Make Sure Deed Recorded Before The Mortgage

In re: Jeannine Victoria Heaver, No. 09-B-73096 (N.D. Ill. 2012), the U.S. Bankruptcy Court for the Northern District of Illinois held that a mortgage that is recorded before the deed to the mortgagor was recorded is outside the property’s chain of title.

When a mortgage is outside the property’s chain of title, the court ruled that a trustee was allowed to avoid the mortgage in the bankruptcy proceedings. In his written materials for a Chicago Title CLE seminar from July, staff attorney Richard F. Bales said: “Title companies have always considered a property’s chain of title to be based on the execution date of the documents and not the recording date of the documents. [Citation.] By holding that a property’s chain of title is the recording date of the relevant documents, the court cited with approval Skidmore, Owings & Merrill v. Pathway Financial, 173 Ill.App.3d 512 (1988), a case that until now title companies viewed as an aberration.”

“The court found there’s no duty by a purchaser to look past the deed into your seller,” McGargill said. “The thought [among real estate practitioners and title insurers] was that execution of the deed and delivery controlled, but this decision says that’s not the law. You have to make sure the deed gets recorded first.”