The other day I stumbled upon two law students having coffee and studying for the Bar Exam at my favorite Aspen, Colorado breakfast spot, Ink (couldn't resist the free plug).  I chatted these two students up and found out that they were studying Real Property Law for the Multi-State Bar Exam (Colorado only requires prospective Attorneys to take the Multi-State Bar Exam, they have no local Colorado Exam like so many other jurisdictions New York included).  Being a Real Estate Attorney myself, I asked if I could take a turn in answering a practice question and explaining the law behind it.

The question I randomly choose was a complicated question revolving around the issue of which of several parties has legal title to a parcel of land when there are multiple deeds.  The Bar examiners were really testing the students' knowledge of differences between the doctrines of Race, Notice and Race-Notice.  I immediately decided that this much overlooked and complicated jurisprudence is ripe for explanation here in my blog as issues such as this do come up in private practice and it is important to be aware of the law.

We start with some background. Every state has a law that directs each County within the State to keep accurate land records.  This is called a Recording Statute. The goal of this record keeping is to have one central location in each County where a person, for whatever reason, can search for and determine who is in title to any particular parcel of land as well as what liens exist against that parcel.  Records are kept in three variations: a Grantor-Grantee Index; a Grantee-Grantor Index and; a block and lot index.  In today's technologically advanced world many jurisdictions throughout the US have computerized these indexes making them easy to search and in some jurisdictions, such as New York where I practice, available online.

While the US was in its infancy problems with these indexes arose.  Sometimes it would take days, or even months for deed and liens to be recorded and the pace of trading properties was faster than the pace of recording documents.  Hence, it grew difficult to fully keep track of the owners and lien holders as properties changed hands quicker than the county clerk's could accurately record transactions.  In response three doctrines evolved.

The first doctrine takes a literal look at the problem.  The document dated first is first.  Two examples to illustrate this doctrine called Race:

A) Owner deeds Parcel X to ABC Corp. and then decides that he prefers to sell Parcel X to XYZ Corp. so he deeds Parcel X to XYZ Corp. assume that nothing gets recorded, who owns the property? Simple, in a Race jurisdiction ABC Corp. owns Parcel X because the deed to ABC Corp. predates the deed to XYZ Corp.  
B) Owner borrows money from ABC Bank in exchange for a lien against Owner's property.  Owner then goes to XYZ Bank and borrows money in exchange for a lien against the same property.  Which bank holds the superior lien? In a Race jurisdiction ABC Bank has a first position lien and XYZ Bank has a second position lien because the Mortgage between Owner and ABC Bank predates the Mortgage between Owner and XYZ Bank.

Simple so far but there are some very sneaky people out there who would steal documents and alter dates and take part in other such nefarious acts that made Race not seem as attractive a method to be used in determining property ownership.  Here is the second doctrine of Notice comes into play.  The Notice doctrine says that we don't care about the date of the document what counts is the order in which the documents are recorded in the County Clerk's office.  The theory is that anybody could falsify a date on a document and, under the Race doctrine, fool others into believing that someone other than a true Owner or true lien holder is the Owner or lien holder.  The Notice doctrine requires that in order to be effective a document relating to real property must be recorded in the County Clerk's office to be effective and to put the world on "Notice" of such transaction. Moreover, if we merely use Race then there is no way for a subsequent potential purchaser or lien holder to truly be certain that he is getting what he has bargained for.  Let's illustrate this through our examples.

A) Recall that we said that we have two deeds the ABC Corp. and the XYZ Corp. deed.  Let's say that the XYZ Corp. deed gets recorded prior to the recording of the ABC Corp. deed.  Who owns Parcel X now?  In a Notice jurisdiction XYZ Corp would be the owner because XYZ Corp. got to the County Clerk first.  The theory is that XYZ Corp. is a bonafide purchaser because there was no way XYZ Corp. could have known about the ABC Corp. because that deed was never recorded.
B) Recall that we have two lien holders and we seek to know which lien holder is superior. The answer would be that the dates of the mortgages would have no bearing on the lien order rather the only question would be which Bank recorded first.  So, if XYZ Bank recorded first their lien would be superior to that of ABC Bank regardless of the fact that ABC Bank has a mortgage predating that of XYZ Bank.

But doesn't all this seem a bit unfair?  We have people dating papers, recording papers and all the best laid plans gone to waste for one reason or another.  Now comes the third doctrine, Race-Notice.  Race-Notice says that you must be recorded to be effective but that once recorded we go by date of the document.  In this manner we have protected the subsequent bonafide purchaser from taking property that turns out not to have belonged to the seller due to an unrecorded deed and we have protected the purchaser who simply got to the clerk late.

If you have any questions please do not hesitate to contact the Law Office of Jeffrey M. Goldstein PLLC.