Mortgage Electronic Registration Systems, Inc. v. Bynum

Citations: 879 So. 2d 807; 2004 La. App. LEXIS 1249; 2004 WL 1078492Docket: No. 2003 CA 1671

Court: Louisiana Court of Appeal; May 14, 2004; Louisiana; State Appellate Court

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Mortgage Electronic Registration Systems, Inc. (MERS) appeals a trial court judgment that nullified a property transfer for which it held a mortgage and ruled that a notice of lis pendens filed by the State of Louisiana took precedence over its mortgage. The case originated when the State initiated a forfeiture proceeding on August 20, 2001, against Kemp J. Oubre and Martisa Henderson, claiming that Henderson, following a guilty plea for money laundering over $100,000, had used illegally obtained Medicaid funds to construct a house listed under Oubre's name. The State sought forfeiture under the Medical Assistance Programs Integrity Law due to the funds' illicit origin.

Oubre was served with the forfeiture petition on September 24, 2001, and subsequently executed a quitclaim deed transferring his interest in the property to Celeste Stewart-Bynum for $1.00, which was recorded on October 9, 2001. On October 22, 2001, Bynum borrowed $151,300 from Aegis Mortgage Corporation and executed a mortgage in favor of MERS, along with a cash sale deed that was not recorded immediately. The State filed a notice of lis pendens on November 6, 2001, detailing its claim and providing the property's legal description. Aegis recorded the cash sale and mortgage on December 6, 2001.

On June 20, 2002, MERS filed a petition against Bynum for default on the mortgage, seeking a judgment and recognition of its mortgage. The State intervened, requesting the property sale be declared null and indicating it would assert priority over MERS' claim.

The State intervened in a legal matter regarding a fraudulent real estate transaction involving Bynum, Bradford, and Dunn, who solicited Bynum's assistance in acquiring a home under false pretenses. Bynum was promised $5,000 to execute a quitclaim deed and subsequently signed a cash sale and mortgage documents without ever accessing the property. Evidence revealed that fraudulent documents were used to secure the mortgage, and Bynum was unaware of the disposition of the loan funds. The trial court concluded that the property sale was fraudulent and declared it null and void. It ruled that the State's notice of lis pendens, filed on November 6, 2001, took precedence over the mortgage from Aegis, which was recorded later. MERS appealed, arguing that the State's forfeiture rights were subject to the Public Records Doctrine and that the mortgage should outrank the lis pendens because Bynum was not named in it. The discussion references Louisiana's Medical Assistance Programs Integrity Law, which allows the State to seek forfeiture of property obtained through fraudulent claims against medical assistance programs, provided proper notice is given through a recorded lis pendens.

Property transferred to a third party to evade recovery or protect it from forfeiture grants the State a privilege that takes precedence over other claims, including mortgages. The State asserted this position during a trial regarding its privilege's superiority over a mortgage held by MERS, citing its timely recorded notice of lis pendens. The State argued compliance with relevant Civil Code articles and that the property transfer to Bynum aimed to protect it from forfeiture, thereby establishing the State's priority.

The trial court ruled in favor of the State, determining that the Medical Assistance Programs Integrity Law, being more recent, superseded the Public Records Doctrine, which MERS contested on multiple grounds. MERS claimed the State's privilege should not outrank its mortgage because: (1) LSA-R.S. 46:437.9 lacks provisions excluding its rights from the Public Records Doctrine; (2) the State's notice of lis pendens was defective for not identifying the record owner; and (3) the conditions of Subsection (C) were irrelevant since the mortgage was obtained by an innocent party (MERS) relying on public records, not Bynum.

Under LSA-R.S. 46:437.9 Subsection (A), the State's privilege applies to third parties only if a proper notice of lis pendens is filed or if Subsection (C) conditions are satisfied. The notice serves to inform third parties of pending actions affecting property title. For a mortgage or privilege to have recordation effect, it must be filed correctly in accordance with Louisiana law, including Civil Code articles related to the necessary format and filing procedures.

LSA-C.C. arts. 3320 and 3321, along with LSA-C.C.P. arts. 3751 and 3752, reflect the Public Records Doctrine, which states that written instruments affecting immovable property are only binding on third parties if filed for registry in the parish recorder's office. This doctrine implies that unrecorded interests in property do not affect third parties, who can rely on the absence of such interests in public records. Under LSA-R.S. 46:437.9(A), the State’s privilege, which depends on filing a notice of lis pendens, is subject to this doctrine but may outrank prior recorded privileges or interests if certain conditions are met.

MERS argues that the State's notice of lis pendens was ineffective for failing to name the record owner of the property. LSA-C.C.P. art. 3752 specifies that a notice of lis pendens must include details such as the court name, title, docket number, filing date, and a description of the property but does not require the record owner's name. The purpose of the notice is to inform the public about properties involved in litigation affecting their title or asserting a privilege. 

MERS cites the case of Cardinal Federal Savings Bank v. Corporate Towers Partners, Ltd., where the court ruled that a lien must be perfected in the name of the true property owner to be effective against third parties. In that case, notices of lis pendens were deemed ineffective because they did not list the correct property owner's name. The court also noted that there is no law recognizing the suit index as "public records" for title searches, leading to the conclusion that the notice of lis pendens was improperly filed.

The court of appeal's opinion lacks clarity on whether the notices of lis pendens were deemed 'improperly filed' due to not naming the true property owner or because they were filed in the wrong records. The Third Circuit's decision in *Cardinal Federal Savings Bank* did not reference LSA-C.C.P. art. 3752, which outlines the requirements for a notice of lis pendens, specifically stating that while a property description is necessary, the record owner's name is not mandated. Consequently, the court declines to adopt the interpretation from *Cardinal Federal Savings Bank* that requires the record owner's name for third-party effectiveness of a lis pendens. 

The State’s notice of lis pendens, filed correctly according to LSA-C.C.P. art. 3752 and LSA-C.C. art. 3320, was effective against third parties from its recording date of November 6, 2001, prior to MERS’ mortgage recording on December 6, 2001. The priority of creditor claims is determined by their registry in public records, affirming that the State's privilege under LSA-R.S. 46:437.9 supersedes MERS’ mortgage. The judgment is modified to clarify that it is the privilege granted by LSA-R.S. 46:437.9 that outranks MERS’ mortgage, not the lis pendens itself. 

The trial court's ruling on the validity of the State's notice of lis pendens and its privilege ranking above MERS’ mortgage is upheld, leading to the modification of the judgment in favor of the State while affirming all other aspects. Costs of the appeal are assigned to Mortgage Electronic Registration Systems, Inc. The court also clarifies that a partial final judgment can be rendered without specific designation for appeal purposes, and outlines the necessary conditions for property forfeiture under the Medical Assistance Programs Integrity Law, including the burden of proof and implications of property transfers related to investigations.