1
The primary question regarding Lender's mortgage is whether Carlos took title to the house subject to it. The jurisdiction operates under a race-notice recording act. This type of statute protects a subsequent purchaser who pays value for property, takes without notice of a prior conflicting interest, and records their own deed before the prior interest is recorded. When Barry bought the house from Allison, Lender's mortgage had not yet been recorded. Barry paid market price, satisfying the value requirement. Nothing suggests Barry had actual knowledge or was on inquiry notice of the mortgage. Because Lender's mortgage was unrecorded when Barry recorded his deed, Barry also lacked constructive notice. Since Barry was a bona fide purchaser for value without notice who recorded first, he acquired title from Allison free and clear of Lender's unrecorded mortgage under the race-notice statute.
Later, Barry sold the house to Carlos. By the time Carlos finalized his purchase, Lender's mortgage had been recorded for several weeks. In a jurisdiction using a parcel index system, this proper recording provided constructive notice to the world, including Carlos, regardless of whether he actually knew about it. Therefore, Carlos himself does not qualify as a bona fide purchaser without notice relative to Lender's mortgage.
However, Carlos is protected by the Shelter Rule. This common law doctrine allows a grantee who acquires property from a bona fide purchaser (like Barry) to stand in the shoes of their grantor. Carlos takes the same protection against the prior interest (Lender's mortgage) that his grantor, Barry, enjoyed. The purpose of this rule is to ensure the BFP (Barry) can freely transfer the good title he obtained. Even though Carlos had constructive notice of the mortgage when he purchased, he acquired title from Barry, who had already defeated Lender's interest under the recording act. Consequently, Carlos took title to the house free from Lender's mortgage, and Lender's action against Carlos should fail.
2
Carlos's Potential Claims Against Barry Under the General Warranty Deed Carlos received a general warranty deed from Barry. This type of deed contains several covenants, or promises, about the quality of title being conveyed. These typically include present covenants (breached, if at all, at the time of conveyance) like the covenant against encumbrances, and future covenants (breached upon later interference) like the covenant of quiet enjoyment and the covenant of warranty.
Carlos might consider claiming Barry breached the covenant against encumbrances because Lender's mortgage existed and was recorded when Barry sold the house to Carlos. However, an encumbrance must typically be a valid claim against the property to breach the covenant. As established above, due to Barry's status as a BFP who recorded first, Lender's mortgage was legally unenforceable against the title Barry acquired and subsequently conveyed to Carlos. An unenforceable lien generally does not constitute a breach of the covenant against encumbrances. Similarly, Barry did own the property (seisin) and had the right to convey it free of Lender's claim. Thus, the present covenants were likely not breached.
Carlos might also look to the future covenants due to Lender's lawsuit. The covenants of quiet enjoyment and warranty promise that the grantee will not be disturbed by, and the grantor will defend against, lawful claims of superior title. While Lender's lawsuit is certainly a disturbance to Carlos's possession, the claim itself is not lawful or superior against Carlos's title, thanks to the Shelter Rule. Because Lender's claim should ultimately be defeated, Barry's obligations under the future covenants likely have not been triggered. Therefore, Carlos probably has no successful claim against Barry under the general warranty deed based on Lender's mortgage or the resulting lawsuit.
3
The question of Barry's liability for the air conditioning unit turns on whether the unit was a fixture or remained personal property. A fixture is an item of personal property that has been attached to real property in such a way that it becomes legally regarded as part of the real property itself, passing with the land to a buyer. Courts determine fixture status by looking at the method of attachment, the item's adaptation to the use of the property, and, most importantly, the objective intention of the party who installed it.
Here, the AC unit was installed by Allison to improve kitchen ventilation. It was "screwed to a bracket mounted through an exterior wall." This method suggests a fairly permanent installation requiring penetration of the building structure, and its removal would likely leave holes or other damage. The unit was adapted to the house's use by providing cooling and ventilation. Objectively, installing such a unit suggests an intention to make a permanent improvement to the habitability and value of the house. In disputes between a seller and buyer of real estate, courts often presume that items attached in this manner by the owner were intended to remain with the property unless specified otherwise. Since the sales contract between Barry and Carlos was silent on the unit, the analysis points towards it being a fixture.
As a fixture, the AC unit became part of the real property that Barry owned and subsequently contracted to sell to Carlos. Barry's removal of the unit the day before closing, without any agreement allowing him to do so, meant he failed to deliver the property in the condition agreed upon (which includes fixtures). Therefore, Barry is likely liable to Carlos for the value of the air conditioning unit he improperly removed.
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