Frank v. Storer

¹⁹⁶ RODOWSKY, Judge. In Standard Finance Co. v. Little, 159 Md. 621 , 152 A. 264 (1930), this Court held that a mortgage which had been copied into the land records but which had not been indexed in the general index was a recorded instrument under the Maryland recordation statutes. This case presents the same problem. Because there has been no substantial change in the recordation statutes following Standard, we shall hold that the unindexed instrument involved in this case is recorded and shall determine the priorities of the parties accordingly.

The contest here is between trustees for the holders of a note secured by a deed of trust upon, and the debtor’s grantee of, property which was substituted as security under the deed of trust by an unindexed modification agreement. In July 1980 Hy Wayne and Marie Wayne (the Waynes) became the holders of a promissory note in the original principal amount of $42,500 made by Lawrence E. Storer and Dottie L. Storer (the Storers) which was secured by a deed of trust to the petitioners, Morton Frank and Edith C. Rollins, trustees. The deed of trust conveyed two lots in Montgomery County and a third lot located in a subdivision known as Fletcher’s Addition to Takoma Park in Prince George’s County. On December 30, 1980, the Storers, the trustees, and the Waynes entered into an agreement (the Modification Agreement) modifying the deed of trust and agreeing “to allow the security interest in” one of the Montgomery County lots “to be transferred to certain property in Prince George’s County, Maryland, known as” the Waterford Lot.

The Modification Agreement was copied into the land records of Prince George’s County on January 28, 1981, but was not indexed, as hereinafter explained. The Storers conveyed the Waterford Lot to the respondent, Robert G. Glenn (Glenn), on August 18, 1981. A statement of facts stipulated to by petitioners and respondent recites that “[t]he existence of the Modification Agree ¹⁹⁷ ment, and the Waynes’ lien of record, allegedly [were] not discovered at the time of this transfer.” The trustees docketed foreclosure proceedings against the Waterford Lot on February 4, 1985, in the Circuit Court for Prince George’s County. Glenn moved to dismiss the proceedings on the theory that the deed of trust did not cover the Waterford Lot because the Modification Agreement was not validly recorded.

He assigned three reasons. First, the Modification Agreement had been “determined to be deficient by the Clerk of the Court,” had been returned, and “was not indexed amongst the land records.” Second, it had not been certified in accordance with Md.Code (1974, 1981 Repl.Vol., 1986 Cum.Supp.), § 3-104(f)(l) of the Real Property Article (RP) which in relevant part reads: No fee-simple deed, mortgage, or deed of trust may be recorded in ... Prince George’s County ... unless it bears a certification that the instrument has been prepared by an attorney admitted to practice before the Court of Appeals, under his supervision, or by or on behalf of one of the parties named in the instrument. Third, Glenn urged lack of compliance with RP § 3-104(f)(2) which reads: Every deed recorded in Prince George’s County shall contain a reference to the election district in which the property described in the deed is located.

At the hearing on the motion Glenn called as a witness the Assistant Chief Deputy of the Land Records Division of the Office of the Clerk of the Circuit Court for Prince George’s County. The witness brought with her a copy of the Modification Agreement made from the land records. That copy was introduced in evidence. It appears that the method of copying documents into the Prince George’s County land records is by microfilming them and the exhibit was a print from that film.

The copy reflects that, before photographing, each of the three pages of the Modification Agreement was stamped at the top with a liber number, 5366, and a folio number, respectively 172 through 174. ¹⁹⁸ The first page was also stamped to indicate the time of receipt to be 1:30 p.m. on January 28, 1981. To the left of the center of the first page on the print is a black area, two and one-half inches square, which the witness identified as the film impression of a “red tag” which had been placed on the original. A red tag reads: This release has not been indexed because it contains no reference to the liber and folio where the deed of trust or mortgage is recorded, or because there is no deed of trust or mortgage at the cited reference. The witness said that the original of the Modification Agreement, when submitted for recording, would have been handled by a “release clerk.” She explained that the original was red tagged because it did not contain a recording reference to the original deed of trust.

The Modification Agreement, at the very end of the document, also contained the following Please mail to: Bell Cornelius & Shore 108 South Washington Street Rockville, Maryland 20850. The witness concluded that the original Modification Agreement, with the red tag, would have been returned to the above firm. The balance of the hearing on the motion consisted of argument of counsel. The role of Bell, Cornelius & Shore in the transaction leading to the Modification Agreement was not developed by direct evidence or express stipulation.

Counsel for the trustees stood foursquare on the holding in Standard, supra. The circuit court granted the motion and dismissed the foreclosure proceeding. In a written opinion the court stated “that all parties agree and the court finds as a matter of fact that the original ‘Modification Agreement,’ although recorded in the Land Records and given a liber and folio number, was not indexed and was ‘red tagged’ and returned to the grantee.” (Footnote omitted). The court ¹⁹⁹ further stated that “[i]t is undisputed that the grantee [i.e., the trustees] in this case was on notice that reference to the ‘modification agreement’ was not being placed in the index to the Land Records.” The court then held: Faced with such knowledge, it was incumbent that the Grantee correct the deficiency in the instrument and return it to the Land Records Division so that it could be properly re-recorded and indexed accordingly.

To hold otherwise would be to place an unreasonable burden upon the Defendants and other would-be purchasers of real estate, to search the voluminous records of land transactions without any reference whatsoever. The object and purpose of the recording act is to put interested persons on notice. To allow a party to record an instrument with knowledge that it will not be indexed would be to flaunt the purposes of the act and render its provisions a nullity. On appeal by the trustees, the Court of Special Appeals affirmed, essentially for the reasons given by the circuit court.

Frank v. Storer, 66 Md.App. 459 , 504 A.2d 1163 (1986). The intermediate appellate court distilled the rule of law which it was applying as follows: We hold that where, as here, the grantee has control of the lien instrument and has knowledge that the instrument is defective for the purpose of indexing, he must act in order to correct the defect so that the instrument may be indexed properly. If he fails to do so, he cannot claim constructive notice to persons without actual notice. To permit him to do so would place an unreasonable burden on the public generally.

For us to hold otherwise could lead to gross unfairness to purchasers of property and be the basis for great mischief by unscrupulous persons. [Id. at 468, 504 A.2d at 1167 .] In view of this holding the Court of Special Appeals did not opine on the effect of the omissions from the Modification Agreement of a certification by the preparing attorney and of a reference to the election district in which the Waterford Lot is located. ²⁰⁰ We granted the trustees’ petition for certiorari. It questions (I) the basis of decision below; (II) the alternative grounds under § 3-104(f)(l) and (2) advanced by respondent below; and (III) the propriety of moving to dismiss a foreclosure. Respondent did not file any conditional cross-petition and does not argue that the reason given in the red tag for not indexing the Modification Agreement supports the judgments below. 1 I Our analysis begins with the statutes. “Registration systems are purely of statutory origin, and the convenience or inconvenience of searching the records as well as the authority and effect of the registry acts are subjects of the legislative will.” Plaza Corp. v. Alban Tractor Co., 219 Md. 570, 582 , 151 A.2d 170, 176 (1958). The applicable statutes are codified in the Real Property Article wherein the term “deed” is defined to include “any deed, grant, mortgage, deed of trust, lease, assignment, and release, pertaining to land or property or any interest therein or appurtenant thereto.” RP § l-101(c).

Title 3 of that article addresses “Recordation.” Within title 3, subtitle 1 presents, “General Rules and Exceptions,” subtitle 2, “Priorities Based on Recording,” and subtitle 3, provisions relating to “Record Books and Indexes.” Title 4 of the Real Property Article deals with the “Requisities of Valid Instruments.” ²⁰¹ In the instant matter the ultimate issue is whether Glenn’s title to the Waterford Lot is subject to the deed of trust. The controlling provision is RP § 3-203 which provides: Every recorded deed or other instrument takes effect from its effective date as against the grantee of any deed executed and delivered subsequent to the effective date, unless the grantee of the subsequent deed has: (1) Accepted delivery of the deed or other instrument (1) In good faith, (ii) Without constructive notice under § 3-202, and (iii) For a good and valuable consideration, and (2) Recorded the deed first.[ 2 ] The Modification Agreement is either a “deed or other instrument” within the meaning of § 3-203. 3 Thus the question is whether the Modification Agreement was “recorded.” The verb, “to record,” and variations thereof are not specifically defined in the Real Property Article. RP § 3-301(a) in part states that [fjf the person offering a deed or other instrument affecting property for record first pays the recording fees, the clerk of the circuit court of each county shall record every deed and other instrument affecting property in well-bound books to be named “Land Records,” if ²⁰² that is the practice in the county, or on microfilm, if that is the practice. RP § 3-302(a) in part provides that “[t]he clerk of the circuit court of each county shall make and maintain a full and complete general alphabetical index of every deed, and other instrument in a well-bound book in his office.” The predecessors of these statutes were the basis of decision in Standard.

Standard was an action against a court clerk for money damages brought by the party which had caused a mortgage to be delivered to the clerk for recording. Judgment was entered in favor of the clerk on demurrer. The lender’s declaration alleged that the mortgage had been copied into the land records but that it had not been indexed in the general alphabetical index. The declaration further alleged that the realty encumbered by the mortgage had been conveyed by the mortgagor to a subsequent vendee who had no actual notice of the mortgage with the result that the mortgagee was deprived of its security by the omission of the clerk.

We held that “the lien would be secured and continue unaffected by the omission from the index, and that the declaration does not therefore show the possibility of loss assumed.” 159 Md. at 622 , 152 A. at 265 . This Court contrasted the provisions of Md.Code (1924), Art. 21, §§ 1, 13, 15, and 32, dealing with the execution, acknowledgment, and recordation of deeds and mortgages, with Art. 17, §§ 59, 61, and 62, dealing with alphabetical indexes. The Court, speaking through Chief Judge Bond, concluded that “[throughout these articles in the Code, the recording of an instrument, which effectuates the passing of title, is referred to as a mere transcription before the indexes are made; and it seems to the court that the indexing has not been conceived of as part of that recording.” Summarizing the very arguments relied upon by the respondent, and adopted by the courts below, this Court concluded the opinion in Standard by saying: The argument for including the indexing within the recording, as an essential part of it, is based upon the ²⁰³ importance of the indexing and the danger of losses to persons dealing with property if there may be instruments completely effective to pass title without mention in the indexes. The