Some states have real estate “notice” statutes for recording property ownership. These notice statutes invalidate a buyer’s property ownership if they have notice that another owner has bought the property from the same seller before the purchase.
Nevertheless, if the buyer does not have notice of the prior conveyance, they are the owner because they are considered a bona fide purchaser.
Regulations known as recording acts are in effect in most states. Recording acts set policies for people to file copies of real property records, such as deeds, liens, and mortgages.
Recording acts also prioritize real property ownership interests between people with contesting claims.
Real property records that affect the title or property ownership are filed with a recording office. An individual who files a real property record must file that record in the county where the property is located.
In such circumstances, the person must file the document where the property is located, not where the individual resides.
Recording a document gives what is called “constructive notice” to the public that the document has been filed. “Constructive notice” means that when the document is filed, the public is deemed to be aware of and have notice of the filing since the individual can quickly look up the filing in the public records.
Recording laws supply regulations for who “wins” when multiple individuals claim ownership of the property or claim a lien on the property. The rules prioritize ownership of mortgages and deeds and the importance of ownership of liens on the property.
Under state recording rules, the date a document is recorded can be highly influential. Some state recording rules provide that when two people each claim a lien, mortgage, or deed concerning a piece of real property, the individual who records the lien, mortgage, or deed first, has priority over the other individual.
Courts qualify notice as one of three types:
Even if a document is defective on its face or defectively recorded, it would still constitute a constructive or inquiry notice because buyers are charged with the concept of good faith to make a reasonable examination when suspicions are stimulated.
When you buy an insurance plan, your insurance company owes specific obligations to you. Your insurance company must respond to a claim promptly, reasonably, and act in “good faith.” To act in “good faith,” your insurance company must comply with the “Covenant of Good Faith and Fair Dealing.”
This covenant, or the duty to act in good faith, demands that your insurance company act in specific ways when dealing with any claim you make.
Your insurance company must:
In general, the duty of good faith directs your insurance company to exhaustively examine your claim and consider all causes that support your claim instead of merely looking for reasons to reject the claim. Your insurance company is not only allowed to consider its own financial interests (which would almost always favor denying the claim) but must also consider yours.
Just as your insurance company owes you a duty to act in good faith, you may be responsible for acting in good faith towards your insurance company. Courts in many states have ruled that you (the insured) owe your insurance company a duty of good faith comparable to the one they owe you.
Your obligation to your insurance company includes the following:
If your insurance company breaches this duty, they act in “bad faith,” and you can sue them. This duty is implied, and it is up to you to ensure that your rights are not violated. So, if your insurance company acts in bad faith, you can sue them for breaching the implied covenant of good faith and fair dealing.
If your insurance company is discovered to have acted in bad faith, you can obtain damages in the amount of the claim and possibly punitive damages.
In states that have recording acts that do not demand notice, buyers who buy the property can still be the true owner despite knowing about another buyer. A race statute in a recording act grants ownership to the first individual who records their conveyance, regardless of who first bought the property.
The Recording Acts are state statutes that designate the keeping of official county records to track public land ownership. The Acts help settle conflicts of ownership in real property by prioritizing ownership documents. Nevertheless, the order of priority depends on the type of statute that the state has adopted: race, notice, or race notice.
Race statute
Also known as the “race to the courthouse.” The rule that the document recorded first wins and will have priority over any later recordings
Notice statute
A later buyer who pays fair value for the property and does not have notice that there were any other earlier conflicting interests wins and will have priority over any later recordings.
Race-Notice Statute
A later buyer who pays fair value does not notice any other earlier conflicting interests and records first wins and will prioritize any later recordings.
The objective of the Recording Acts is to defend individuals who have acted in good faith and paid value for the property. (The concept of “good faith” entitles one to act promptly and reasonably and is usually implied in every contract). The Acts do not create a criminal penalty for not recording, just a solid incentive to record documents for public record. You’re giving the general public constructive notice of your ownership rights by recording a document. Until a document is recorded properly, the title to the property could be at risk from later good-faith purchasers.
Because the laws of each state vary significantly when it comes to real estate, an experienced property lawyer in your area can be of great value to you. The notice statute and the Recording Acts are challenging to understand. A lawyer can ensure that you comply with the laws to confirm that your property interest is “bona fide” and secure against all others.
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