Titles - Title assurance systems

Learning Outcomes

This article explains title assurance systems for the MBE, including:

• Distinguishing common law "first in time" rules from modern recording act schemes and their role in resolving competing title claims.
• Identifying the elements and operation of notice, race, and race‑notice statutes, with emphasis on statutory language frequently quoted in fact patterns.
• Determining who qualifies as a bona fide purchaser for value and how BFP status interacts with donees, heirs, and devisees.
• Analyzing actual, record, and inquiry notice, including chain‑of‑title defects, wild deeds, and late recordings that defeat constructive notice.
• Evaluating when the shelter rule preserves priority for transferees and recognizing the key "shipping through" limitation tested on the exam.
• Applying marketable title principles to land sale contracts, focusing on encumbrances, adverse possession, zoning violations, and the timing of required cure.
• Using structured steps to resolve MBE‑style priority problems and avoid common traps involving installment contracts, mortgages, and unrecorded interests.
• Integrating title assurance concepts with exam strategy by spotting the governing statute type, relevant notice, and the party entitled to prevail.

MBE Syllabus

For the MBE, you are required to understand the legal mechanisms that provide assurance of good title to real property, with a focus on the following syllabus points:

• 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.
• How different types of notice (actual, record, inquiry) affect priority.
• How defects such as encumbrances, adverse possession, and zoning violations affect marketable title.

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.

At common law, the basic rule was “first in time, first in right”: as between two claimants, the one whose interest was created first usually prevailed. Recording acts modify that rule by sometimes protecting a later purchaser who satisfies statutory requirements.

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 priority rules.

The Purpose of Title Assurance

Title assurance gives buyers confidence that they are acquiring valid title and helps resolve disputes between competing claimants. It encourages prompt recording of deeds and other interests, which in turn creates a reasonably reliable public record of ownership.

If the seller’s title is defective or subject to undisclosed encumbrances, the buyer might face litigation or even lose the property. Title assurance mechanisms—recording acts, the implied covenant of marketable title, and often title insurance—are designed to minimize that risk.

Recording Acts and Types of Recording Statutes

A recording act is a statute that governs the effect of recording (or failing to record) instruments affecting title, such as deeds and mortgages.

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.

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: Notice Statute
A recording act under which a subsequent purchaser for value without notice of a prior unrecorded interest prevails, even if the prior interest is recorded first.

Key Term: Race Statute
A recording act under which the first party to record wins priority, regardless of whether that party had notice of another interest or paid value.

Key Term: Race-Notice Statute
A recording act under which a subsequent purchaser for value without notice of a prior unrecorded interest prevails only if that purchaser records before the prior interest is recorded.

On the MBE, the question stem often quotes or paraphrases the statute. Always identify which of the three types you are dealing with before deciding who prevails.

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 (notice and race-notice); a pure race statute does not require BFP status.

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 notice and race-notice recording statutes.

Key Term: Purchaser for Value
A person who obtains an interest in land in exchange for valuable consideration, such as paying money, providing services, or extending new credit, as opposed to taking by gift, inheritance, or devise.

Key aspects of BFP status:

• For value:

  • The purchaser must give something of substantial value; token consideration is not enough.
  • Mortgagees who lend new money in exchange for a security interest are purchasers for value.
  • Donees, heirs, and devisees are not purchasers for value and thus cannot claim BFP protection.

• Without notice:

  • The purchaser must lack actual, record, and inquiry notice of the prior unrecorded interest at the time of the conveyance (and, for installment land contracts, at least to the extent of payments already made).

If a subsequent claimant is not a BFP (for example, they are a donee), that party does not get the benefit of the recording act. In that case, the common law “first in time” rule usually decides the dispute.

Notice and Types of Notice

Notice can be actual, record (constructive), or inquiry. All three count as “notice” for recording act purposes unless the statute says otherwise.

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

• Actual Notice: The purchaser actually knows of the prior interest from any source (conversation, letter, advertisement, etc.).

Key Term: Actual Notice
Subjective knowledge by the purchaser of a prior interest in the property.

• Record (Constructive) Notice: The prior interest is properly recorded in the chain of title so that a reasonable title search would reveal it. The purchaser is deemed to know everything that appears in the public land records within the chain of title for the parcel.

Key Term: Record (Constructive) Notice
Notice imputed to a purchaser because a prior interest is correctly recorded in the public land records in a way that a reasonable title searcher would find.

• Inquiry Notice: The purchaser is aware of facts that would lead a reasonable person to investigate further, and such investigation would reveal the prior interest. Common triggers include someone other than the seller in possession or visible easements and encroachments.

Key Term: Inquiry Notice
Notice imputed to a purchaser when observable facts or known circumstances would prompt a reasonable person to investigate, and an adequate inquiry would disclose a prior interest.

MBE questions often set up inquiry notice traps: if a person is in open possession, a buyer who fails to ask about that person’s rights is usually charged with notice of whatever interest that person holds.

Marketable Title

Marketable title is a central concept in land sale contracts. Every contract for the sale of land contains an implied covenant that the seller will deliver marketable title at closing, even if the contract is silent and even if it calls for a quitclaim deed.

Key Term: Marketable Title
Title that is reasonably free from defects and the risk of litigation, such that a prudent buyer would accept it—often described as title free from an unreasonable risk of dispute about who owns what is being sold.

Important points regarding marketable title:

• The standard is that of a reasonable buyer; title need not be perfect, but it must be free from substantial doubts.
• Common defects making title unmarketable include:
  • Title claimed solely by adverse possession that has not been quieted by a court judgment.
  • Private encumbrances (mortgages, liens, easements, restrictive covenants, options) that will not be removed at closing.
  • Significant encroachments on or from neighboring land.
  • Existing violations of zoning ordinances (not merely the existence of regulations).

From the Themis and Barbri materials:

• A seller can use the closing proceeds to pay off a mortgage or lien; as long as this happens at closing, the mortgage does not make title unmarketable.
• A beneficial or visible easement (for example, a utility line or a clearly visible right-of-way known to the buyer) is often treated as acceptable and may not render title unmarketable.
• Title acquired by adverse possession is treated as unmarketable on the exam unless the seller has quieted title in a judicial proceeding.

Timing is important: the seller must cure defects by closing. The buyer usually cannot rescind before then merely because the seller’s title is currently unmarketable, unless it is clear that the seller cannot possibly cure in time.

If the seller fails to deliver marketable title at closing, the buyer’s remedies typically include rescission, damages, or specific performance with a price reduction.

Chain of Title and Wild Deeds

The chain of title is the sequence of recorded documents tracing ownership of a parcel, usually located using a grantor–grantee index (by names) or a tract index (by parcel).

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

Only documents that appear in the chain of title give record (constructive) notice. Several recording problems arise from this:

• Wild deeds: A recorded deed that is not connected to the chain of title is a “wild deed” and does not give constructive notice.

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.

• Late-recorded deeds: If a deed is recorded after the grantor appears to have already conveyed the property to someone else in the record, many jurisdictions treat that deed as outside the later purchaser’s chain of title; it does not give constructive notice to that later purchaser.
• Deeds recorded before the grantor obtained title: A deed from a grantor who had no title when the deed was given, recorded before the grantor later acquires title, is often treated as outside the chain of title and may not provide constructive notice to subsequent purchasers.

These chain-of-title issues are frequently tested in conjunction with BFP status.

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.

Rationale: If B has BFP status, B should be able to sell or give the property to others without losing the benefit of that status. Otherwise, B’s title would be less valuable.

Key limitation (often tested):

• A person who previously held title and was not protected (for example, because of notice) cannot “ship through” a BFP, reacquire the property, and then claim BFP status. The shelter rule does not operate to cleanse that person’s earlier notice.

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. A’s later recording cannot defeat B’s previously acquired BFP rights.

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. Because A recorded before B, B does not satisfy the recording requirement for protection.

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 or value. B recorded first and therefore has priority even though B had actual notice of A’s prior deed.

Additional Details on Notice and Recording

Even under a race or race-notice statute, the purchaser must usually record in the appropriate office and in a manner that links the instrument into the chain of title. For example:

• A deed recorded with an incorrect legal description may not give constructive notice.
• In most race-notice states, late-recorded deeds that appear outside a subsequent purchaser’s chain of title do not give record notice to that purchaser.

MBE questions often ask whether a particular recording gives record notice. Always ask:

• Would a reasonable title searcher checking under each grantor’s name, from when they acquired title until they conveyed it, find this document?
• If the jurisdiction is described as having a tract index, wild deeds may be easier to find, and the exam might treat them as giving record notice.

Worked Example 1.4

O conveys Blackacre to A, who does not record. O later conveys Blackacre to B as a gift. B, unaware of the deed to A, promptly records. A then records. B later sells Blackacre to C for $200,000; C has no notice of A’s deed. The jurisdiction has a notice statute. Between A and C, who prevails?

Answer:
C prevails. B is not a BFP because B gave no value, but C is a BFP: C paid value and lacked notice. A’s deed was recorded “late” (after O–B), so in many notice jurisdictions it is outside C’s chain of title and gives C no record notice. Under a notice statute, the last BFP without notice wins, so C takes priority over A.

Installment Land Contract Purchasers

Some purchasers acquire their interests gradually, such as buyers under installment land contracts. Many jurisdictions protect these purchasers as BFPs only to the extent of payments made when the conflicting interest arises. Courts may:

• Give the contract purchaser a proportional share in the property as a tenant in common,
• Award the land to the prior claimant but give the purchaser a lien for the amount paid, or
• Award the land to the purchaser but give the prior claimant a lien for the unpaid balance.

If the seller under the installment contract was a BFP, however, the shelter rule typically gives the contract purchaser full protection, even if the purchaser later learns of the prior unrecorded interest.

Marketable Title: Defects, Timing, and Remedies

Returning to marketable title, the implied covenant operates between contract and closing:

• Defects affecting marketability (exam focus):

  • Chain-of-title defects: missing links, inconsistent descriptions, or evidence that a prior grantor lacked capacity.
  • Future interests held by unborn or unascertained persons: If some future interest holders cannot be identified or joined, title is often unmarketable because a buyer could later be sued by those interest holders.
  • Adverse possession: Unless the adverse possessor has successfully quieted title, a buyer would bear the risk of litigation with the record owner.
  • Mortgages and liens: These render title unmarketable unless they are satisfied and released at closing using sale proceeds.
  • Easements and covenants: Undisclosed or restrictive easements and covenants usually make title unmarketable; visible or beneficial easements may be acceptable, depending on the jurisdiction.
  • Encroachments: Significant encroachments (e.g., part of a building crossing a boundary line) are typically treated as encumbrances.
  • Existing zoning violations: These make title unmarketable; mere zoning restrictions do not.

• Timing: The seller’s title must be marketable at closing, not at contract signing or earlier in escrow. A buyer typically must:

  • Notify the seller of the defect,
  • Allow a reasonable time to cure (which may require extending closing), and
  • Only if curing fails, elect remedies such as rescission, damages, or specific performance with abatement.

• Merger: When the deed is delivered and accepted, the contract merges into the deed. The implied covenant of marketable title no longer exists; any claim must be based on covenants in the deed itself (such as general warranty covenants). Exam questions sometimes turn on whether the action is before or after closing.

The buyer may waive certain defects in marketable title in the contract, explicitly agreeing to accept the property subject to specified encumbrances or violations.

Worked Example 1.5

Seller contracts to sell Blackacre to Buyer. A title search shows that a neighbor’s garage encroaches two feet onto Blackacre. The jurisdiction treats substantial encroachments as encumbrances. The contract requires Seller to deliver marketable title at closing in 60 days, with no special waiver. Seller does nothing to address the encroachment and cannot obtain a release from the neighbor. On the closing date, Buyer refuses to close. Is Buyer justified?

Answer:
Yes. The encroachment is a significant encumbrance that creates a substantial risk of future litigation, so title is unmarketable. Because Seller has not cured the defect by the closing date and Buyer has not waived it, Buyer may refuse to close and may seek rescission or specific performance with an abatement, depending on jurisdiction and facts.

Marketable Title Acts (Briefly)

Some states adopt “marketable title acts” that extinguish old interests (such as ancient possibilities of reverter or rights of entry) unless they are re-recorded every certain number of years (often 20–40 years). These statutes aim to simplify titles and reduce the number of stale claims that might otherwise cloud title.

You are unlikely to see detailed statutory schemes on the MBE, but understanding that some older interests may be cut off by such acts helps explain why a very old recorded interest may no longer be enforceable.

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. Then check whether the prior interest is in that party’s chain of title; wild or late-recorded deeds may not give record notice. These are frequent MBE traps.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• Title assurance systems protect buyers by resolving conflicting claims to title using public recording and statutory priority rules.
• Recording acts (notice, race, race-notice) modify the common law “first in time” rule and determine priority among interests.
• Only bona fide purchasers (BFPs)—purchasers for value without notice—are protected under most recording acts.
• Notice can be actual, record (constructive), or inquiry; constructive notice requires proper recording in the chain of title.
• Chain-of-title problems, including wild deeds, late-recorded deeds, and deeds recorded before the grantor acquired title, often prevent record notice.
• The shelter rule allows a transferee from a BFP to claim BFP protection, with a key exception for “shipping through” a prior owner who had notice.
• Donees, heirs, and devisees are not protected by recording acts because they are not purchasers for value.
• Marketable title is required at closing in land sale contracts and is judged by a reasonable buyer standard; defects include unresolved adverse possession, encumbrances, encroachments, and existing zoning violations.
• The seller may cure title defects up to the time of closing; if defects remain, the buyer may refuse to close and seek rescission, damages, or specific performance with abatement.
• After closing, the merger doctrine means title claims must be based on deed covenants, not on the contract’s implied covenant of marketable title.

Key Terms and Concepts

• Title Assurance System
• Recording Act
• Notice Statute
• Race Statute
• Race-Notice Statute
• Bona Fide Purchaser (BFP)
• Purchaser for Value
• Notice
• Actual Notice
• Record (Constructive) Notice
• Inquiry Notice
• Marketable Title
• Chain of Title
• Wild Deed
• Shelter Rule