By Missouri statute, the recording a document relating to real estate in the office of the county recorder of deeds gives notice to all of the contents of the recorded document (called an “instrument”):
Every such instrument in writing, certified and recorded in the manner herein prescribed, shall, from time of filing the same with the recorder for record, impart notice to all persons of the contents thereof and all subsequent purchasers and mortgagees shall be deemed, in law and equity, to purchase with notice.
Is lack of recording notice that something did not occur, even though it should have been recorded?
According to the Missouri Court of Appeals, in the case Warren County Concrete v. Peoples Bank & Trust and Warren County Title Company, purchaser of real estate had no duty to check to see whether a release of a deed of trust had been recorded, even though the purchaser had provided the money to pay off the deed of trust to a title company that closed the transaction.
The purchaser claimed to have no idea that the bank had not released the deed of trust until four years later, when the purchaser received a notice that the bank was foreclosing on the property. A year later — more than five years after the purchaser closed its purchase of the property — the purchaser filed a lawsuit against the bank and the title company, alleging that they were obligated to record the release.
The bank and title company claimed that the five-year statute of limitations period had run for negligence and breach of contract, and the purchaser was out of luck. The trial court agreed.
The purchaser appealed, claiming that the statute of limitations only began to run when the purchaser became aware that he had been wronged, which would have been the date the notice of foreclosure was delivered to the purchaser.
In the appeal, the bank and the title company argued that the purchaser should have checked the recorder’s office after the closing to make sure that the release had been recorded. The appeals court reversed the trial court’s judgment, stating that the burden of searching the public records after the closing was “a duty we are unwilling to place on the purchaser.”
The Court of Appeals was probably influenced by the injustice that would result when a purchaser hires a title company to close a transaction and provides money to pay off an existing loan, but the title company fails to follow up to make sure that the lender receives the payoff and records a proper release.
The Court of Appeals’ opinion isn’t specific about the reason for the mix-up, but it looks like the bank recorded a release after receiving the payoff, but that the release described a different piece of real estate than the piece that purchaser bought.
Ozarks Law & Economy 
But bank don’t make mistakes…if you don’t believe me, just ask them.
As a title professional, this situation is very troubling. A couple of questions: 1) did the purchaser even bother to issue closing instructions to the title company (and yes, this is not typical and almost every party seems to rely upon custom); 2) did the purchaser obtain title insurance (the suit mentions nothing of that which makes me wonder what really occurred); 3) although not mandated by the Department of Insurance, most commercial transactions generally request and are provided an “Insured Closing Letter”, which provides additional coverage against mistakes by the title company.
I note that the title company involved was described as being the “successor” to the original company, so I am not certain just why it would be considered responsible for the actions of its predecessor even if it was in possession of its records?
Case will be quite interesting to watch evolve.
And, as a final comment, Dave Rust is correct, it is not possible for banks to make a mistake – just read your standard depository agreement on your checking account – you are responable for mistakes, not them!
As strangely as it may seem to the buyer and seller, the lender and the title company often don’t have any way of ascertaining that property described in the contract actually corresponds to what the buyer thinks the buyer is getting. Some of the most difficult messes that I’ve worked on resulted from mixed up lot numbers or from a lender applying the payoff to the wrong loan (same borrower, different tract of real estate).
Buyers and real estate agents need to review plats carefully and make sure that the lot or parcel of real estate in the contract is the one that the buyer wants. Often, the seller owns multiple lots in the same subdivision, so the title company and the seller’s lender have no way of knowing exactly which lot that the buyer wants.
On the issue of the buyer’s closing instructions, in Missouri it is unusual for the buyer to issue any closing instructions other than those implied by the purchase contract. Lenders, on the other hand, provide elaborate closing instructions to title companies (which is the common term in southern Missouri for companies that act as title insurance agents and provide escrow services for closing real estate transactions). In Missouri, lawyers often are not involved in residential transactions, and most lawyers in Missouri wouldn’t know how to prepare closing instructions.
If the title company is providing a policy of title insurance, it would seem unnecessary to tell the title company to make sure that the liens being paid off with the down payment and loan proceeds were released. If the title commitment called for the release of the prior liens, and the title company was given money to pay them off and collected a premium for title insurance, I think the title company has a duty to pay off the lien and to see that the releases of those liens are recorded.
Harry – unfortunately, the title insurance business has devolved from its original days, where almost every title agent was originally an abstractor and worked out of their own set of records – in those days, maintaining the integrity of the public record was a calling, not the curse most agents work under today.
Most of today’s order come in with an ADDRESS, not a legal description, so the errors created by the simple fact that most sellers own more than one piece of property (and with developers this a major headache).
Finally, business practices in the title industry have been adjusted by the underwriters and the worst competitor in the business. Add to that, the Department of Insurance regulation to issue a title policy within 45 days of CLOSING, not withstanding the fact that almost NO lenders can deliver a deed of release (and in a lot of instances, they mail that document to the original borrower or the recorder of deeds (and if rejected, I have no idea what they do what that) – not the title company), title agents are in the undeniable position of being REQUIRED to issue the policy whether or not the release is EVER recorded. Most Underwriters are party to a Mutual Indemnity Agreement which provides guidelines to agents for issuance of policies where gaps or missing releases – and with pay-offs, as long as you have proof in your file that you did make a payment, you are authorized to issue the policy without an exception.
I suspect our duty is to issue the policy, and after all, title agents are only agents of the title insurers for the purpose of “policy issuance only” – we don’t represent an underwriter for closing or escrow purposes!