FIRST PROPERTIES v. JPMorgan Chase Bank

Citations: 993 So. 2d 438; 2008 Ala. LEXIS 3; 2008 WL 110477Docket: 1060902

Court: Supreme Court of Alabama; January 10, 2008; Alabama; State Supreme Court

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First Properties, L.L.C. appealed a final judgment against it in favor of JPMorgan Chase Bank, National Association, regarding a property located at 933 Heflin Avenue East, Birmingham. The property was sold at a foreclosure auction conducted by the Jefferson County fire district due to delinquent fire-protection service dues, with the fire district as the highest bidder for $603.45. The deed executed by the fire district lacked proper indexing and did not adequately identify the property or acknowledge Ruthia Cullen Dumas as the recorded owner. Dumas later secured a mortgage of $67,550 from First Franklin Financial Corporation, which was recorded. First Franklin assigned the mortgage to JPMorgan, which was also recorded.

Subsequently, the fire district executed a quitclaim deed to First Properties, listing Dumas as the owner before the foreclosure sale, which First Properties recorded. JPMorgan filed a lawsuit claiming it was a bona fide holder for value without notice of the foreclosure, arguing that the foreclosure deed and the quitclaim deed were outside the chain of title and did not provide constructive notice of the fire district’s interests. Both parties filed motions for summary judgment in the case, which ultimately affirmed JPMorgan's position.

On March 29, 2006, the trial court granted First Properties' motion for summary judgment while denying JPMorgan's motion. JPMorgan subsequently sought to alter this judgment under Rule 59(e) of the Alabama Rules of Civil Procedure. On June 8, 2006, the court granted JPMorgan's motion, setting aside the prior order due to genuine issues of fact, and scheduled a trial. Before the trial, both parties submitted a joint stipulation waiving their right to trial, providing additional facts about the mortgage and the lack of notice sent to First Franklin or JPMorgan regarding the fire dues foreclosure sale.

On November 29, 2006, the trial court issued a final order with several key findings: 1) JPMorgan was recognized as a bona fide encumbrancer of the property, making the foreclosure sale and deed ineffective against them; 2) JPMorgan was entitled to actual notice of the foreclosure sale and was deprived of rights without such notice, violating due process; 3) the legal description in the foreclosure notice and deed was defective, invalidating the foreclosure; and 4) JPMorgan retained the right to redeem the property within three months of the order becoming final or as long as Mrs. Dumas held possession.

Subsequently, the court denied a Rule 59(e) motion from First Properties, which then filed a notice of appeal. First Properties contended that the trial court erred in identifying JPMorgan as a bona fide encumbrancer, asserting that JPMorgan had notice of the claims to the property, despite acknowledging that JPMorgan met the other criteria for bona fide purchaser status. The fire district had recorded the foreclosure-sale deed before Dumas executed her mortgage in favor of First Franklin.

First Properties asserts that JPMorgan, having received an assignment of the mortgage from First Franklin, had constructive notice of the foreclosure-sale deed recorded in the Jefferson County Probate Office on October 28, 1998. However, the court disagrees, noting that the deed does not identify the record owner, Dumas, and was indexed solely with the fire district as both grantor and grantee. Consequently, a search in the grantor-grantee index would not reveal the foreclosure-sale deed, categorizing it as a "wild deed" outside the chain of title. The court clarifies that constructive notice is only applicable to instruments within a purchaser's chain of title, as established in prior case law, including Wallace and Ball v. Vogtner. Therefore, the recorded foreclosure-sale deed did not provide constructive notice to either First Franklin or JPMorgan.

Additionally, First Properties claims that JPMorgan should have been on "inquiry notice" due to information in the title commitment from Stewart Title Guaranty Company, which issued a title-insurance policy to First Franklin. This commitment suggested that the property was within a fire district and subject to fire dues. However, the relevant citation from the title commitment only outlines requirements for issuing the policy, including proof of no unpaid fire dues, and indicates that an affidavit from Dumas was accepted as sufficient proof. This does not substantiate First Properties' argument that JPMorgan had actual knowledge or should have made further inquiries regarding the fire district's interest in the property.

First Properties argues that Stewart Title and Birmingham Title acted unreasonably by relying solely on an affidavit to confirm there were no unpaid fire dues on the property, suggesting they should have verified the fire district and any outstanding dues. However, the court notes that the foreclosure-sale deed was outside the chain of title, indicating that a search of the Jefferson County Probate records at the time of the 1999 mortgage would not have revealed it. The court refrains from opining on whether the title insurers had an obligation to inquire further about unpaid fire dues. Even if First Properties' claims were valid, they failed to provide evidence that First Franklin, and by extension JPMorgan, shared knowledge of any relevant facts. 

In the case of Wallace, the Wallaces obtained a $60,000 judgment against RPS, which subsequently conveyed properties to the Sholunds. The Wallaces recorded a judgment certificate shortly after the conveyances. The Sholunds later transferred one property to the Lees, who mortgaged it with Frontier Bank. The Wallaces sought to void these transactions, arguing that the Lees were not bona fide purchasers as the title insurer should have known of the Wallaces' judgment and earlier conveyances. The court rejected this argument, noting the absence of evidence to establish an agency relationship between the title insurer and the Lees or Frontier. It clarified that, when a title insurer is engaged solely for a policy without preparing a title abstract, it acts as an independent contractor; thus, any knowledge acquired by the insurer does not impute notice to the party that retained it.

The Wallaces argue that Lawyers Title acted as the title examining agent for the Lees and Frontier solely because the Lees paid for the title insurance premiums. However, this does not establish an agency relationship; it reflects a transaction between an insured party and an independent contractor. There is no evidence that Lawyers Title was aware of the Wallaces' judgment against RPS at the time of the Lees' purchase on January 13, 2003, nor is there evidence that Lawyers Title acted as the Lees' agent in issuing the title insurance policies. Consequently, any notice or knowledge that Lawyers Title, the Lees, or Frontier obtained post-closing is irrelevant to determining whether the Lees and Frontier were bona fide purchasers for value at the time of the transaction.

The trial court's final judgment indicates that there was no proof that the title company acted as the agent of First Franklin. First Properties failed to demonstrate error in this ruling, supporting its claim with an affidavit from Birmingham Title's president, which only confirms Birmingham Title acted as an agent for Stewart Title. The affidavit indicates that the title commitment was prepared for First Franklin's benefit but does not imply an agency relationship. Thus, First Properties has not provided evidence of an agency between Stewart Title or Birmingham Title and First Franklin or JPMorgan, meaning any notice the title insurer had is not imputed to them. The trial court's finding that JPMorgan was a bona fide holder for value without notice of the foreclosure-sale deed is affirmed. 

The court also addresses First Properties' argument regarding constructive notice, asserting that JPMorgan has effectively countered this claim and highlighting the impracticality of requiring buyers to inspect all recorded documents in a probate court. The judgment of the trial court is affirmed.

The Probate Court in Jefferson County posts the average daily number of documents recorded, which is nearly 1,000, totaling around 260,000 annually. A 20-year search would encompass about 5,200,000 documents. First Properties' argument implies that such a search would entail reviewing not only instruments from the record owner but any document containing the property's legal description. Given that the legal description in this case is incomplete, a title searcher would face the arduous task of examining these documents and navigating potentially misleading legal descriptions. Additionally, the concept of a "wild deed" poses a significant challenge, as these recorded instruments cannot be located through the recordation index. JPMorgan also notes that First Properties failed to provide evidence indicating that contacting the fire district would have revealed that the property was sold due to unpaid fire dues; a 1999 inquiry might have only indicated no current dues, not the prior sale in 1998 for unpaid dues.