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At common law, in nearly all cases priority was given to the grantee first in time. Thus, if O conveyed Blackacre to A and then made an identical conveyance to B, A prevailed over B on the theory that after the first conveyance O had no interest left to convey.
1. Recording Acts—In General
Statutes known as “recording acts” require a grantee to make some sort of recordation so as to give “notice to the world” that title to certain property has already been conveyed, and thus to put subsequent purchasers on guard. These statutes are in effect in some form in every state. Basically, recording acts set up a system by which any instrument affecting title to property located in a certain county can be recorded in that county. These acts seek to protect all subsequent BFPs from secret, unrecorded interests of others.
a. Purpose of Recordation—Notice
Recordation is not essential to the validity of a deed, as between the grantor and grantee. However, if a grantee does not record her instrument, she may lose out against a subsequent BFP. By recording, the grantee gives constructive (or “record”) notice to everyone. Hence, as stated earlier, proper recording prevents anyone from becoming a subsequent BFP.
b. Requirements for Recordation
1) What Can Be Recorded—Instrument Affecting an Interest in Land
Practically every kind of deed, mortgage, contract to convey, or other instrument creating or affecting an interest in land can be recorded. Note: A judgment or decree affecting title to property can also be recorded. And, even before judgment, where a lawsuit is pending that may affect title to property, any party to the action can record a lis pendens (notice of pending action), which will effectively put third parties on notice of all claims pending in the lawsuit.
2) Grantor Must Acknowledge Deed
Most recording statutes provide that, in order to be recorded, a deed must be acknowledged by the grantor before a notary public. This requirement offers some protection against forgery. Problems may arise if the recorder records a deed that has not been acknowledged or has been improperly acknowledged.
c. Mechanics of Recording
1) Filing Copy
The grantee or her agent normally presents the deed to the county recorder, who photographs it and files the copy in the official records. These records are kept chronologically.
The recorder also indexes the deed to permit title searches. The usual indexes are the grantor-grantee and grantee-grantor indexes, which are arranged by reference to the parties to the conveyance. Tract indexes, which index the property by location, exist in some urban localities.
2. Types of Recording Acts
There are three major types of recording acts, classified as “notice,” “race-notice,” and “race” statutes. Note that the burden is on the subsequent taker to prove that he qualifies for protection under the statute.
a. Notice Statutes
Under a notice statute, a subsequent BFP (i.e., a person who gives valuable consideration and has no notice of the prior instrument) prevails over a prior grantee who failed to record. The important fact under a notice statute is that the subsequent purchaser had no actual or constructive notice at the time of the conveyance. Constructive notice includes both record notice and inquiry notice. A typical notice statute provides:
A conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded.
Note also that the subsequent BFP is protected, regardless of whether she records at all.
Example: On January 1, O conveys Blackacre to A. A does not record. On January 15, O conveys Blackacre to B, who gives valuable consideration and has no notice of the deed from O to A. B prevails over A.
What if A records before B? Suppose in the example above that A recorded on January 18, and B never recorded. This is irrelevant under a “notice” statute, because B had no notice at the time of her conveyance from O. B is protected against a prior purchaser even though B does not record her deed (this is the difference between “notice” and “race-notice” statutes). Of course, if B does not record, she runs the risk that a subsequent purchaser will prevail over her, just as she prevailed over A.
b. Race-Notice Statutes
Under a race-notice statute, a subsequent BFP is protected only if she records before the prior grantee. Rationale: The best evidence of which deed was delivered first is to determine who recorded first. To obviate questions about the time of delivery and to add an inducement to record promptly, race-notice statutes impose on the BFP the additional requirement that she record first. A typical race-notice statute provides:
Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, whose conveyance is first recorded.
Example: On January 1, O conveys Blackacre to A. A does not record. On January 15, O conveys Blackacre to B. On January 18, A records. On January 20, B records. A prevails over B because B did not record first.
c. Race Statutes
Under a pure race statute, whoever records first wins. Actual notice is irrelevant. The rationale is that actual notice depends upon extrinsic evidence, which may be unreliable. Very few states have race statutes.
Example: On January 1, O conveys Blackacre to A. A does not record. On January 15, O conveys Blackacre to B. B knows of the deed to A. B records. Then A records. B prevails over A because she recorded first. It is immaterial that she had actual notice of A’s interest.
3. Who Is Protected by Recording Acts
Only bona fide purchasers (“BFPs”) are entitled to prevail against a prior transferee under “notice” and “race-notice” statutes. To attain this status, a person must satisfy three requirements. The person must:
(i) Be a purchaser (or mortgagee or creditor if the statute so allows);
(ii) Take without notice (actual, constructive, or inquiry) of the prior instrument; and
(iii) Pay valuable consideration.
Note: If these requirements are not met, the person is not protected by the recording acts, so that the common law rule of first in time prevails.
Example: O, the owner of Blackacre, executes a contract of sale of the land to A on Monday. A immediately records the contract. On Tuesday, O deeds the land to B. B pays valuable consideration for the land, but is not a BFP because B is held to have constructive notice of A’s rights. Result: A is entitled to enforce the contract against B, paying B the rest of the price and compelling B to deliver a deed to A. (If A had failed to record the contract, and B had no other notice of it, B would have taken free of A’s contract rights. A would have an action in damages against O for breach of contract, but would not have a claim for specific performance against B.)