Purchaser Has No “Notice” from an Erroneous Abstract of Judgment

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A judgment creditor can record an abstract of judgment, a document that identifies the judgment debtor and the amount of the debt.

The abstract usually does not identify specific property.  As long as it properly identifies the judgment debtor, it will appear in the chain of title and create a valid lien against any property owned by the judgment debtor in the county where the abstract is recorded.  If someone buys the property from the judgment debtor, the buyer will be deemed to have “notice” of the recorded lien – and the buyer’s title will therefore be “subject to” the lien.

But what happens when the abstract of judgment doesn’t accurately identify the judgment debtor?

A recent opinion by California’s Second Appellate District – Vasquez v. LBS Financial Credit Union — provides one example.

Facts: judgment creditor records two erroneous abstracts of judgment; judgment debtor sells property

LBS Financial Credit obtained money judgments and recorded two abstracts of judgment against the judgment debtor, identified in the abstracts as “Wilbert G. Guerrero.”

Just one problem: the judgment debtor’s real name was Guillermo Guerrero.

Guerrero and his wife sold their property to the Vasquezes, who obtained a policy of title insurance from Old Republic Title Company.  The title policy did not identify the LBS abstracts of judgment.

Shortly after the purchase, LBS’s attorneys contacted the Vasquezes, their mortgage lender (which had its own properly recorded lien on the property), and Old Republic advising them of the abstracts and demanding payment to avoid foreclosure.

The Vasquezes and their lender sued LBS for quiet title and declaratory relief.

Trial court: no notice; no lien

After the trial, the trial court concluded “the Vasquez plaintiffs acquired the subject property as bona fide purchasers for value without notice of the [LBS] abstracts of judgment.”

LBS appealed.

Court of Appeal: affirmed

The Court of Appeal affirmed the trial court’s judgment.

The opinion recited a few basic legal concepts that apply to these types of cases:

  • A “bona fide purchaser” for value who acquires his or her interest in real property without knowledge or notice of another’s prior rights or interest in the property takes the property free of such unknown interest.
  • But any purchaser with actual or constructive notice of the prior interests takes the property subject to those prior interests.
  • Actual notice is “express information of a fact,” while constructive notice is that “which is imputed by law.”
  • Constructive notice of a lien or other interest in property arises from the proper recording of that interest.  However, a bona fide purchaser has constructive notice of “only those matters that could be located by a diligent title search.”
  • Constructive notice can also arise from “inquiry notice” – when the purchaser “has knowledge of circumstances which, upon reasonable inquiry, would lead to that particular fact.”
  • Notice of an adverse interest may also be imputed to a purchaser from knowledge acquired by his or her agent acting within the course and scope of the agent’s authority.

After reviewing the evidence, the Court of Appeal concluded that the Vasquezes lacked notice of the LBS abstracts of judgment.

LBS did not dispute that the Vasquezes lacked actual knowledge of the abstracts.  Instead, LBS argued that the Vasquezes were on inquiry notice that Guerrero sometimes used the name Wilbert G. Guerrero because that name appeared on one of the property purchase documents.  The court, however, pointed out that the name “Guillermo Guerrero” appeared in almost every other instance in the multitude of purchase documents, including the counteroffer, the escrow instructions, and historical grant deeds identified in the chain of title.

Under those circumstances, the court held, the Vasquezes had no notice.  Quoting from earlier authority, the court summarized:

The California courts have consistently reasoned that the conclusive imputation of notice of recorded documents depends upon proper indexing because a subsequent purchaser should be charged only with notice of those documents which are locatable by a search of the proper indexes.  Conversely, where the document is improperly indexed and hence not locatable by a proper search, mere recordation is insufficient to charge the subsequent purchaser with notice.

The court concluded: “the burden was on LBS to record the abstracts of judgment against Guerrero under the name appearing on the title to his property, not on the Vasquezes to identify the LBS abstracts recorded on a variation of Guerrero’s name[.]”

Lesson

Judgment creditors should take great care to record their abstract of judgment properly, with every detail double-checked for accuracy.  If the abstract is erroneous, it may not be “visible” on a title search, and won’t impair the title of a bona fide purchaser (or lender).

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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