## Facts

- Jessie O. Raub owned a homestead that was initially free of any mortgage.
- Officers and agents of General Income Sponsors of Iowa, Inc. induced Raub to execute a warranty deed conveying the homestead through fraud.
- After the conveyance, Raub remained in the home, paid rent, and occupied the property in a manner consistent with tenant possession.
- While holding record title, General Income granted a first mortgage to First National Bank of Fort Dodge and later a second mortgage to Manson State Bank.
- Raub later sued in equity to void the deed and to declare both mortgages invalid as liens on her homestead, arguing her continued possession put the banks on inquiry notice of her adverse equity.
- The trial court set aside the deed for fraud and ruled that neither mortgage was a lien; General Income did not appeal, but both banks appealed the mortgage invalidation.

## Issues

1. Whether the banks qualified as bona fide encumbrancers for value without notice, such that their mortgages remained valid liens even though General Income’s deed was procured by fraud.
2. Whether Raub’s continued possession and occupancy after the deed constituted actual or inquiry notice sufficient to defeat the banks’ bona fide status.

## Decision

- The Iowa Supreme Court reviewed the equity case de novo.
- The court treated as final the unappealed decree setting aside the deed as fraudulently procured.
- The court reversed the trial court’s ruling that the mortgages were not liens.
- The court held both banks were bona fide encumbrancers for value without notice and that their mortgages were valid liens on the property.

## Legal Principles

- A mortgagee is protected as a bona fide encumbrancer if it takes for value, in good faith, from the record title holder, and without notice of prior equities.
- Notice may be imputed if circumstances would cause a reasonably prudent lender to inquire further into the grantor’s title.
- Continued occupancy by the original grantor does not, by itself, constitute notice when the possession is consistent with the record title holder’s rights (for example, occupancy as a tenant paying rent).
- A lender is not charged with inquiry notice where no reasonable investigation would likely reveal the adverse equity, including where the occupant is unaware of the fraud at the relevant time.

## Conclusion

The court left in place the decree voiding the fraudulent deed but protected the banks’ mortgages, holding that tenant-like possession by the defrauded grantor did not put subsequent mortgagees on notice and did not defeat their status as bona fide encumbrancers for value.


Raub v. Gen. Income Sponsors of Iowa, Inc., 176 N.W.2d 216 (Iowa 1970)