“Is my 18-year-old, unrecorded deed any good?” That was the question asked in a letter I received recently. The reader said she was given the deed to some farmland years ago by a relative on the condition the deed be recorded only after the relative died.
But before the relative died a few years later, the letter said, that relative sold the farm to a buyer who paid a down payment, and the relative carried back a 25-year mortgage for the buyer.
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Of course, I advised the reader to consult a local real estate attorney. But the general rule is an unrecorded gift deed will be invalidated by a later sale of the same property to a “bona fide purchaser” for value without notice of the prior gift deed. Also, in most states a deed conditionally delivered is not effective.
ALWAYS RECORD DEEDS TO ESTABLISH PRIORITY. In the event of conflicting claims to a property, the first grantee to record his/her deed usually wins the race to the courthouse. However, there are exceptions, such as when the recorded deed was a gift and the prior unrecorded deed was paid for with consideration and/or the grantee with an unrecorded deed occupied the property, thus giving constructive notice.
As shown by that unrecorded, 18-year-old gift deed above, an unrecorded deed delivered conditionally such as “record this after I die” is usually invalid as a substitute for a written will or a revocable living trust.
Especially troublesome are so-called “silent seconds,” which were unrecorded at the time of a property sale. These second mortgages, usually carried back by the property seller to help the buyer finance his/her purchase, are not immediately recorded, often to make the first mortgage lender think the buyer has lots of equity. However, if the second mortgage lender fails to later record its “silent second,” another lien might gain priority, such as a home equity loan obtained by the buyer.
THE PURPOSE OF RECORDING LAWS. Each state has recording laws for real estate documents such as deeds, mortgages, deeds of trust, mechanics’ liens, judgment liens, income tax liens, leases and other recordable papers that can affect a property title.
In a few states, an unrecorded deed is invalid unless it is recorded. But in most states, an unrecorded deed is valid only between the grantor and the grantee. When a deed is unrecorded, it does not give “constructive notice” to the world of its contents.
The entire title insurance industry depends on interpreting both state recording laws and their application to a specific document affecting a particular property. When an unrecorded document is presented by a claimant, that person usually loses to someone who previously recorded his/her conflicting document involving the same property.
“First in time is first in right” is the basic rule. But there are exceptions.
For example, suppose I pay you cash for your vacant land and you give me a properly notarized deed in recordable form. However, being a cheapskate, I neglect to obtain an owner’s title insurance policy and I forget it take my deed to the local recorder of deeds office. A year later, you discover I have neither occupied the land nor recorded the deed.
Being in desperate need of cash, you fraudulently sell the same land to another buyer who pays cash but promptly records his deed. Although I was first in time, the second bona fide buyer had no constructive notice of my prior deed so he wins the race to the courthouse to record his deed, and he becomes the legitimate owner.
Of course, I can sue you for fraud if I can find you and if you have any assets.
VERBAL REAL ESTATE PROMISES ARE USUALLY WORTHLESS. “When I die, you will receive all my assets.” Many property owners have spoken those worthless words, often to their caregiver, lover, friend, relative or spouse.
The reason those words are worthless is the Statute of Frauds requires real estate transfers to be in writing to be valid. But putting such a promised transfer into a written will or a revocable living trust might also be worthless because wills and living trusts can be easily changed before the owner dies.
Until a promised title transfer is completed and the deed is recorded, the grantor can convey the same property to someone else who records first. Although there are a few court decisions upholding verbal promises based on detrimental reliance, such as taking care of an ill person, they are exceptions rather than the general rule.
THE BEST WAY TO BE SURE YOU OWN MARKETABLE TITLE. No matter what type of written real estate deed you receive and promptly record, the most complete assurance of receiving marketable title is to insist on obtaining an owner’s title insurance policy.
Title insurers carefully research a title before insuring it. Even when a title insurer makes a mistake that isn’t discovered until many years later, the title insurer must then pay the insured property owner either (1) the diminished value of the property if the title insurer failed to disclose a recorded document, such as an underground easement through the backyard, (2) cost of correcting the error, such as moving an underground easement pipeline, or (3) the full policy limit if the title was completely defective.
An owner’s title insurance policy is unique because, for a one-time premium paid at the time of property purchase, the owner’s title policy remains in effect as long as the insured owner or the heirs own the property.
In addition to recording errors, an owner’s title policy insures against unexpected title risks such as title claims by prior owners, forged signatures in the chain of title (the major cause of title losses), and title claims of undiscovered heirs and ex-spouses.
TITLE DISPUTES ARE RESOLVED BY QUIET TITLE ACTIONS. Even when the parties promptly record their deeds and other documents affecting property titles, conflicts still arise.
For example, the wording of a recorded driveway easement across your property might be vague with the boundaries of the easement indefinite. Before you build on your parcel, if you can’t reach a written agreement with the easement holder, a quiet title lawsuit might be needed for a court to determine the easement limitations.
Or if a party claims title by adverse possession, or prescriptive easement rights, a quiet title lawsuit is necessary to perfect those possible rights in someone else’s property.
Divorces lead to endless title problems if agreements affecting marital real estate are not recorded. A frequent problem arises when an ex-spouse is given possession of the marital home until the youngest child becomes 18 (or 21) when the house is to be sold with the proceeds divided between ex-spouses. If the spouse in possession refuses to sell the home as required by the divorce agreement, a quiet title lawsuit might become necessary.
CONCLUSION: Deeds and other documents affecting real estate titles should always be promptly recorded to prevent unexpected consequences. Two basic recording rules are: “The first in time is the first in right” and the first claimant to record his/her document wins the race to the courthouse. When conflicts cannot be resolved from the recorded documents and the claimant does not have an owner’s title insurance policy, a quiet title lawsuit may become necessary to resolve the title dispute.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
