JIM FLYNN: Statute protects real estate buyers
If you have ever owned real estate, you probably know that documents affecting title get “recorded.” In Colorado, operation of the real estate documents-recording system is a function of the county clerk and recorder. This system is critical to the manner in which interests in real estate are bought and sold and loans are made. The basic idea behind the system is to allow buyers and lenders to determine exactly what they are getting when they purchase property or lend money secured by property.
The recording system in Colorado is governed by a statute stating that “all … instruments … affecting title to real property … may be recorded in the office of the clerk and recorder of the county where such real property is situated.” This statute goes on to say “no … unrecorded instrument or document shall be valid against any person with any kind of rights in or to such real property who first records … except between the parties thereto and against those having notice thereof prior to acquisition of such rights. This is a race-notice recording statute.”
A reasonable question to ask at this point is: What, exactly, is a “race-notice” recording statute, and how does it work? Well, here’s an example. Let’s assume Jones, needing a little extra cash for an extended trip to parts of the world where no one will ever find him again, decides to sell his luxury Vail condo — to two different buyers. Jones carefully plans these transactions so that one sale is completed at 11 a.m. and the other at 1 p.m. on the same day. Neither buyer is aware of the other. Under Colorado’s race-notice recording statute, the first of these buyers to get to the clerk and recorder’s office to record a deed will own the property. The other will be defrauded. That’s the “race” part of the statute.
Now, to change the facts a bit, let’s assume the buyer who buys at 1 p.m. somehow learns that Jones, earlier in the day, had given a deed to the property to someone else. The 1 p.m. buyer nonetheless closes on his purchase, jumps into his Porsche GT3, speeds to the clerk and recorder’s office and is the first to record a deed. In this circumstance, the “notice” part of the statute comes into play and the deed given at 11 a.m., although the second to be recorded, will prevail.
In the real world, title insurance plays an important role. If a title insurance company issues a title insurance commitment promising to insure ownership in a named buyer and that same title insurance company conducts the closing at which the buyer receives his deed, the title insurance company takes the risk that something bad might happen during the “gap” — the time between the issuance of the commitment and the recording of the deed. Thus, in the first example above, the title insurance company is likely to take a hit because of the seller’s fraudulent act.
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Jim Flynn is a private attorney at Flynn Wright & Fredman LLC in Colorado Springs. Reach him at jtflynn@fwflegal.com.
