Recording and Public Records
Public Records and Notices
The recording of real estate related documents in the county public records provides notice to interested parties. Recording can also serve to secure the interest rights of a given party and the priority of interest. Let’s take a closer look at the importance of the public records in real estate.
Each state has recording acts, which are laws with specific procedures for placing a document affecting real property in the public records. Doing this and doing it correctly provides the necessary notice for matters related to real property. In some cases, such as a mortgage, it also serves to secure the priority rights of a lender.
The recording process:
I’ve recorded documents in several counties within multiple states. The procedures always seem to vary and they are exacting. Therefore, it is important to know the requirements before-hand and then follow them precisely. This way the document(s) are properly prepared, formatted and witnessed according to the county recording statutes. Failure to do so will result in a wasted trip to the Auditors Office, or wherever the recording desk is at the county.
Types of Notices:
Legal notice can be provided in several ways, but let’s focus on two key types related to real property:Actual Notice and Constructive Notice.
This is easy to guess. Actual notice is when a person has direct knowledge of the information, in this case what is provided. An example would be me, as Seller, handing a Buyer a property disclosure statement. This person now has actual notice of the document and the contents within. Whether the Buyer ever uses the information or not is up to him, but it does not change the fact that actual notice was provided. Frequently, but not always, actual notice is proven through documentation by the receiving party signing or initialing a copy of the document at the time of receipt.
Constructive notice obligates the interested party, say me as a prospective landowner, to be aware of the information that is available in the public records for me to find.
This is where a lot of people have gotten into trouble with real property. Constructive notice is information that a person is responsible to know, whether they actually do or not. This is where recording of documents comes in. Recorded documents for a property provide constructive notice, available in the public records, that a citizen is responsible to find out and comply with or bear the consequences. Constructive notice falls under a legal doctrine called caveat emptor “let the buyer beware”.
A good example of how to get in trouble with constructive notice is to ignore or fail to understand something on a real property title report. The title report reveals key information available in the public records on a given property’s liens, easements, encroachments, or any other matter formally recorded.
Take note of the key word here: available. This means the information can be obtained and is accessible to be obtained. It is the responsibility of the interested party to actually search it out, understand it, and use it for whatever purpose.
Another example would be the United States Tax Code. Although the number of pages is disputed, it is generally agreed that the number of pages in the U.S. Tax Code exceeds 2,000. The number of actual regulations and definitions within it are in the multiple-thousands. No matter the length or complexity of the Tax Code, through constructive notice the tax laws are available to me and I am required to lawfully know and comply with them. No excuses, as we taxpayers clearly realize.
If anything ticks me off in real property matters it is how lay people, even developers that have been in the business for years, fail to thoroughly review and understand the contents of a title report. There are many instances of folks thinking something in a title report means one thing and then finding out it is another. Sometimes they miss something entirely, only to find out later when an application is submitted and under review.
Direct liens are already considered to be matters of the public record. Property taxes are an example of a direct lien and are not recorded with the County Auditor. However, as property owners we are given appropriate notice by our local Assessor or County Tax Collector, usually in the form of a direct mail notice of assessment or upcoming assessment.
Priorities in recorded documents can be very important. If an individual receives an interest of some kind in real property and does not record the document(s), then they the run the risk of losing priority status on the title of a property.
Here’s an example:
Let’s say my son is considering taking out a second mortgage on his home to do some needed improvements. After finding this out I discover that he needs $55,000. Since he is a great kid and very responsible, I offer to personally lend him the money on a Promissory Note at a lower interest rate, secured by a Deed of Trust on his property.
Let’s say I fail to record the Note and Deed of Trust in the public records. I run the risk of losing my second position behind his first mortgage. This is because I have failed to provide constructive notice in the public records. If another lender comes along and records another loan secured by his property, that lender may assume 2nd position, since my loan does not appear in the records.
Recording documents in the chain of title of a property provides the needed chronological record of interests that affect it. I take care in making sure to immediately record key documents and take even greater care to make sure they are accurate beforehand. I also make sure that a thorough review of the public records of a property is a part of every pre-closing inspection. If there are recorded interests that have matured or are no longer valid, I make sure to have these interests properly released and recorded prior to closing.