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2. The court should decide for
The bank sued the buyer to establish that its mortgage was good against Greenacre.
The recording act of the jurisdiction provides: «No unrecorded conveyance or mortgage of real property shall be good against subsequent purchasers for value without notice, who shall first record.» There is no provision for a grace period, and there is no other relevant statutory provision.
The gentleman conveyed Greenacre to a buyer for a valuable consideration on January 11. The bank did not know of this, nor did the buyer know of the mortgage to the bank, until both discovered the facts on January 23, the day on which the buyer recorded the gentleman's deed.
A gentleman owned Greenacre in fee simple of record on January 10. On that day, a bank loaned the gentleman $50,000 and the gentleman mortgaged Greenacre to the bank as security for the loan. The mortgage was recorded on January 18.
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The vast majority of states in the United States employ a system of recording legal instruments that affect the title of real estate as the exclusive means for publicly documenting land titles and interests. There are three major types of recording acts classified as notice, race-notice, and race statutes.
Under a notice statute, a subsequent BFP (i.e., a person who gives valuable consideration and has no notice of the prior instrument) prevails over a prior grantee who failed to record. The important fact under a notice statute is that the subsequent purchaser had no actual or constructive notice at the time of the conveyance.
Under a race-notice statute, a subsequent BFP is protected only if she records before the prior grantee. The operative words in a race-notice statute are «without notice» and «first recorded.»
Under a pure race statute, whoever records first wins. Actual notice is irrelevant.
C is correct. The recording act quoted in this question is a race-notice act. To prevail under a race-notice act, a party must be a BFP who: (i) was the first to record their deed (won the race); who also (ii) acquired the land without notice of earlier purchasers. In this case, the first BFP to record its deed was the bank, and it did so without notice of the gentleman's conveyance to the buyer.
A is incorrect. This is a race-notice jurisdiction, and the buyer lost the race to record. Under a race-notice statute, a subsequent BFP is protected only if she records before the prior grantee. The operative words in a race-notice statute are «without notice» and «first recorded.»
B is incorrect. There is no time limit on the race — if you are the first to record then you win, regardless of how long it took you to do so. Under a pure race statute, whoever records first wins. Actual notice is irrelevant.
D is incorrect. If the mortgagor sells the property and conveys a deed, a grantee takes subject to the mortgage, which remains on the land. Often the grantee signs an assumption agreement, promising to pay the mortgage loan. If she does so, she becomes primarily liable to the lender, while the original mortgagor becomes secondarily liable as a surety. However, the mortgagee may opt to sue either the grantee or the original mortgagor on the debt. If the mortgagee and grantee modify the obligation, the original mortgagor is completely discharged from liability. The bank will prevail under the recording act even if the buyer's deed is not subject to the bank's mortgage.