Daily Development for Monday, November 22, 1999

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

RECORDING ACTS; CONSTRUCTIVE NOTICE; INQUIRY; POSSESSION: Possession of property is sufficient to "perfect" a transfer of title and consequently sufficient to commence running of the Statute of Limitations on an action to set aside such transfer as a fraudulent conveyance.

Tiger v. Anderson, 976 P.2d 308 (Colo. App. 1998).

Barrett's surrogate father Anderson purchased a home for him out of a foreclosure proceeding unrelated to any of the parties to this case. Barrett moved into the home around January 1991. Anderson acquired the adjacent lot shortly thereafter. On July15, 1991, Anderson executed two quitclaim deeds to Barrett for the house and the lot, which were recorded by Barrett on May 1, 1992 and September 25, 1992.  The public trustee's deed, however, was not issued to Anderson until February 1992, due to litigation with the former owners. On January 4, 1993, Tiger recorded a transcript of foreign judgment against Anderson in the county where the properties were located based on a 1992 California judgment. On March 1, 1994, Barrett quitclaimed the properties to a third party and the deeds were recorded that day. On January 17, 1996, Tiger brought this action to have the Anderson and Barrett deeds set aside under the Colorado Uniform Fraudulent Transfer Act.

The trial court found the Anderson/Barrett conveyances fraudulent and set aside both of them. The court further found that the party receiving the quitclaim deeds from Barrett was not a BFP, and the court set aside those deeds as well. The Colorado Court of Appeals reversed and remanded for a further determination of the running of the Statute of Limitations on the fraudulent conveyance action.

The Statute of Limitations on fraudulent conveyance claims in Colorado is four years from the time the challenged transfer is made. The statute defines the term "transfer: for these purposes as follows: A transfer of real property is made: " [W]hen the transfer is so far perfected that a goodfaith purchaser of the asset from the debtor against whom applicable law permits the transfer to be perfected cannot acquire an interest in the asset that is superior to the interest of the transferee...."

It would appear that, within the meaning of this statute, Anderson was the "debtor" and Barrett the "transferee." Note that as of four years prior to the Tiger action claiming a fraudulent conveyance, Barrett apparently was in possession of the properties in question, and allegedly had a deed from Anderson. The court ruled that this would have given any purchaser from Anderson notice of Barrett's claim, and therefore the statute of limitations would begin to run from the time that Barrett took possession. As this was more than four years prior to Tiger's lawsuit, that lawsuit is time barred.

The court, however, states: "[H]ere, the transfer would be perfected at the time a good faith purchaser from Anderson could acquire an interest in the property that is superior to the interest Barrett acquired from Anderson." Based upon the court's subsequent discussion of the issues, the editor believes that the court intended to insert the word "not" between the words "could" and "acquire" in this sentence. If the editor is wrong, than the case may mean something very different than the editor believes, so the editor duly reports this problem and welcomes correction.

The trial court had held that Barrett did not receive a perfected interest in the properties until the deeds from Anderson to Barrett were recorded in May and September of 1992, less than four years prior to the Tiger suit to set those deeds aside.

The court of appeals, however, stated that in Colorado, a party in open and exclusive possession of real estate under an apparent claim of ownership gives notice of the occupant's legal and equitable claims. As a result, the failure of a prospective purchaser to make appropriate inquiry of a party in possession operates to preclude that person from being a good faith purchaser. The court held that the recordation of the deeds from Anderson to Barrett in 1992 was not dispositive in determining the date of the transfer. Even if in fact the deeds had not been executed and delivered prior to their recordation, Barrett could have been holding title pursuant to an informal, unwritten agreement with Anderson that Anderson would acquire the properties for Barrett's interest. The court held that such an understanding might well have been enforceable and outside the Statute of Frauds. Consequently, it remanded for a determination of whether Barrett's interest in the properties in fact arose more than four years prior to the Tiger lawsuit.

The court states that any other result would give a judgment creditor setting aside a conveyance that no one else would have as against a party in possession.

Comment: The statute may have such compelling language as to when the statute commences running that there can be no getting around it. But the result strikes the editor as anomalous at least with respect to the residential property. Anderson did not record his own interest in this property until February of 1992. This was some time after Anderson actually acquired the sheriff's certificate to the property from the foreclosure sale purchaser. But it nevertheless is the first time that any third party examining the record would be able to identify any claim by Anderson to the property. It seems unfair that the statute would begin to run against Tiger prior to the time that Tiger could identify the claim that Anderson had to this property. The court does not tell us when Anderson recorded title to the other lot. It may be that this deed was recorded earlier, and the court is concluding that possession of the other lot would necessarily put Tiger on inquiry of the situation pertaining to the residence property as well. But the editor views this as something of a stretch. In any event, the fact that the appeals court doesn't even tell us when Anderson recorded his deed to the other lot indicates that the court doesn't view the recording as having the same significance that the editor does.

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 generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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