Lesson. First, if you are in the business of drafting and recording mortgages, make sure they contain legal descriptions of the subject real estate. Common (street) addresses technically are inadequate to provide notice of a lien.
Legal issue. Whether the omission of a legal description of the real estate rendered the mortgage insufficient to charge a competing mortgagee with notice.
Vital facts. This case involved a mortgage lien priority dispute and dealt with Indiana’s bona fide purchaser (BFP) doctrine. Jewell held a mortgage that it recorded but that failed to contain a legal description. The mortgage only identified the common address a/k/a the street address. When the owner later sold the real estate, the buyer obtained financing from a lender, which conducted a title search before ultimately making the mortgage loan. The evidence established that the lender’s title search did not disclose Jewell’s mortgage.
Procedural history. Jewell filed suit to foreclose its mortgage and named the lender. The lender filed a motion for summary judgment claiming that it was a bona fide purchaser and was entitled to senior lien status. The trial court denied the motion. The lender appealed.
Key rules. The Jewell opinion contains an excellent summary of Indiana’s rules, exceptions and tests related to the bona fide purchaser doctrine. The opinion also provides a really good analysis of Indiana’s summary judgment standard, and related burdens of proof, as applicable to our BFP laws. Without regurgitating all of the law from the opinion (see other posts noted below), here are some of the key rules in play in Jewell:
1. Prospective purchasers of real estate must search the grantor-grantee and the mortgagor-mortgagee indexes for the period that the mortgagor holds title.
2. On the matter of “constructive” notice, “a mortgage must be recorded [in the chain of title] in the proper county and must contain an accurate legal description of the property.”
3. In the absence of contructive notice, there is Indiana law supporting the notion that, in certain circumstances, subsequent purchasers may be charged with “inquiry” notice, sometimes called “implied or inferred” notice:
Notice is actual when notice has been directly and personally given to the person to be notified. Additionally, actual notice may be implied or inferred from the fact that the person charged had means of obtaining knowledge which he did not use. Whatever fairly puts a reasonable, prudent person on inquiry is sufficient notice to cause that person to be charged with actual notice, where the means of knowledge are at hand and he omits to make the inquiry from which he would have ascertained the existence of a deed or mortgage. Thus, the means of knowledge combined with the duty to utilize that means equates with knowledge itself. Whether knowledge of an adverse interest will be imputed in any given case is a question of fact to be determined objectively from the totality of the circumstances.
Holding. The Indiana Court of Appeals reversed the trial court and granted summary judgment for the lender.
Policy/rationale. Jewell dealt mainly with the inquiry notice matter. Jewell contended that, had the lender searched the mortgagor-mortgagee index, it would have discovered Jewell’s mortgage. However, the lender submitted affidavits establishing that it conducted such a search, which did not reveal the Jewell mortgage due to the omission of the legal description. The problem was that Jewell merely argued that the common address was sufficient to defeat the summary judgment motion. Jewell’s failure to submit evidence to prove its theory was the deciding factor.
What Does “Chain Of Title” Mean?
I frequently represent lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected] Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.