may not reach beyond issues strictly concerned with electronic
recording. Art Gaudio, Dean of Western
New England Law School, has been appointed Reporter for this project.
RECORDING ACTS; RACE NOTICE: In a race notice state, a
purchaser of real property is charged with constructive notice of litigation if
he or she fails to record the deed prior to the filing of the notice of
pendency, even where the purchaser takes the interest before such filing.
Jenkins v. Stephenson 733 N.Y.S.2d 723 (A.D. 2 Dept. 2001).
A subsequent purchaser who purchased real property from an
initial purchaser who acquired property from an incapacitated vendor was not a
"bona fide purchaser" without actual or constructive knowledge of the
incapacitated vendor's guardian's action to set aside conveyance to the initial
purchaser, which action was filed on the same day the initial purchaser sold
the property to the subsequent purchaser, because the subsequent purchaser
failed to record the deed to the property prior to the filing of the guardian's
action. To cut off a prior lien, a
purchaser must "have no knowledge of the outstanding lien and win the race
to the recording office. Since the
subsequent purchaser did not win the race to the recording office, the
subsequent purchaser is charged with constructive notice and is therefore bound
by the judgment that the original sale to the initial purchaser was void.
Comment 1: Race notice statutes are in the books, so the
common law can't change them. But do
they really make sense modernly? Isn't
the danger of failing to provide notice to juniors enough incentive to get
folks to record? The additional
punishment of being primed as against others who record before you seems like
overkill. And it can lead to unfair
results where the delay is due to circumstances beyond the control of the party
who is affected.
Comment 2: For another interesting lis pendens case, see United Savings and Loan Bank v. Pallis, 27 P.3d 629 (Wash. App. 2001). (A mortgagee that had constructive knowledge of pending litigation by virtue of a lis pendens having been filed is not a good faith purchaser for value and thus its interest in a mortgaged property is not protected against subsequent appellate court rulings.)
Readers are urged to respond, comment, and
argue with the daily development or the editor's comments about it.
Items in the Daily Development section
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