Attorneys for Appellant Attorneys for Appellees
Craig D. Doyle Patrick R. Ragains
Joanne B. Friedmeyer Anderson, Indiana
James L. Shoemaker
Indianapolis, Indiana Michael E. Farrer
Christopher D. Cody
Indiana Supreme Court
Bank of New York, Trustee,
Appellant (Plaintiff below),
Stephen H. Nally; Hiram Nally;
Eileen Nally; State of Indiana;
Marina Limited Partnership,
Appellees (Defendants below).
Tod D. Owens and Pamela E. Owens,
Appellees (Third Party Plaintiffs
Stephen N. Nally, Bank of New York,_________________________________
Trustee, Shae Wiles, Michael Mize,
Internal Revenue Service, et al.,
Appellees (Third Party Defendants
Appeal from the Hamilton Superior Court, No. 29D02-0004-CP-0265
The Honorable Jerry M. Barr, Judge
On Petition To Transfer from the Indiana Court of Appeals, No. 29A02-0212-CV-1057
January 4, 2005
We hold that a mortgage recorded before a deed to the mortgagor is
recorded but after the deed is dated and delivered is within the mortgagors
chain of title as of the time of recording. We also hold
that equitable subrogation is an appropriate remedy and available to a subsequent mortgagee
who pays off the senior mortgage in total.
Factual and Procedural Background
This is a dispute between the Bank of New York and Tod D.
and Pamela E. Owens, husband and wife, over the priority of their mortgages
on a residence in Hamilton County. In capsule form, Mr. and Mrs.
Owens sold the property and took back a second mortgage to finance part
of the purchase price. The Banks assignor later refinanced the first mortgage.
The issue is whether the mortgage held by the Bank is superior to
the Owens mortgage. The material facts are not in dispute.
On December 16, 1996, the Owenses conveyed the real estate by warranty deed
to Stephen H. and Jennifer R. Nally, husband and wife. On the
same day, the Nallys also executed a mortgage in favor of Amtrust Financial
Services, Inc. in the amount of $204,000, with a variable initial interest rate
beginning at 7.250% and not to exceed 13.250%. The Nallys also executed
a promissory note and mortgage to the Owenses in the principal amount of
$22,490.91 plus 21% annual interest to maturity and 24% interest thereafter. The
Owens mortgage states, This mortgage is subordinate to the mortgage lien of Amtrust
Financial Services, Inc. dated December 16, 1996 in the amount of $204,000.00.
Tod Owens is a licensed title insurance agent and runs an escrow company.
Mr. Owens prepared the Owens mortgage himself. He attended the closing
but chose not to have the closing agent record his mortgage with the
other documents. Ten days after closing, on December 26, 1996, Mr. Owens
recorded the Owens mortgage and a record of the Owens mortgage was noted
in the mortgagor-mortgagee index. On January 21, 1997, thirty-six days after the
closing, and twenty-six days after the Owens mortgage was recorded, the warranty deed
from the Owenses to the Nallys was recorded and noted in the grantor-grantee
index. Immediately after the deed was recorded the Amtrust mortgage was recorded.
Eighteen months later the Amtrust mortgage was released and Stephen H. Nally,
unmarried, executed a mortgage on the real estate in favor of EquiVantage, Inc.
in the amount of $265,500.00. The record does not disclose the applicable
interest rate on the EquiVantage mortgage. The EquiVantage mortgage was recorded on
June 12, 1998. Proceeds from the EquiVantage mortgage were used to pay
off the Amtrust mortgage and a number of Nallys creditors, but none of
the EquiVantage mortgage proceeds went to pay off the Owens mortgage.
See footnote In
November 1999, the EquiVa
ntage mortgage was assigned to the Bank in the normal
course of business for value and four months later the assignment was recorded.
The Bank relied on EquiVantages title insurance and did not conduct its
own title search. EquiVantages search did not reveal the Owens mortgage.
At the time the Bank acquired the EquiVantage mortgage, it did not have
actual knowledge of the Owens mortgage. The record is silent as to
EquiVantages actual knowledge of the Owens mortgage at the time EquiVantage refinanced and
paid off the Amtrust mortgage.
In April 2000, the Bank sued to foreclose its mortgage. Four months
later Mr. and Mrs. Owens sought and received permission to intervene as third-party
plaintiffs. The Owenses then filed a counterclaim and cross-claim seeking to foreclose
their mortgage, which they contended was superior to the Banks. The Bank
responded that it was a bona fide purchaser for value without notice of
the Owens mortgage. Alternatively, it argued it was entitled by equitable subrogation
to assert Amtrusts priority because it was an assignee of EquiVantage and EquiVantage
had paid off the Nallys debt to Amtrust. After the parties filed
cross motions for summary judgment, the trial court denied the Banks motion and
granted summary judgment in favor of the Owenses. The Court of Appeals
affirmed. The Court of Appeals concluded, a purchaser is required to search
the mortgagor-mortgagee index and is held to constructive notice of those documents recorded
in [that index]. Bank of New York v. Nally, 790 N.E.2d 1071,
1073 (Ind. Ct. App. 2003). Additionally, the Court of Appeals held that
the Bank was culpably negligent by not locating the mortgage to Owens and
thus not entitled to equitable subrogation necessary to assert Amtrusts priority over Owens.
Id. On rehearing, the Court of Appeals explained that [b]ecause Indiana
Code § 36-2-11-12(b) requires mortgages to be kept in a separate index from
the grantor-grantee index, . . . [the Bank] is held to constructive notice
of documents contained in both indexes. Bank of New York v. Nally,
801 N.E.2d 688, 689 (Ind. Ct. App. 2004). We granted transfer.
Bank of New York v. Nally, 812 N.E.2d 806 (Ind. 2004).
Standard of Review
Motions for summary judgment are properly granted only when the pleadings and designated
evidence reveal that there is no genuine issue of material fact and that
the moving party is entitled to judgment as a matter of law.
Worman Enters., Inc. v. Boone County Solid Waste Mgmt. Dist., 805 N.E.2d 369,
373 (Ind. 2004).
This is the same standard used by the trial court in
deciding to grant or deny summary judgment. Id. In determining whether
issues of material fact exist, the court must accept as true those facts
established by evidence favoring the nonmoving party and resolve all doubts against the
moving party. Id.
I. Notice of Recorded Documents
The Bank contends it is a bona fide purchaser for value and without
notice of the Owens mortgage. In order to qualify as a bona
fide purchaser, one must purchase in good faith, for valuable consideration, and without
notice of the outstanding rights of others. John v. Hatfield, 84 Ind.
75, 81-82 (1882); Keybank Natl Assn v. NBD Bank, 699 N.E.2d 322, 327
(Ind. Ct. App. 1998). Good faith and consideration are not at issue
here, but the Owenses contend, and the Court of Appeals agreed, that the
Bank was charged with notice of the Owens mortgage as a matter of
The law recognizes both constructive and actual notice. Altman v. Circle City
Glass Corp., 484 N.E.2d 1296, 1298 (Ind. Ct. App. 1985). A purchaser
of real estate is presumed to have examined the records of such deeds
as constitute the chain of title thereto under which he claims, and is
charged with notice, actual or constructive, of all facts recited in such records
showing encumbrances, or the non-payment of purchase-money. Smith v. Lowry, 113 Ind.
37, 44, 15 N.E. 17, 20 (1888). Accord Mettart v. Allen, 139
Ind. 644, 39 N.E. 239 (1894); Wagner v. Winter, 122 Ind. 57, 63
23 N.E. 754, 755 (1889); State ex rel. Lowry v. Davis, 96 Ind.
539, 544 (1884). A mortgage provides constructive notice to subsequent purchasers when
it is properly acknowledged and recorded. Sinclair v. Gunzenhauser, 179 Ind. 133,
135-36, 100 N.E. 376, 378 (1913); Keybank, 699 N.E.2d at 327. However,
[a] record outside the chain of title does not provide notice to bona
fide purchasers for value. Szakaly v. Smith, 544 N.E.2d 490, 492 (Ind.
1989). These rules apply to both purchasers and mortgagees. See id.
(purchasers); Sinclair, 179 Ind. 133 (mortgagees); Keybank, 699 N.E.2d 322.
Owens argues that the Bank had constructive notice of the Owens mortgage because
it was properly recorded in the mortgagor-mortgagee index and the Bank had a
duty to search that index along with the grantor-grantee index. The General
Assembly has provided that recorders are to create separate indices for deeds and
mortgages on real estate.
See footnote The Court of Appeals co
ncluded that [b]ecause Ind.
Code § 36-2-11-12(b) requires the maintenance of separate indexes for mortgages and deeds,
we find that in addition to searching the grantor-grantee index, a purchaser is
required to search the mortgagor-mortgagee index and is held to constructive notice of
those documents recorded in both indexes. Bank of New York, 790 N.E.2d
at 1073. We agree that a purchaser must search both indices, but
the issue is what period of time the search must cover. The
Bank argues that the search is only from the date of recording the
deed to the mortgagor and the Court of Appeals appears to conclude that
the search must be back to the origin of title, in this State
typically a grant from the United States. We disagree with both.
The mortgage to the Owenses was recorded before the deed to the Nallys
was recorded, but after the Nallys had obtained title. The Indiana recording
statute provides that:
Conveyance or mortgage of land or of any interest in land; and
a lease for more than three (3) years;
must be recorded in the recorders office of the county where the land
A conveyance, mortgage, or lease takes priority according to the time of its
filing. The conveyance, mortgage, or lease is fraudulent and void as against
any subsequent purchaser, lessee, or mortgagee in good faith and for a valuable
consideration if the purchasers, lessees, or mortgagees deed, mortgage, or lease is first
Ind. Code § 32-21-4-1 (2002).
The purpose of recording a mortgage is to give notice to persons subsequently
dealing with the property of the existence of the mortgage and to charge
them with notice of what the records disclose. Szakaly, 544 N.E.2d at
491-92; Keybank, 699 N.E.2d at 327. To charge subsequent purchasers with notice,
a mortgage must be recorded in the proper county, First Natl Bank of
Carlisle v. Coen, 76 Ind. App. 143, 144-45, 131 N.E. 531, 532 (1921),
and must contain an accurate legal description of the property, Rinehardt v. Reifers,
158 Ind. 675, 676-77 64 N.E. 459, 459 (1902). Both of these
requirements were met by recording the Owens mortgage in the office of the
Hamilton County Recorder. A third requirement, however, is disputed. We have
said on a number of occasions that a recorded mortgage must be in
the chain of title. Szakaly, 544 N.E.2d at 492; Sinclair, 179 Ind.
at 117, 98 N.E. at 61 (when the record [of a mortgage] is
not in the chain of title, it is almost universally held that the
record is not notice); Meyer v. Marine Builders, Inc., 797 N.E.2d 760, 774
(Ind. Ct. App. 2003) (A record [of a mortgage] outside the chain of
title does not provide notice to bona fide purchasers for value.).
In Szakaly, this Court described the concept of chain of title to a
tract of land:
In a title search, the prospective purchaser or his abstractor assesses the marketability
of title to a tract of land by determining the chain of title.
Beginning with the person who received the grant of land from the
United States, the purchaser or abstractor traces the name of the grantor until
the conveyance of the tract in question. The particular grantors name is
not searched thereafter. As the process is repeated, the links in the
chain of title are forged.
544 N.E.2d at 491-492 (citing Schroeder, Title Searches and Marketable Title, Basic Real
Estate Practice I-30 (1986)). The prospective purchaser or his abstractor need search
the mortgagor-mortgagee index only for mortgages recorded while the mortgagor holds title to
the tract. The Owenses argue that when a mortgage is recorded it
is in the chain of title regardless of when the mortgagors deed is
recorded. The Bank argues that the Owens mortgage is outside the chain
of title because it was recorded before the deed was recorded. We
think neither is correct. Once recorded, a deed gives notice of the
grantees title as of the date of the deed, not the date of
recording. A purchaser conducting a search in the interim between closing and
recording is without notice, but a purchaser searching after recording is on notice
of the grantees title as of the date of transfer. This is
because the deed, once recorded, tells the world the date on which title
was transferred. [T]he period of notice, and hence the period of search,
extends as to a particular owner from the date that he acquires title
(not the date at which the transfer is recorded) to the date of
the recording of a conveyance by him. 4 American Law of Property
§ 17.19 (1952). Accord Higgins v. Dennis, 74 N.W. 9 (Iowa 1898);
14 Powell on Real Property § 82.03[a] (Michael Allan Wolf ed., Matthew Bender
2000) (each link [in a chain of title] begins with the date on
which the interest is conveyed to a specific individual in the chain and
ends with the date on which a conveyance from that individual is recorded).
Any mortgage recorded in that time period is within the chain of
This principle has been applied in other jurisdictions to mortgages.
In Indiana it has been applied to easements.See footnote We see no
reason why a broader search should be required for mortgages than for other
mbrances. We hold that a prospective purchaser or mortgagee is on notice
of outstanding mortgages for the period that the mortgagor held title of the
real estate according to the chain of title. The Bank is correct
that it (or its predecessor in interest) was not required to search the
period antedating Nallys appearance as owner. But the fact that the Owens
mortgage was recorded before the deed to Nally was recorded does not relieve
EquiVantage of its duty to search the mortgagor-mortgagee index back to December 16,
1996, the date of Nallys deed according to the public record. Because
the Owens mortgage was recorded after the date the deed to Nally was
executed, the mortgage was within the chain of title at the time EquiVantage
made its mortgage. EquiVantage was therefore on constructive notice of its existence.
Because the Bank chose to rely on EquiVantages title insurance and did
not conduct its own title search, the Bank also had constructive notice of
the Owens mortgage and thus is not a bona fide purchaser protected by
the Indiana recording statute.
II. Equitable Subrogation
The EquiVantage mortgage was used to pay off and retire the Amtrust mortgage,
which the Owens mortgage expressly acknowledged to be superior. The Bank argues
that equitable subrogation permits it to place its mortgage into the shoes of
the Amtrust mortgage and retain its priority. The doctrine of equitable subrogation,
sometimes misleadingly called legal subrogation, has been recognized in Indiana for over a
century. See Birke v. Abbott, 103 Ind. 1, 5, 1 N.E. 485,
487 (1885). Subrogation arises from the discharge of a debt and
permits the party paying off a creditor to succeed to the creditors rights
in relation to the debt. Matter of Lehman, 690 N.E.2d 696, 699
(Ind. 1997). It arises by operation of law, that is to say
it is created by the legal consequences of the acts and relationships of
the parties, and thus is a legal fiction. 83 C.J.S. Subrogation §
2 at 499 (2000) (citations omitted). In the case of a purchaser
of a note and mortgage for value, the classic formulation is that the
purchasers right of subrogation to the mortgage he or she discharged includes its
priority over junior liens of which he or she did not have actual
knowledge, [and] where he or she was not culpably negligent in failing to
learn of the junior lien. 83 C.J.S. Subrogation § 46 at 576
(2000). The Court of Appeals has described the doctrine as a highly
favored doctrine, which is to be given a liberal application. Osterman v.
Baber, 714 N.E.2d 735, 738 (Ind. Ct. App. 1999). Equitable subrogation requires
the subrogee to discharge the entire debt held by the original obligor.
Partial subrogation to a mortgage is not permitted because it would have the
effect of dividing the security between the original obligee and the subrogee, imposing
unexpected burdens and potential complexities of division of the security and marshalling upon
the original mortgagee. Restatement (Third) of Prop.: Mortgages § 7.6 cmt. a
(1997). The EquiVantage mortgage was used to discharge Nallys entire obligation to
Amtrust, and thus it met that requirement.
Actual or Constructive Knowledge as a Bar to Equitable Subrogation
For the reasons given in Part I, EquiVantage had at least constructive knowledge
of the Owens mortgage.
See footnote The Bank contends that it did not have
actual knowledge of the Owens mor
tgage, and relied on EquiVantages title insurance.
To the extent knowledge is relevant to equitable subrogation, the relevant knowledge is
both the Banks and EquiVantages. The Bank acquired no superior right to
subordination than its assignor had. 83 C.J.S. Subrogation § 66 (2000) (One
who acquires or succeeds to rights, claims, or securities through equitable subrogation steps
into the shoes of the subrogor and takes them burdened with the defenses,
limitations, and disqualifications to which they were subject.). The record here is
silent as to EquiVantages knowledge at the time it paid off Amtrust.
The Bank, the proponent of summary judgment, has the burden of establishing the
facts necessary to its claim. The majority of jurisdictions continue to state
that actual knowledge precludes the application of equitable subrogation, while constructive knowledge does
not. Osterman, 714 N.E.2d at 739. See, e.g., United States v.
Baran, 996 F.2d 25, 29 (2d Cir. 1993) (applying New York law); Dietrich
Indus., Inc. v. United States, 988 F.2d 568, 572 (5th Cir. 1993) (applying
Texas law); Brooks v. Resolution Trust Corp., 599 So. 2d 1163, 1165 (Ala.
1992); Smith v. State Sav. & Loan Assn, 223 Cal. Rptr. 298, 301
(Cal. Ct. App. 1985); United Carolina Bank v. Beesley, 663 A.2d 574, 576
(Me. 1995); Houston v. Bank of Am. Fed. Sav. Bank, 78 P.3d 71,
74 (Nev. 2003); Enter. Bank v. Fed. Land Bank, 138 S.E. 146, 148-50
The Third Restatement of Property states that neither actual nor constructive notice of
the preexisting junior lien is a bar to the equitable remedy of subrogation.
Restatement (Third) of Prop.: Mortgages § 7.6 cmt. e (Under this Restatement,
. . . subrogation can be granted even if the payor had actual
knowledge of the intervening interest; the payors notice, actual or constructive, is not
necessarily relevant); see also Houston, 78 P.3d at 73 (adopting the Restatements rule
In Osterman, the Court of Appeals declined to follow the Restatement approach.
Rather, in order to determine culpability the Osterman court balanced the payors notice
with other factors such as the sophistication of the parties and whether the
transaction was commercial. 714 N.E.2d at 739. We disagree with this
approach. Precluding equitable subrogation when a mortgagee discovered or could have discovered
a junior lien holder runs contrary to the purposes underlying the doctrine.
Equitable subrogation is a remedy to avoid an unearned windfall. Restatement (Third)
of Prop.: Mortgages § 7.6 cmt. a. If there were no subrogation
in this case, the Owenses, as junior lien holders, would be promoted in
priority and receive a windfall to the extent the property is worth less
than $224,813.95 ($202,323.04 used to pay off the Amtrust mortgage plus $22,490.91 secured
by the Owens mortgage). Neither negligence nor constructive notice of an existing
lien is relevant to whether the junior lien holder will be unjustly enriched
or prejudiced. Rather, the basis for subrogation in this context is the
lenders justified expectation of receiving [a] security interest in the property. 2
Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 10.6,
at 15-16 (4th ed. 2002).
In addition to avoidance of windfalls, equitable subrogation requires consideration of other equitable
factors, notably the absence of any prejudice to the interests of junior lienholders.
Perhaps the case occurring most frequently is that in which the payor [i.e.
the party asserting a right to equitable subrogation] is actually given a mortgage
on the real estate, but in the absence of subrogation it would be
subordinate to some intervening interest, such as a junior lien. Here subrogation
is entirely appropriate, and by virtue of it the payor has the priority
of the original mortgage that was discharged. This priority is often of
critical importance, since it will place the payors security in a position superior
to intervening liens and other interests in the real estate. The holders
of such intervening interests can hardly complain of this result, for it does
not harm them; their position is not materially prejudiced, but is simply unchanged.
Restatement (Third) of Prop.: Mortgages § 7.6 cmt. e. Although not applicable
in this case, recent legislation seems consistent with this view.
We agree with the
Restatement at least in the context of a conventional
refinancing. A lender providing funds to pay off an existing mortgage expects
to receive the same security as the loan being paid off. Refinancings
are commonplace in todays economy. Permitting a junior lienholder to leapfrog the
priority of the current senior mortgage would impair the owners access to more
favorable interest rates. Unless a junior lienholder is disadvantaged by permitting subrogation,
we see no reason to give the junior lienholder in effect the right
to block or object to the refinancing. We conclude that a mortgagee
who refinances an existing mortgage is entitled to equitable subrogation even if it
had actual or constructive knowledge of an existing lien on the property unless
the junior lienholder is disadvantaged or the mortgagee is culpably negligent as that
term is explained in Part II.B, but this remedy is subject to the
rights and limitations of the subrogor.
As long as neither EquiVantage nor the Bank was culpably negligent, the Bank
as assignee of the EquiVantage mortgage is allowed to stand in the shoes
of the Amtrust mortgage and retain its priority status over the Owens mortgage,
but only to the extent the EquiVantage mortgage proceeds were used to pay
off the previous first lien held by Amtrust. In this case, the
amount is $202,323.04, plus any applicable interest not to exceed 13.250%. One
basis for equitable subrogation is to prevent a windfall but subrogation is also
justified on the basis that the junior creditor (the Owenses) is not disadvantaged
by replacing the senior priority. To allow subrogation to apply to amounts
in excess of the obligation under the Amtrust mortgage would place the Owens
mortgage in a worse position than it held before refinancing. Of the
proceeds from the EquiVantage mortgage $63,176.96 went into Nallys pocket or was used
to pay off other Nally creditors. EquiVantage is entitled to no better
priority status than whatever priority those creditors held with regard to the Owens
mortgage. We assume they were not superior to the Owens mortgage, but
the record is silent on this point.
A volunteer or one charged with culpable negligence may not be entitled to
equitable subrogation. The Owenses argue that EquiVantage was culpably negligent in not
discovering the Owens mortgage during the title search prior to their loan to
Nally, and that the Bank is culpably negligent for not performing its own
independent title search before it acquired the EquiVantage mortgage on assignment. In
resolving this issue, the Court of Appeals looked to negligence law derived from
tort doctrines, and found persuasive its earlier observation in Wilshire Servicing Corp. v.
Timber Ridge Partnership:
Under Indiana common law, there are no degrees of negligence. It is
therefore difficult, at best, to place the term culpable negligence within an appropriate
frame of reference. Suffice it to say, however, we conclude that the
term contemplates action or inaction which is more than mere inadvertence, mistake or ignorance.
743 N.E.2d 1173, 1178 (Ind. Ct. App. 2001), trans. denied (citations omitted).
We agree with Osterman that application of the doctrine of equitable subrogation
depends on the equities and attending facts and circumstances of each case.
714 N.E.2d at 737. We also agree with the result in Osterman,
where a lender purchased a mortgage with an explicit reference to a new
judgment against the seller. The lender was held culpably negligent for failure
to identify a lien that was recorded before the loan closed but after
the purchaser performed a title search. Id. at 739. We think,
however, that the important fact in Osterman was not the degree of negligence
by the lender. Subrogation, if allowed, would have elevated the mortgagee in
priority over an intervening creditor who had properly perfected its lien on an
apparently unencumbered property.
The term culpable negligence focuses on the activity of the party asserting subrogation.
In fact, as the Court of Appeals observed, the level of culpability
is essentially the same in most cases. Id. at 738. In
Osterman, the error was in failing to update the search as of closing.
In the case at bar, EquiVantages search failed to identify a mortgage
within the chain of title, but recorded before recording of the deed to
the mortgagor. Both are simply omissions with no suggestion of malice or
trickery. The key to subrogation however is an equitable result. Preservation
of the rights of intervening creditors who record their interests is, we think,
plainly equitable. This is what occurred in Osterman. On the other
hand, the Owenses seek to leapfrog a senior claim. This is precisely
what equitable subrogation is designed to prevent.
At best, EquiVantage is negligent in failing to discover the Owens mortgage
which was recorded and noted in the mortgagor-mortgagee index before the deed to
Mr. and Mrs. Nally was recorded. However, this error does not rise
to the level of culpability. 83 C.J.S. Subrogation § 13 (2000) (The
mere fact that a person seeking subrogation was negligent does not bar him
or her from relief where such negligence is as to his or her
own interests and does not affect prejudicially the interest of the person to
whose rights subrogation is sought). Equity should not allow the Owens mortgage
to gain an unexpected elevated priority status because of the negligence of EquiVantage
or its assignee that did the Owens no harm. 4 American Law
of Property § 16.150 (1952) (subsequent lien holders should not be permitted to
gain by anothers mishap or carelessness when thus granting would be purely fortuitous
The judgment of the trial court is reversed. This case is remanded
for further proceedings consistent with this opinion.
Shepard, C.J., and Dickson, Sullivan, and Rucker, JJ. concur.
Of the $265,500.00 from the EquiVantage mortgage $15,403.58 was disbursed to Mr.
Nally. The ba
lance was used to pay off the Amtrust mortgage ($202,323.04),
the Nallys creditors (First of America: $9,547; Union Federal: $6,040; Key
Bank: $6,045; L.S. Ayres: $976; Nordstrom: $235; Sears: $1,836;
Levitz: $660; IRS (tax lien): $3,400; State of Indiana: $580;
National City: $602; HHD Bank: $2,136; Key Bank: $2,458; Bank
One: $864), and settlement charges ($12,404.38).
Indiana Code section 36-2-11-12 (1997) provides that:
The recorder shall index each volume of instruments he records by:
the name of each grantor, promisor, or covenantor, in alphabetical order and cross-referenced
to the proper grantee, promise, or covenantee; and
the name of each grantee, promise, or covenantee, in alphabetical order and cross-referenced
to the proper grantor, promisor, or covenantor.
The recorder shall accurately maintain separate indexes of all the records of:
deeds for real estate; and
mortgages on real estate;
in his office. The recorder shall index each deed or mortgage alphabetically,
by the name of each grantor and grantee or mortgagor and mortgagee, and
shall include in each index entry a concise description of the real property,
the date of the deed or mortgage, and the number or letter of
the book and the page at which each deed or mortgage is recorded.
Landis v. Miles Homes, Inc., 273 N.E.2d 153 (Ill. App. Ct.
1971), the purchasers, husband and wife, of real estate executed a mortgage to
Miles before they took title and recorded the warranty deed. Landis, a
subsequent purchaser, bought the real estate at a tax sale. Landis had
conducted a title search which did not reveal the Miles mortgage because it
had been recorded before the deed was executed and recorded. The court
held that the Miles mortgage cannot be considered to be of record merely
because it was recorded. . . . The record of a mortgage given
prior to the time of the acquisition of record title by the mortgagor
is not in the chain of title and is not constructive notice to
third persons. Id. at 155; See also Far West Sav. &
Loan Assn v. McLaughlin, 246 Cal. Rptr. 872 (Cal. Ct. App. 1988).
Hartig v. Stratman, 729 N.E.2d 237 (Ind. Ct. App. 2000), dealt with
an instrument found to be outside the chain because it was recorded after
the grantors deed was recorded. The case involved a dispute over an
easement to a driveway shared among neighbors. On June 8, 1994, Connell
sold his property to Holmes and recorded the deed at 2:24 p.m.
One minute later Connell recorded the disputed easement given to his former neighbor
Stratman. In 1995, Hartig purchased the property that Connell had sold to
Holmes without knowledge of the Connell/Stratman driveway easement. Id. at 238.
The Court of Appeals held that the driveway easement was outside Hartigs chain
of title. It was recorded after the deed to Holmes had been
recorded, albeit only one minute after, and therefore Connells name would not have
been searched after this conveyance to Holmes was discovered. Id. at 240.
Since the easement was not within Hartigs chain of title he did
not have constructive notice of its existence. Id.
The Court of Appeals noted that Owens presented evidence of four different
title searches where the Owens mortgage was uncovered, at least two of which
were completed before the Bank was a
ssigned the EquiVantage mortgage. There is
no evidence that the Bank ever performed a title search or, in the
alternative, that its search failed to uncover the Owens mortgage. Bank of
New York v. Nally, 790 N.E.2d 1071, 1077 n.4 (Ind. Ct. App. 2003).
The Bank contends that these title searches are hearsay, self-serving, and were
conducted at the request of Mr. and Mrs. Owens.
Indiana Code section 32-29-1-11(d) (Supp. 2004) (second version), provides in pertinent part
that except for those instances involving liens defined in Indiana Code section 32-28-3-1
(mechanics liens) or a m
unicipal sewer lien under Indiana Code section 36-9-23:
[A] mortgagee seeking equitable subrogation with respect to a lien may not be
denied equitable subrogation solely because:
is engaged in the business of lending; and
had constructive notice of the intervening lien over which the
mortgagee seeks to assert priority;
the lien for which the mortgagee seeks to be subrogated was released; or
the mortgagee obtained a title insurance policy.