Titles - Title assurance systems

Learning Outcomes

After reading this article, you will be able to explain the main types of title assurance systems, including how recording acts protect bona fide purchasers, the requirements for marketable title, and the operation of notice, race, and race-notice statutes. You will be able to identify and apply these principles to MBE-style questions and avoid common pitfalls.

MBE Syllabus

For MBE, you are required to understand the legal mechanisms that provide assurance of good title to real property. This article focuses your revision on:

• The purpose and operation of title assurance systems.
• The function and effect of recording acts (notice, race, race-notice).
• The definition and requirements for bona fide purchasers (BFPs).
• The concept of marketable title and its relevance to land sale contracts.
• The effect of recording, including chain of title and wild deeds.
• The shelter rule and exceptions.
• The impact of unrecorded interests and the limits of protection.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is NOT required for a purchaser to qualify as a bona fide purchaser (BFP) under a recording act?
   1. Payment of valuable consideration
   2. Lack of notice of prior unrecorded interests
   3. Recording their deed before any other deed
   4. Taking from a grantor with record title
2. Under a notice recording statute, who prevails if O conveys Blackacre to A (who does not record), then to B (who pays value and has no notice of A), and then A records before B?
   1. A
   2. B
   3. O
   4. It depends on who records first
3. What is the main purpose of the shelter rule in title assurance?
   1. To protect creditors from unrecorded interests
   2. To allow a BFP to transfer their protection to a subsequent grantee
   3. To require all deeds to be recorded to be valid
   4. To prevent wild deeds from affecting title

Introduction

Title assurance systems are designed to protect purchasers of real property by providing a method to verify and secure good title. In the United States, the main system is the public recording of documents affecting land, which, together with the operation of recording acts, determines whose claim to title prevails when there are conflicting interests.

The Purpose of Title Assurance

Title assurance gives buyers confidence that they are acquiring valid title and helps resolve disputes between competing claimants. It also encourages the prompt recording of deeds and other interests.

Key Term: Title Assurance System A legal framework that provides buyers of real property with protection against undisclosed or hidden claims to title, usually through public recording and statutory rules.

Types of Recording Acts

There are three main types of recording statutes, each with different requirements for protecting a subsequent purchaser against prior unrecorded interests:

1. Notice Statute: Protects a subsequent purchaser who acquires property for value and without notice of a prior unrecorded interest, regardless of who records first.
2. Race Statute: Protects the party who records first, regardless of notice or value.
3. Race-Notice Statute: Protects a subsequent purchaser who both takes without notice of a prior unrecorded interest and records first.

Key Term: Recording Act A statute that determines whose interest in land prevails when there are conflicting claims, based on notice and/or the order of recording.

Bona Fide Purchaser (BFP) Status

A bona fide purchaser is a person who acquires property for value, in good faith, and without notice of any prior unrecorded interests. Only BFPs are protected by most recording acts.

Key Term: Bona Fide Purchaser (BFP) A person who acquires property for value, in good faith, and without notice of prior unrecorded claims, and who is protected under recording statutes.

Notice and Types of Notice

Notice can be actual, record (constructive), or inquiry:

• Actual Notice: The purchaser actually knows of the prior interest.
• Record Notice: The prior interest is properly recorded in the chain of title.
• Inquiry Notice: The purchaser is aware of facts that would lead a reasonable person to inquire further.

Key Term: Notice Information or circumstances that would alert a reasonable purchaser to the existence of a prior claim or interest in the property.

Marketable Title

Marketable title is title that is free from reasonable doubt or risk of litigation. In land sale contracts, the seller must provide marketable title at closing.

Key Term: Marketable Title Title that is reasonably free from defects and the risk of litigation, such that a prudent buyer would accept it.

Chain of Title and Wild Deeds

The chain of title is the sequence of recorded documents tracing ownership. A wild deed is a recorded deed not connected to the chain of title and does not provide constructive notice.

Key Term: Chain of Title The series of recorded documents that establish the history of ownership and interests in a parcel of land.

Key Term: Wild Deed A recorded deed that is not properly connected to the chain of title, so it does not give constructive notice to subsequent purchasers.

The Shelter Rule

The shelter rule allows a person who takes from a BFP to claim the same protection as the BFP, even if the transferee has notice of a prior unrecorded interest.

Key Term: Shelter Rule The principle that a person who takes title from a bona fide purchaser is protected by the BFP’s status, even if the transferee has notice of prior claims.

Worked Example 1.1

O conveys Blackacre to A, who does not record. O then conveys Blackacre to B for value, who has no notice of A’s deed. B records. Later, A records. Who owns Blackacre in a notice jurisdiction?

Answer: B owns Blackacre. Under a notice statute, a subsequent purchaser for value without notice of a prior unrecorded deed prevails, even if the prior deed is later recorded.

Worked Example 1.2

O conveys land to A, who records. O then conveys the same land to B, who pays value and has no notice of A’s deed. B records. The jurisdiction has a race-notice statute. Who prevails?

Answer: A prevails. Although B paid value and had no notice, A recorded first. Under a race-notice statute, B must both take without notice and record first to prevail.

Worked Example 1.3

O conveys to A, who does not record. O then conveys to B, who knows of A’s deed. B records. A then records. Who wins in a race jurisdiction?

Answer: B wins. In a pure race jurisdiction, the first to record prevails, regardless of notice.

Exam Warning

In a notice or race-notice jurisdiction, a donee, heir, or devisee is not protected by the recording act, because they did not give value. Only purchasers for value can claim BFP status.

Revision Tip

Always identify the type of recording statute in the question and whether the party claiming protection is a purchaser for value without notice. This is a frequent MBE trap.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• Title assurance systems protect buyers by resolving conflicting claims to title.
• Recording acts (notice, race, race-notice) determine priority among interests.
• Only bona fide purchasers (BFPs) are protected under most recording acts.
• Notice can be actual, record, or inquiry; constructive notice requires proper recording in the chain of title.
• Marketable title is required at closing in land sale contracts.
• Wild deeds do not give constructive notice.
• The shelter rule allows a transferee from a BFP to claim BFP protection.
• Donees, heirs, and devisees are not protected by recording acts.
• Always check the statute type and BFP status in MBE questions.

Key Terms and Concepts

• Title Assurance System
• Recording Act
• Bona Fide Purchaser (BFP)
• Notice
• Marketable Title
• Chain of Title
• Wild Deed
• Shelter Rule