Property Recording Statute Priorities in Michigan and North Carolina
You just bought some real estate from John Smith and paid fair market value for it. Before purchasing the property from John Smith, you do not do a title search. Upon trying to record your deed at the recorder of deeds several days after the closing, you see that Jane Doe has already recorded her deed, which shows she bought the same piece of real estate from John Smith (for fair market value) just a few days after you and after doing a title search before purchase. Who owns the property? You or Jane Doe? All states have their own set of recording statutes to deal with this type of hypothetical situation. There are three types of statutes: race statute, notice statute, and race-notice statute.
A race statute says the first party to record their deed owns the property. In the above hypothetical, if you are in a jurisdiction that has a race statute, such as North Carolina, Jane Doe owns the property. It doesn’t matter if Jane Doe already knew you bought the property from John Smith before buying the property herself. Because she was first to record, she gets the property.
A notice statute essentially says that the party that did not (or could not) have notice of the property already being sold to someone else when purchasing it will own the property. In a jurisdiction that has a notice statute, Jane Doe would own the property. This is because you did not record your ownership of the property immediately after purchasing it. As a result, Jane Doe could not learn you owned it when doing a title search. Changing the hypothetical slightly, had you recorded your deed before Jane Doe purchased the property, you would own the property. This is because since you recorded your deed (which is a public record) Jane Doe knew or should have known someone else already purchased the property from John Smith.
A race-notice statute says that the owner of a property is someone who (1) did not and could not have learned that someone else purchased the property (from the same seller) before them, and (2) is first to record their deed. In the original hypothetical, Jane Doe owns the property. Because you did not record the deed before Jane Doe bought the property, there was no way she could have known you owned it. Also, she managed to record her deed before you. Michigan is a race-notice statute jurisdiction.
Sound confusing? It can be, especially when other factors are considered, such as what exactly constitutes “should have known” (also referred to as “constructive notice” in the legal world) and whether or not fair market value was paid for the real estate.
For more information about recording statutes and potential real property ownership disputes, please contact us.