“Chain of title” is the ownership history of a parcel of real property, from the first owner to the present owner. Black’s Law Dictionary, 10th Ed. p. 278 (2014). The chain of title for a parcel of land should go without interruption from the present day back to the original United States government land patent.[1] Why is chain of title important? The reason is that for a current owner of real property to have good, or “marketable,” title, every prior conveyance of the land must have been proper. A problem in the chain of title—regardless of how far in the past—can invalidate someone’s ownership interest today.
Sellers and buyers of real property therefore must be sure that marketable title to the property is being conveyed. The Idaho Supreme Court has defined “marketable title” as a title “as free from apparent defects as from actual defects, one in which there is no doubt involved either as a matter of law or fact. Every title is doubtful which invites or exposes the party holding it to litigation.” Bell v. Stadler, 31 Idaho 568, 572, 174 P. 129, 131 (1918).
Similarly, the Washington Supreme Court has defined “marketable title” as “being free of reasonable doubt and such as a reasonably informed and intelligent purchaser, exercising ordinary business prudence, would be willing to accept.” Brown v. Herman, 75 Wash.2d 816, 823, 454 P.2d 212, 216 (1969), citing Hebb v. Severson, 32 Wash.2d 159, 201 P.2d 156 (1948).
What can go wrong in a chain of title?
There are numerous possible defects in a chain of title, any of which can invalidate title for a person who claims to own a parcel of land. Some of the most common defects include:
- Forged deeds;
- Mistakes of recorders in recording legal documents;
- Missing documents;
- Mistakes in the documents themselves (e.g., names spelled differently in different deeds);
- Deeds executed under an expired, fabricated, or otherwise incorrect power of attorney;
- Deeds by persons lacking capacity to convey property; and
- Failure to include necessary parties on conveyance documents (e.g., both spouses for community property, a trustee for a trust, a guardian for a person lacking capacity).
Title insurance policies sometimes, but not always, cover defects in chain of title. If you are looking for a title insurance policy, it is important to evaluate each option carefully and, if you are concerned about a possible defect in chain of title, consider choosing a policy that covers chain-of-title defects.
How is a chain of title created?
The chain of title for a parcel of land is created through the recording of real estate conveyance documents at the county recorder’s office. By recording a document transferring a parcel of land—such as a deed—a seller or buyer enters the document into the public registry. This gives the rest of the world “constructive notice” of the interest being recorded.
Constructive notice is critical: if the document conveying the real property is not recorded, an unscrupulous seller can re-convey the property to a third party without knowledge of the prior interest. Unless that third party has actual notice (i.e., actual knowledge) or inquiry notice[2] of the prior interest, the third party’s interest will prevail over the unrecorded interest of the previous buyer.
Most state laws provide that constructive notice of real estate interests is created by a “grantor-grantee index.” J. Bushnell Nielsen, Title and Escrow Claims Guide 3rd Ed., p. 3-132-33 (2015). The grantor-grantee index is a name index. A conveyance document—such as a deed, mortgage, or easement—that is recorded outside of the chain of grantors is not deemed to give notice of the document. Id. So, if Party A conveys a parcel of land to Party B by a deed recorded June 1, and Party B had recorded a mortgage on the land on May 25, the mortgage is a “wild” instrument that will not turn up in a search of the grantor-grantee index. Id.
The impact of a “wild” instrument depends on the state or county’s index system. If applicable law provides that only the grantor-grantee index provides constructive notice, then in the situation above Party A would not be deemed to have had constructive notice of the mortgage recorded May 25. The result may be different if the state uses a “tract index.” A tract index is based on parcels of land. The chain of title under a tract index is made up of all recorded documents for a parcel. Id. So, a document recorded before a buyer takes title will give constructive notice in jurisdictions on the tract index system.
If there are conflicting interests to a piece of land, how do courts decide who wins?
Regardless of whether a State uses a grantor-grantee index or a tract index, priority of interest depends on the State’s recording act. Every State has a recording act, which governs the process by which landowners can give constructive notice of their claim to the land. State recording acts govern situations where the same parcel of land is conveyed multiple times. Which buyer wins in these scenarios depends on which type of recording act a State has. There are three types:
- A “race” statute;
- A “notice” statute; and
- A “race-notice” statute.
Under a “race” statute, the first conveyance document to be recorded wins and has priority over documents recorded later. For example, assume A conveys a parcel of land to B, who does not record the deed. Later, A conveys the same property to C, who does record. In a State with a “race” statute, C’s interest in the property will win because C recorded the deed first. Note that it would not matter in this example if C knew about the deed from A to B. All that matters under the “race” statute is that C recorded first.
Under a “notice” statute, a buyer who (1) pays fair value for the property and (2) does not have notice (actual, constructive, or inquiry) of a prior interest wins. For example, assume A conveys a parcel of land to B, who does not record. Later, A conveys the same parcel to C, who pays fair value and does not have notice of the earlier conveyance to B. C does not record. After the conveyance to C, B finally records the deed. In a State with a “notice” statute, C’s interest in the property will still win, even though B recorded the deed and C did not. The reason is that C paid fair value for the property and at the time of purchase did not have notice of B’s earlier interest.
Under a “race-notice” statute, a later purchaser who (1) does not have notice of a prior conflicting interest and (2) records his conveyance first will have good title. For example, A conveys a parcel of land to B, who does not record. Later, A conveys the same parcel to C, who pays fair value and does not have notice of the earlier conveyance to B. At this point, whoever records first will win. If C records first, C will win because C did not have notice of the earlier conveyance to B. But if B records first, B will win because simply purchasing without notice is not enough under a “race-notice” statute; the purchaser must also record first. Note that if C knew about the earlier conveyance to B, C would not win even if C recorded first. That is the difference between a “race-notice” and a “race” statute.
Idaho, Washington, and Montana all have “race-notice” statutes. See Idaho Code § 55-606; Revised Code of Washington § 65.08.070; Montana Code Annotated § 70-21-304. So, in all three states, a buyer of a property wins over a previous buyer of the same property only if he buys without notice of the prior interest and records his interest first.
So, what does this all mean for me?
It means that before you buy or sell a parcel of land, you need to know that the sale will stand up. Even one faulty conveyance in the past can ruin title for everyone else in the future. To make sure that you know exactly what you are buying or selling, you should have the property’s chain of title reviewed by a qualified professional. Doing your homework before the sale can prevent a lot of headaches afterward.
[1] A “land patent” in the United States refers to the original grant of a parcel of land from the United States government to a private party.
[2] “Inquiry notice” is defined as “[n]otice attributed to a person when the information would lead an ordinarily prudent person to investigate the matter further.” Black’s Law Dictionary, 10th Ed. p. 1228 (2014). A buyer is deemed to be on inquiry notice of whatever a reasonable inspection of the land would reveal before purchase. For example, if there is a visible roadway easement running through the property, and the buyer does not inspect, the buyer cannot later claim that he took the property free from the easement; he will be deemed to have been on inquiry notice.
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