Ch1. Introduction to Real Estate Disclosure Law — The Public Records System and Title

The Purpose of Real Estate Disclosure

Real Estate Disclosure Framework:
The legal system for publicizing and protecting property rights

Components:
Recording System: tracks ownership and encumbrances by county
Title Insurance: protects buyers and lenders against hidden title defects
Seller Disclosure: informs buyers about known physical and legal conditions

Why disclosure matters:
Protects buyers from hidden defects and undisclosed encumbrances
Protects lenders by ensuring clean collateral
Reduces transaction costs by creating reliable public information
Encourages market efficiency through transparency

Two foundational principles:
Notice Principle: a buyer who records their interest puts the world on notice
Good Faith Purchaser Protection: a buyer without notice of prior claims
is protected by recording statutes (varies by state recording act type)
(US: good faith purchaser protection depends on the type of recording act —
race, notice, or race-notice)

The Public Records System

County Recorder / Register of Deeds:
The office that maintains the official land records for a county or jurisdiction

What is recorded:
Deeds (conveyances of ownership)
Mortgages and deeds of trust (liens)
Easements and CC&Rs (covenants, conditions, and restrictions)
Liens (tax liens, mechanic's liens, judgment liens)
Lis pendens (notice of pending litigation)

Chain of title:
The history of successive ownership transfers for a specific parcel
A clear chain of title is essential for marketable title

Title search:
A review of public records to trace ownership and identify all encumbrances
Typically performed by a title company or real estate attorney

Title report (preliminary title report / commitment):
Document issued by a title company showing:
  - Current ownership
  - All recorded liens and encumbrances
  - Exceptions to what title insurance will cover

How Recording Protects Property Rights

Recording Acts — Three Types:

Race Statute (a few states):
First to record wins — regardless of prior notice
Simple rule; rare today

Notice Statute (many states):
A subsequent buyer who pays value without notice of a prior
unrecorded interest prevails — even if they record later

Race-Notice Statute (most common):
A subsequent buyer prevails only if they:
  (1) paid value
  (2) had no notice of the prior interest
  (3) recorded first

Constructive notice:
A buyer is presumed to know about anything that is recorded
"I didn't see it" is not a defense if it was on record

Actual notice:
The buyer directly knows about a prior interest
A buyer with actual notice cannot be a protected subsequent purchaser

No public faith / no title by estoppel:
Recording a defective deed does NOT cure the defect
A forged deed, for example, conveys nothing even if recorded
→ Title insurance addresses this risk

Recording and Deed Delivery

Deed requirements for valid conveyance:
Grantor (seller) must be legally competent
Grantee (buyer) must be identified
Legal description of the property
Words of conveyance ("grant," "convey," "warrant")
Signature of the grantor
Delivery and acceptance

Deed is effective upon delivery and acceptance — not upon recording
Recording creates constructive notice but is not required for title to pass between
the parties

Transfer without a deed (title by operation of law):
Intestate succession (death without a will)
Probate (court-supervised distribution)
Court judgment (partition, foreclosure, quiet title)
Eminent domain / condemnation
→ Title passes by operation of law; deed not required
   but subsequent recording of evidence of title is advisable

Recording System — Three Parts ★★★★★ : Deeds (ownership) + Mortgages/Liens + CC&Rs/Easements. All are indexed by property (grantor-grantee index) and accessible by the public. Memory tip: Record = deed + liens + restrictions

No Title by Estoppel ★★★★★ : The US recording system does not cure a defective deed. A forged or fraudulent deed conveys nothing, even if recorded. Title insurance bridges this gap. Memory tip: Recording ≠ fixing a defective title

Title Transfer Without a Deed ★★★★☆ : Inheritance, probate, court judgment, eminent domain — title passes by operation of law without a traditional grantor-to-grantee deed. Memory tip: Operation of law = no deed needed

Practice Quiz

Q. What is the difference between a grantor-grantee index and a tract index?

A grantor-grantee index is organized alphabetically by the names of the parties involved in each transaction. To trace title, a searcher must look up each successive owner. A tract index (used in some states and counties) organizes records by parcel, so all documents affecting a specific property are grouped together — making title searches faster and more reliable.

Q. If title transfers by operation of law (e.g., through inheritance), why should the heir record evidence of their ownership?

Title passes automatically at death, but the heir’s ownership is “invisible” to the public records until they record evidence of it (e.g., a certified copy of the probate decree or an affidavit of heirship). Without recording, a subsequent buyer could potentially claim good-faith purchaser status. Recording protects the heir’s title against future competing claims.