2012-387, Bilden Properties, LLC & a. v. S. Gerald Birin & a.

Properties) and TD Bank, N.A. (TD Bank), appeal, and the respondents, S. DALIANIS, C. J. The petitioners, Bilden Properties, LLC (Bilden

for the respondents. Hage Hodes, P.A., of Manchester (Jamie N. Hage on the brief and orally),

TD Bank, N.A. and Michelle A. McHale on the brief, and John F. Willis orally), for petitioner Wacks & McHale PC, of Lynnfield, Massachusetts (Kenneth D. Wacks

Murphy on the brief and orally), for petitioner Bilden Properties, LLC. Coughlin, Rainboth, Murphy & Lown, P.A., of Portsmouth (Kenneth D.

No. 2012 - 387 Hillsborough - southern judicial district

page is: http://www.courts.state.nh.us/supreme. a.m. on the morning of their release. The direct address of the court's home reporter@courts.state.nh. us. Opinions are available on the Internet by 9:00 to press. Errors may be reported by E - mail at the following address: editorial errors in order that corrections may be made before the opinion goes Hampshire, One Charles Doe Drive, Concor d, New Hampshire 03301, of any Readers are requested to notify the Reporter, Supreme Court of New well as formal revision before publication in the New Hampshire Reports. NOTICE: This opinion is subject to motions for rehearing under Rule p. 2 22 as 2

title abstractor discovered the July p. 2 2007 mortgage to Blackfoot Capital, LLC, By searching the grantor index under Austin James Properties, LLC, the

the task of examining title to a title abstractor. that title to the property was marketable and insurable. The attorney delegated secured by a mortgage. TD Bank retained the services of an attorney to certify property. Bilden Properties applied to TD Bank for a purchase money loan purchase and sale agreement with Bilden Properties regarding the subject In November p. 2 2007, Austin James Properties, LLC entered into a

propert y owned by Desantis in Nashua. owned by Mortgagor in the County of Hillsborough” except for the homestead James Development, LLC. The July p. 2 2007 mortgage encumbers “[a]ll property James Development, LLC; Scott J. Desantis a/k/a Scott Desantis; and Steven Austin James Development, LLC; Desantis Hom e Development, LLC; Paul grantors: Alan James Development, LLC; Austin James Properties, LLC a/k/a The July 2007 mortgage to Blackfoot Capital, LLC identifies several

two properties: the subject property and 31 Temple Street in Nashua. grantor as Austin James Properties, LLC. The May p. 2 2007 mortgage encumbers on the property to Blackfoot Capital, LLC. The May 2007 mortgage lists the In May and July 2007, Austin James Properties, LLC granted mortgages

instead of A ustin James Properties, LLC. lists Austin James Development, LLC as the grantor of the Birins’ mortgage Perhaps because of the caption error, t he grantor index in the registry of deeds identifies the grantor as “Austin James Development, LLC.” (Emphases added.) the deed identifies the grantor as “Austin James Properties, LLC,” the caption The Birins’ mortgage deed is captioned incorrectly. Although the text of

the property’s fair market value. mor tgage on the property to the Birins. The $1 million mortgage far exceeds owed to the Birins, Austin James Properties, LLC granted a $1 million p. 2 2006, to secure a number of debts Desantis and entities that he controlled managing member of Austin James Properties, LLC was Scott Desantis. In granted first and second mortgages t o Southern New Hampshire Bank. The 18, 2001, Austin James Properties, LLC acquired title to the property and property at issue is 719 Daniel Webster Highway in Merrimack. On December The trial court found or the record supports the following facts. The

part, and remand. notice of the Birins’ mortgage on it. We affirm in part, reverse in part, vacate in purchasers for value, who acquired interests in the subject property without (Nicolosi, J.) finding, among other things, that the petitioners are bona fide Gerald and Gail Birin (the Birins), cro ss - appeal, an order of the Superior Court p. 3 3

“priority is given to a subsequent purchaser who acquires an interest without Mortgage, Corp., 16 p. 3 3 N.H. 313, 315 (2012). In a “race - notice” jurisdiction, New Hampshire is a “race - notice” jurisdiction. C F Inv s. v. Option One

who purchased the property without notice of the Birins’ mortgage. erred when it found that the petitioners were bona fide purchase rs for value, We begin by deciding whether, as the Birins contend, the trial court

this appeal followed. subrogated.” The trial court denied a subsequent motion for clarification, and terms of their mortgage and as a mortgagee junior to the TD Bank mortgage as property],” the trial court stated that their “right of foreclosure is limited by the or exercising any purported right, title or interest against the [subject request for a permanent injunction “prohibiti ng the [Birins] from foreclosing on Bank mortgages. Moreover, although the trial court granted the petitioners’ subrogated up to the amount paid to discharge the Southern New Hampshire court also ruled th at the petitioners’ interests in the property were equitably property without notice of the Birins’ mortgage. Despite this finding, the trial petitioners were bona fide purchasers for value, who purchased the subject granted in July 2009. Following a bench trial, the trial court found that the for certain declaratory and equitable relief. A temporary injunction was petitioners moved to temporarily and permanently enjoin the foreclosure and In 2009, the Birins began foreclosure proceedings on the property. The

Blackfoot Capital, LLC mortgages were satis fied in the amount of $75,000. Hampshire Bank mortgages in the amount of $156,899.70. In addition, the As part of the sale, discharges were obtained of the two Southern New Bilden Properties granted a mortgage to TD Bank in the amount of $271,000. the subject property to Bilden Properties by warranty deed for $ p. 3 339,000. and insurable, and, in December 2007, Austin James Properties, LLC conveyed Ultimately, the attorney certified that title to the property was marketable

Birins’ mortgage. Had she done such a search, she would have discovered it. grantor index under “Austin James Development, LLC,” she did not find the did not instruct her t o do so. Because the title abstractor did not search the whether she should “run any other names” in the grantor index. The attorney with an aka o f Austin James Development, LLC”; she asked the attorney to Blackfoot Capital, LLC noting that the deed “references the current owner The title abstractor informed the attorney about the July 2007 mortgage

that no entity with that name was registered there. contacted the O ffice of the New Hampshire Secretary of State and was informed index for conveyances by Austin James Development, LLC. Instead, she Austin James Development, LLC. However, she did not search the grantor which identifies one of the grantors as Austin James Properties, LLC a/k/a p. 4 4

We conclude that the petitioners had record notice of the July 2007

Invs., 163 N.H. at 317. subsequent purchaser is a question of law, which we review de novo. See C F petitioners’ chain of title gave notice of the Birins’ prior mortgage to a Actual notice is not an issue in this case. Whether the records in the

Thomas, 1 p. 4 44 N.H. at 503. second fact, then the inference is rebutted.” Powell, supra § 82.02[1][d][iii]; see notice of the second fact. However, if a reasonable inquiry would not reveal the constructive notice, a rebuttable i nference is made that the purchaser ha s because of the nature of the first fact, of which the purchaser has actual or Powell, supra § 82.02[1][d][iii]; see Thomas, 144 N.H. at 503. “In other words, then the purchase r is considered to have inquiry notice of the claim itself.” namely that another person has a claim to the title of the property, is revealed, N.H. at 503. “If upon making the inv estigation into this first fact a second fact, should, a s a matter of law, make an investigation into it.” Id.; see Thomas, 144 or ‘suspicious,’ according to normal human experience, that the purchaser § 82.02[1][d][iii]. “Inquiry notice” is notice of a fact that is “sufficiently ‘curious’ “Inquiry notice” is notice that arises from a legal inference. Id.

omitted). “notice inferred from the record.” Powell, supra § 82.02[1][d][ii] (quotation by an examination of the record” (quotation omitted)). “Record notice” is purchaser will be charged with constructive knowledge of what may be revealed there.” Id.; see Thomas v. Finger, 1 p. 4 44 N.H. 500, 503 (1999) (“a real estate purchaser] ever looks at the record or ever sees the information contained claims revealed by the record, regardless of whether [the subsequent notice.” See id. “A subsequent purchaser . . . is on constructive notice of all § 82.02[1][d][ii]. “Record notice” is sometimes referred to as “constructive “Record notice” is “notice arising sole ly from the record.” Id.

Powell, supra § 82.0 2 [1][d][i] (quotation omitted). interest, claim, or right – directly and personally communicated to the party.” “information concerning the fact – as, for example, concerning the prior § 82.02[1][d]; see C F Invs., 163 N.H. at 316. “Actual notice” ref ers to Notice may be of three types: (1) actual; (2) record; and (3) inquiry. Id.

petitioners recorded their interest first. See Powell, supra § 82.02[1][c][iii]. their interest in the property without notice of the Birins’ mortgage and the mortgage is not enforceable against the petitioners if the petitioners acquired Allan Wolf ed., 2013); see RSA p. 4 477:3 - a (2001). Thus, in this case, the Birins’ prior interest.” 14 R. Powell, Powell on R eal Property § 82.02[1][a](3) (Michael that subsequent interest before the owner of the prior interest records that notice of the prior interest, but only if the subsequent purchaser also records p. 5 5

certificate that were not within the subject property’s chain of title. Id. at 317. under “CF Realty Trust” revealed an entry that referred to a mortgage and to all of CF Realty Trust’s assets. Id. at 314 - 1 p. 5 5. A search in the grantor index bankruptcy proceedings and a plan of reorganization under which it succeeded Investments had a prior, unrecorded int erest in the property as a result of In that case, the grantor was CF Realty Trust. Id. at 315. However, C F title examiner.” See C F Invs., 163 N.H. at 318 - 19. This was not our holding. claim “if those concerns were ‘assuaged’ by other information obtained by the raises concerns about a competing claim, there is no inquiry notice of that Investments that even if a search of the records in a property’s chain of title In a related argument, the petitioners assert that we held in C F

Austin James Development, LLC was not registered with the Secr etary of State. not reasonable, as a matter of law, to cease investigating upon learning that abstractor or her supervising attorney was negligent, we conclude that it was company.” RSA 304 - C:69, II(a). Although we need not decide whether the title not impair . . . [t]he validity of any contract or act of the foreign limited liability failure of a foreign limited liability company to register in New Hampshire does Secretary of State. RSA 304 - C:63, I (g), (h), (i). Similarly, by statute, “[t]he statute requiring foreign limited liability companies to register with the owning real property do not constitute “doing business” for the purposes of the U nder New Hampshire law, creating a mortgage, securing debts, and

(discussing similar statutory scheme related to unregistered corporations). :180, II(a) (Supp. 2012)); cf. Zenane, Inc. v. Tofer, 127 N.H. 366, 367 (198 p. 5 5) 304 - C:63, I, :69, II(a) (2005) (repealed and reenacted as RSA 304 - C:174, I, foreign limited liability company does not exist for legal purposes. See RSA existed. However, New Hampshire has rejected the theory that an unregistered State established that no entity named “Austin James Development, LLC” constituted a “reasonable in quiry” because information from the Secretary of “reasonable inquiry.” The petitioners argue that such a search would not have index under the name “Austin James Development, LLC” does not constitute a That inference may be rebutted in this case only if searching the grantor

the Birins’ mortgage. See id. found. Ac cordingly, there is a rebuttable inference that the petitioners knew of name “Austin James Development, LLC,” the Birins’ mortgage would have been Powell, supra § 82.02[1][d][iii]. Had the grantor index been searched under the that [a] purchaser should, as a matter of law, make an investigation into it.” is “sufficiently ‘curious’ or ‘suspicious,’ according to normal human ex perience, LLC used or was known by a different name – constituted notice of a fact that LLC. Moreover, w e hold that notice of th at fact – that Austin James Properties, mort gage as Austin James Properties, LLC a/k/a A ustin James Development, the petitioners’ chain of title. See id. That deed lists one of the grantors of the mortgage held by Blackfoot Capital, LLC because th at mortgage deed was in p. 6 6

title examiner.” Midcountry Bank v. Krueger, 782 N.W.2d 238, 249 - 50 (Minn. conveyances”). “[I]ndexes are the starting point for a subsequen t purchaser or title and researching the grantor index from that date forward for out of a property’s chain of title “includes tracing the property back to a firm root in a matter of law. See C F Invs., 1 p. 6 63 N.H. at 316 (noting that a “proper search” name “Austin James Development, LLC” constituted a “reasonable inquiry” as In the instant matter, w e hold that searching the grantor index under the

unrecorded interest. whether a reasonable investigation would have revealed C F Investments’ prior investigation into [them].” Powell, supra § 82.02[1][d][iii]. Nor did we address experience, that [a] purchaser should, as a matter of law, make an are “sufficiently ‘cur ious’ or ‘suspicious,’ according to normal human their references to the bankruptcy proceedings constituted notice of facts that and certificate were not within the chain of title, w e never addressed whether no tice of C F Investments’ prior, unrecorded interest. Because the mortgage and certificate been in the chain of title, they would not have provided inquiry This dictum should not be mistaken for a holding that had the mortgage

C F Invs., 1 p. 6 63 N.H. at 319 (quotation and emphases omitted).

that name. concerns that it lacked authority to encu mber the Property under the bankruptcy judgment and, thus, would have assuaged any examination – i ndicated that the trust conducted business after w hich would necessarily have been obse rved during such an revealed that CF Realty Trust “no longer existed,” those entries – Investments ’ contention that a proper title examination would have judgment. . . but before the conveyance [at issue]. Contrary to C F d eeds and other certificates – r ecorded well after the bankruptcy only documents evidencing tax liens and redemptions but al so scores of entries u nder the name “CF Realty Trust” – i ncluding not competing claim on the Property’ s title, the grantor index contains [E] ven if those documents reasonably raised concerns regarding a

We further observed:

the contents of that deed.”). from the one being purchased, the purchaser is not on constructive notice of index leads to a deed by the grantor of an entirely different piece of property contents of conveyances in the chain of title. If . . . the search of the grantor 5 p. 6 63 F.3d 11 p. 7 71, 1182 (10th Cir. 2009) (“[C]onstructive notice is limited to the t hose documents were outside of its chain of title. Id. at 318; see In re Colon, inquiry notice of C F Investments ’ interest i n the subject property because We held that the mortgage and certificate did not place the mortgagee on 7

petitioners are not entitled to equitable subrogation. The trial court did not [the petitioners] were negligent in not performing a title search,” then the action were negligent and that [they] acted as [the petitioners’] agents, or that The Birins assert that “[i]f this Court holds that the title searchers in this

properly before us. reach the issue, we view the parties’ arguments about equitable subrogation as petitioners were bona fide purchasers. However, because the trial court did need to reach the equitable su brogation issue once i t concluded that the entitled to equitable subrogation. We acknowledge that the trial court had no We next address whether, as the Birins contend, the petitioners are not

conduc ts a reasonable inquiry. See Powell, supra §§ 82.0 2 [1][d][ii], [iii]. looks at the record, sees the information contained there, or personally presumptions: they apply regardless of whether a subsequent purchaser ever conduct may be imputed to them. Record and inquiry notice are legal abstractor was an agent of the petition ers such that her knowledge and We also do not address the parties’ arguments regarding whether the title

im properly recorded. indexed under the name of Austin James Development, LLC means that it was the parties’ arguments regarding whe ther the fact that the Birins’ mortgage was is not required for there to be inquir y notice of it. Therefore, we do not address (citation omitted)). In other words, the proper recording of the Birins’ mortgage that further inquiry should b e made to ensure that no cloud on the title exists.” the totality of circumstances that would place a reasonable buyer on notice a re properly recorded by the time of closing, such notice may also arise from estate purchasers are typically charged with constructive notice of liens that mortgage was properly recorded. See Thomas, 144 N.H. at 503 (“While real deemed to have notice of the Birins’ mortgage regardless of whether the whether the Birins’ mortgage was properly recorded. The petitioners are gave the petitioners inquiry notice of the Birins ’ mortgage, we need not decide Because we decide that the July 200 p. 7 7 mortgage to Blackfoot Cap ital, LLC

court’s contrary determination. petitioners are not bona fide purchasers for value, and we reverse the trial Birins ’ mortgage is not rebutted. See Powell, supra § p. 8 82.02[1][d][iii]. T hus, the titled.”). Accordingly, the inference that the petitioners had notice of the searches the index . . . will search for the name under which the property is notice of other name or name variants by which to search, an examiner who A.2d 29 p. 7 7, 321 (Md. 2005) (“Unless he has some exogenous knowledge or actual grantor index under that different name. Cf. Greenpoint v. Schlossberg, 888 different name, a rea sonable inquiry involved, at a minimum, searching the subsequent purchaser notice that Austin James Properties, LLC used a 2010). Because one of the records in the property’s chain of title gave a 8

HICKS, CONBOY, LYNN and BASSETT, JJ., concurred.

remand that issue to the trial court for further proceedings. to the amount of money the Birins must pay the petitioners at foreclosure, we instance, the parties’ arguments regarding the interest rate that should apply Southern New Hampshire Bank. Because we decline to address, in the first subrogated up to the amount paid to discharge the mortgages held by trial court’s determination that the petitioners’ interests are equitably foreclosing, we vacate that permanent injunction. Ad ditionally, we affirm the the trial court granted a permanent injunction prohibiting the Birins from decision to the extent that it allowed the Birins to foreclose. To the extent that the subject property subject to the Bi rins’ mortgage, we uphold the trial court’s the Birins’ interest in it. Because we conclude that the petitioners purchased were bona fide purchasers for value, who took the property without notice of In sum, we reverse the trial court’s determination that the petitioners

$156, p. 8 899.70 that must be paid to the petitioners at foreclosure. remand to the trial court solely to determine the rate of interest to apply to the interest that applies to that sum, we decline to do so in the first instance. We its mortgages). Although the petitioners request that we determine the rat e of $156,899.70 (the amount paid to Southern New Hampshire Bank to discharge right is subject to the petitioners’ interests as subrogated in the amount of Accordingly, although the Birins have a right to for eclose on the property, their discharge the prior mortgages held by Southern New Hampshire Bank. interests in the property are equitably subrogated up to the amount paid to Thus, we u phold the trial court’s determination that the petitioners’

19, 2 p. 8 8 (2007); see Fifield v. Mayer, 79 N.H. 82, 85 - 86 (1918). invalidate the right to subrogate.” C hase v. Ameriquest Mortgage Co., 155 N.H. have previously explained, “negligence on the part of a surety does not and further assume that such negligence could be imputed to TD Bank, as we title. Even if we assume, without deciding, that the attorney was negligent, find culpable negligence on the part of the attorney hired by TD Bank to certify