## Facts

- Lakeshore Terrace, Inc. (Lakeshore), a condominium developer, borrowed construction funds from Glenview State Bank (Glenview) and gave Glenview two construction-loan mortgages on the development.
- The mortgages were executed on March 28, 1981, and August 25, 1981, and recorded on April 20, 1981, and August 31, 1981, respectively.
- Glenview knew Lakeshore had presold certain condominium units before substantial completion and had access to presale contracts for units other than the unit in dispute.
- Those presale contracts (including the one signed by Leon Shyman) contained a rider providing that if a unit was conveyed before it was substantially constructed, title would be subject to Glenview’s construction mortgage.
- In November 1980, Shyman signed a written contract to purchase Unit R, but later learned Unit R was unavailable and was told he could choose another unit.
- Shyman selected Unit A, but Unit A was tentatively under agreement to someone else at the time.
- Shyman and Lakeshore’s president orally agreed that Shyman would sign a written contract for Unit F and pay for Unit F, and if Unit A later became available, Shyman could obtain Unit A.
- In February 1981, Shyman tendered the purchase price and received a receipt acknowledging payment and stating that Units A through F could be selected later.
- No written purchase contract existed for Unit A.
- Unit A (still uncompleted) later became available and was conveyed to Shyman by deed dated January 30, 1981.
- Shyman did not record the deed to Unit A until November 18, 1982, more than a year after Glenview recorded both mortgages.
- After the project was completed, Shyman took possession of Unit A and rented it.
- Glenview filed a foreclosure action on its mortgages; Shyman asserted a counterclaim that his interest in Unit A was prior to, and not subject to, Glenview’s mortgages because Glenview allegedly had notice (at least inquiry notice) of his interest when the mortgages were executed.
- After a bench trial, the trial court found Shyman’s interest in Unit A had priority over Glenview’s mortgages; Glenview appealed.

## Issues

1. Whether Glenview had actual or inquiry notice, at the time it executed the construction-loan mortgages, of Shyman’s prior unrecorded interest in Unit A.
2. Whether Glenview’s knowledge that some units in the development were presold required further investigation that would charge the bank with notice of Shyman’s unrecorded deed to Unit A.

## Decision

- The appellate court reversed the trial court’s ruling.
- The court held Glenview did not have actual notice or inquiry notice of Shyman’s unrecorded interest in Unit A when the mortgages were executed and recorded.
- The court held Glenview’s recorded construction mortgages had priority over Shyman’s deed to Unit A, which was not recorded until November 18, 1982.
- The court rejected the argument that general knowledge of presales, without information pointing to Unit A, required Glenview to investigate for an unrecorded conveyance of Unit A.
- The court treated Shyman’s later possession and rental of Unit A as irrelevant to notice at the time the mortgages were taken and recorded.

## Legal Principles

- A party is charged with inquiry notice only when it has knowledge of facts or circumstances that would cause a prudent person to investigate further; failure to investigate then charges the party with notice of what reasonable inquiry would have found.
- General awareness that a developer has presold some units does not, by itself, create inquiry notice of a prior unrecorded interest in a particular unit.
- To impose inquiry notice, the known facts must point to the specific property interest claimed; information about other units, without anything tying the claim to the disputed unit, is not enough.
- Under Illinois recording principles, an unrecorded conveyance is ineffective against a subsequent mortgagee who takes for value, records first, and lacks notice (actual or constructive) of the earlier unrecorded interest.
- Possession can provide notice only if it exists at the time the later party acquires its interest; possession that begins after recordation does not create notice retroactively.

## Conclusion

The appellate court held that Glenview’s knowledge that Lakeshore presold some condominium units—along with Glenview’s review of presale contracts containing riders making early conveyances subject to the construction mortgage—did not place Glenview on inquiry notice of Shyman’s unrecorded deed to Unit A, where nothing in the bank’s information pointed to Unit A; because Glenview recorded its construction mortgages in 1981 without notice of Shyman’s claim and Shyman did not record his deed until 1982, the bank’s mortgages had priority and the trial court’s contrary priority ruling was reversed.


Glenview State Bank v. Shyman, 146 Ill.App.3d 136, 100 Ill.Dec. 13, 496 N.E.2d 1078 (1986)