Standards for document recording: what must be accepted and what can be rejected?


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STANDARDS FOR DOCUMENT RECORDING: WHAT MUST BE ACCEPTED AND WHAT CAN BE REJECTED?
Thomas B. Olson and Shaun D. Redford
OLSON & LUCAS, P.A.

7401 Metro Blvd., St. 575

Minneapolis, MN 55439

952-224-3644

www.olson-law.com

TABLE OF CONTENTS

TOPIC PAGE #

Introduction 2

The Recorder’s Gatekeeper Function 3

Recording Standards/Contested Cases 3

Deadlines for Action by Recorder 3

Basic Requirements to Record 4

What may be Rejected for Recording? 6

Alterations to Documents 7

Lot Splits 8

Result of Recording/Registration 8

Avenues to Recording Rejected Instrument 10

When Constructive Notice is not Constructive Notice 10

Recorder Error-Court of Appeals Recording Criteria 11

Non-Consensual Liens 12

Recording Indexes-Grantor Grantee and Tract Indexes 13

Certificates of Release 15

Liability for Negligence of County Recorder? 16

Liability of Registrar-Torrens Office 18

Assurance Fund 18

Examiner of Titles as Judicial Officer 21

Scope of Torrens Proceedings- 21

Importance of Title Examiner
Conclusion 22
INTRODUCTION
Cases announced in the past year have dealt with acts by the County Recorder and Registrar. Decisions and statutes empower them to record and to reject proposed filings. One decision in our office involved an affidavit the Recorder accepted; but the Court of Appeals later ruled was notice of nothing.

Where priority of recording is all important (well, nearly so), what happens when a Deed or Mortgage is delayed or rejected? In a declining real estate market, often value is not sufficient for a subordinate lender to recover its debt if it is not recorded/registered when expected.

There is no formal hearing mechanism in the Recorder’s office, whereas the Examiner of Titles conducts hearings in initial registrations and proceedings subsequent. We examined the bases on which the Recorder may accept or reject documents effecting valuable property rights. In challenging economic times like these, the Recorder should be on firm ground when it accepts (or rejects) documents. As there is at least in theory an action for damages against the Recorder, it’s critical that standards for decisions can be pointed to. The Court of Appeals has outlined the standards which apply and described them in a way that might be characterized as limited.

A case may be made to record documents which are presented to the Recorder and to let the courts sort out disagreements later.

The Recording Act is designed to protect persons dealing with land:

…Minnesota is a race-notice jurisdiction, meaning that “a bona fide purchaser who records first obtains rights to the property which are superior to a prior purchaser who failed to record.” Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 524 (Minn.1990). A “purchaser in good faith” or bona fide purchaser is one who provides valuable consideration without actual, constructive, or implied notice of others' inconsistent outstanding rights. Miller v. Hennen, 438 N.W.2d 366, 369 (Minn.1989). However, any purchaser with such knowledge is not entitled to the protection of the Minnesota Recording Act. Minn. Cent. R.R. Co. v. MCI Telecomms. Corp., 595 N.W.2d 533, 537 (Minn.App.1999). As such, “there is no need for parties to race to the Registrar of Titles because mortgage priority as established by a filing order is defeated by actual notice or knowledge of a superior mortgage or encumbrance.” In re Ocwen Fin. Servs., Inc., 649 N.W.2d 854, 857 (Minn.App.2002), review denied (Minn. Nov. 19, 2002).

Washington Mut. Bank, F.A. v. Elfelt, 756 N.W.2d 501, 506 (Minn. Ct. App. 2008).

THE RECORDER’S GATEKEEPER FUNCTION

Recording of instruments claiming an interest in real estate is critical for protection of valuable property rights. Deeds and mortgages are contracts between individuals and cannot be avoided simply because they are not recorded or registered. However, where they are not timely, properly recorded or registered, valuable rights are lost. In re Vondall, 364 B.R. 668 (8th Cir. BAP 2007); In re Stepka, 425 B.R. 820, 823 (Bankr. D. Minn. 2010); Washington Mutual Bank, F.A. v. Elfelt, App.2008, 756 N.W.2d 501; Minn. Stat. § 507.34.

It’s well known that Torrens title conveyances often involve a hearing and involvement by the Examiner of Titles. This occurs at initial registration and at proceedings subsequent to the initial registration. Minn. Stat. 508.71; In re Metro Siding, Inc., 624 N.W.2d 303, 307-08 (Minn. Ct. App. 2001). There is no hearing process for the transfer of interests in abstract property (except through the litigation process). But what standards may be applied by the County Recorder when reviewing documents prior to recording? How much discretion does the Recorder have in accepting documents? How does the Recorder ward off a liability claim if it surfaces for alleged improper rejection of a deed, mortgage, mechanic’s lien, or other instrument?
RECORDING STANDARDS/CONTESTED CASES

Provisions in both the Recording Act (Chap. 507) and the County Recorder Act (Chap. 386) detail some of the requirements for what may and what may not be recorded. Other sources include case law and the Title Standards adopted by the Minnesota State Bar Association, Real Property Section. County Recorders also provide some general guidelines on their websites. At least one county website states there are too many requirements to set forth an exhaustive list.

One recent decision states that the Recorder erred in rejecting a document presented for filing. Chamnic Enterprises, LLC v. Colonial Pac. Leasing Corp., A10-784, 2011 WL 1364277 (Minn. Ct. App. Apr. 12, 2011). Another decision holds a recorded document can be ignored, Ameriquest Mortgage v. Cleveland, A07-1509, 2008 WL 2732066 (Minn. Ct. App. July 15, 2008).

A couple recent decisions say pretty good recording is good enough, MidCountry Bank v. Krueger, 782 N.W.2d 238 (Minn. 2010); Bank of New York v. PK Inv. Properties, LLC, A09-1897, 2010 WL 2732883 (Minn. Ct. App. July 13, 2010). Another decision discusses the title examiner’s conduct and its quasi judicial role, Ruikkie v. Nall, 798 N.W.2d 806 (Minn. Ct. App. 2011) while another still emphasizes the important role the Examiner plays, Britney v. Swan Lake Cabin Corp., 795 N.W.2d 867, 871 (Minn. Ct. App. 2011).
DEADLINES FOR ACTION BY RECORDER

In 2005, Minn. Stat. § 357.182 was enacted to set a time line for action on documents presented for recording:

Subd. 3. Recording requirements. Each county recorder and registrar of titles shall, within 15 business days after any instrument in recordable form accompanied by payment of applicable fees by customary means is delivered to the county for recording or is otherwise received by the county recorder or registrar of titles for that purpose, record and index the instrument in the manner provided by law and return it by regular mail or in person to the person identified in the instrument for that purpose, if the instrument does not require certification of no-delinquent taxes, payment of state deed tax, mortgage registry tax, or conservation fee. Each county must establish a policy for the timely handling of instruments that require certification of no-delinquent taxes, payment of state deed tax, mortgage registry tax, or conservation fee and that policy may allow up to an additional five business days at the request of the office or offices responsible to complete the payment and certification process.
For calendar years 2009 and 2010, the maximum time allowed for completion of the recording process for documents presented in recordable form will be 15 business days. For calendar year 2011 and thereafter, the maximum time allowed for completion of the recording process for documents presented in recordable form will be ten business days. Instruments recorded electronically must be returned no later than five business days after receipt by the county in a recordable format.
The interesting qualifier in the above section is documents must be “presented in recordable form” for the time line to literally apply. Intuitively, I conclude a document must have a legal description of the property, be acknowledged, and contain “drafted by” language to qualify as “recordable form”.

It’s doubtful this statute could be used by an individual filer whose document isn’t handled within the time line. The statute is not drawn creating any individual rights. The statute on deadlines does not contain any penalty provision favoring a holder of an interest whose document is not recorded or acted on within the time lines set forth. The time lines themselves are stepped in; allowances are made for individual counties to show progress toward compliance, and perfect compliance isn’t required. Rather, percentages of compliance for volumes of documents instead are set forth.

BASIC REQUIREMENTS TO RECORD

Some of the stipulations are mundane (except the potential criminal penalty sandwiched in at the end):

Except where otherwise expressly provided by law, no county recorder shall record any conveyance, mortgage, or other instrument by which any interest in real estate may be in any way affected, unless the same is duly signed, executed and acknowledged according to law; any such officer offending herein shall be guilty of a misdemeanor and liable in damages to the party injured in a civil action.
Minn. Stat. § 386.39. Documents must be legible and suitable to be organized; they must be signed (with rare exception) and the signature must be acknowledged properly per Minn. Stat. § 507.24.
Subdivision 1. General. To entitle any conveyance, power of attorney, or other instrument affecting real estate to be recorded, it shall be legible and archivable, it shall be executed, acknowledged by the parties executing the same, and the acknowledgment certified, as required by law. All such instruments may be recorded in every county where any of the lands lie. If the conveyance, power of attorney, or other instrument affecting real estate is executed out of state, it shall be entitled to record if executed as above provided or according to the laws of the place of execution so as to be entitled to record in such place.
Subd. 2. Original signatures required. (a) Unless otherwise provided by law, an instrument affecting real estate that is to be recorded as provided in this section or other applicable law must contain the original signatures of the parties who execute it and of the notary public or other officer taking an acknowledgment. However, a financing statement that is recorded as a filing pursuant to section 336.9-502(b) need not contain: (1) the signatures of the debtor or the secured party; or (2) an acknowledgment. An instrument acknowledged in a representative capacity as defined in section 358.41 on behalf of a corporation, partnership, limited liability company, or trust that is otherwise entitled to be recorded shall be recorded if the acknowledgment made in a representative capacity is substantially in the form prescribed in chapter 358, without further inquiry into the authority of the person making the acknowledgment.
Minn. Stat. § 507.24.
The drafter of an instrument must be identified by name and address. Moreover, the statute is express that identification is required for the document to be recordable. But the document is not invalid or ineffective if the document is recorded without drafting identification. Minn. Stat. § 507.091.

And the future taxpayer must be identified in a Deed or Contract for Deed to entitle that document to recording, Minn. Stat. § 507.092.
The document must contain a 3” margin at the top of the first page (for recording information).

And for a document to be paper filed rather than electronically filed, it must be typewritten or computer generated; no larger than 8.5 x 14 inches; contain type no smaller than 8 point and be on white paper not less than 20 lb. with a border of not less than one half inch on all four sides. Minn. Stat. § 507.093.
The Mayor of my fair city sends out a Christmas/Holiday letter annually intentionally typed to the very edges of every page. He just has soooo much to say.

WHAT MAY BE REJECTED FOR RECORDING?

What is the extent of discretion held by the Recorder’s office in accepting or rejecting instruments for recording? There are some minimum standards set forth above. It’s clear that if an instrument doesn’t contain drafting identification; original signatures on paper documents; lacks a legal description so that it cannot be archived; or is not of sufficient type size, that then the document may be rejected. Verbiage of the statutes employs mandatory language making it seem evident the Recorder or Registrar may reject a document which doesn’t contain those requirements.

And let us not omit fees. Fees such as Mortgage Registration Tax (Chap. 287) and Deed Stamp Tax (Chap. 287); and recording fees must be paid (Minn.Stat. § 357.18) to admit a document to recording.

Though it was not directly in issue in an equitable subrogation case, a Mortgage was rejected and lost priority because the check to pay the Mortgage Registration Tax was for the wrong amount.

But on March 14, 2005, the county recorder's office returned the mortgage to Land Title, Inc., unrecorded because the check for the mortgage registration tax was not for the proper amount.

Citizens State Bank v. Raven Trading Partners, Inc., 786 N.W.2d 274, 276 (Minn. 2010).
If fees will be owed, a Certificate of Real Estate Value (CRV) must accompany the Deed to be entitled to recording:

Subdivision 1. Requirement. Except as otherwise provided in subdivision 5 or 6, whenever any real estate is sold for a consideration in excess of $1,000, whether by warranty deed, quitclaim deed, contract for deed or any other method of sale, the grantor, grantee or the legal agent of either shall file a certificate of value with the county auditor in the county in which the property is located when the deed or other document is presented for recording.

Minn. Stat. § 272.115.
An Attorney General Opinion states that the Recorder may reject a document:

Register of deeds may refuse to file for record purported deeds which on their face disclose that they do not convey any interest in land because description therein is meaningless.

Op.Atty.Gen.1928, No. 88, p. 92.

Where else may the Recorder reject an instrument properly? A recent Court of Appeals ruling discusses below what should be accepted; and what might constitute a wrongful rejection. Chamnic Enterprises, LLC v. Colonial Pac. Leasing Corp., A10-784, 2011 WL 1364277 (Minn. Ct. App. Apr. 12, 2011).

ALTERATIONS TO DOCUMENTS

The Hennepin County Recorder’s website indicates that “most alterations (strikeout or lining through) are unacceptable on legal documents. Whiteout and correction tape are always unacceptable”. The Courts have occasionally dealt with altered documents. If there was no harm resulting directly from a proven alteration, the Courts typically would not disturb it.

A deed is merely the medium for the transfer of the title from the grantor to the grantee, and where its purpose is once fully accomplished its subsequent disposition cannot affect the title it has conveyed. It may be altered, mutilated, lost, or destroyed; its executory provisions may be rendered inoperative by fraudulent changes or otherwise; but the title which has passed by it will remain undisturbed…

…Title does pass and is not divested by the subsequent alteration, and, notwithstanding the unauthorized erasures or interlineations, it is open to the grantee named in the paper to show, by any competent evidence, the passing of title to him. In other words, he may and must show that a deed conveying the land to him was executed by the grantor named in the altered paper; he must prove the execution and contents of a deed, and this, of course, by the best evidence the case admits of. He cannot resort to parol evidence to prove the contents of a paper which has not been lost or physically destroyed, but, on the contrary, is then in his possession, and in court.

Robbins v. Hobart, 157 N.W. 908, 909-10 (Minn. 1916).
Further:
If, as plaintiff claims, McGuigan's name was in the deed at that time, title then passed to McGuigan and any subsequent alteration in the instrument would not revest the title in plaintiff, although it would destroy the force of the executory covenants in behalf of the party who made or caused such alterations.

Green v. Lidberg, 232 N.W. 511, 512 (Minn. 1930).
In another very early case, the drafter corrected the Section number in the legal description of a Mortgage, after execution. The Supreme Court upheld enforcement of a foreclosure. Ames v. Brown, (Minn. 1875).
The Attorney General has also weighed in on corrections to deeds:
Notwithstanding the lack of statutory authority for register of deeds to re-record an instrument, register of deeds may re-record a deed (a) in order to correct ministerial or clerical error where it clearly appears to register of deeds that such error was result of his recording of instrument and parties have requested that error be corrected, or (b) where deed as originally recorded was not then legally entitled to record and legal disability has since been removed without any alteration in deed as recorded.
Op.Atty.Gen., 373-B-9, Sept. 6, 1946.
Where there is error in recorded deed and new deed cannot be executed, as where one of grantors is deceased, register of deeds, on proper decree of court in action to reform deed, could be authorized and permitted to correct record so as to conform to decree.
Op.Atty.Gen., 373-B-9, Sept. 6, 1946, cited under Minn. Stat. Ann. § 507.24 (West).
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