Case Title: First Properties, L.L.C. v. JPMorgan Chase Bank, National Association

Citation: 

Docket Number: 1060902

State: alabama

Court: Alabama Supreme Court

Date: 2008-01-11T00:00:00Z

Document:
REL: 01/11/2008
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2007-2008
____________________
1060902
____________________
First Properties, L.L.C.
v.
JPMorgan Chase Bank, National Association
Appeal from Jefferson Circuit Court 
(CV-05-3284)
SMITH, Justice.
First Properties, L.L.C., appeals from a final judgment
entered against it in an action filed by JPMorgan Chase Bank,
National Association.  We affirm.
1060902
2
Factual and Procedural Background
On October 19, 1998, the Jefferson County fire district
of Forestdale conducted a foreclosure sale on property located
at 933 Heflin Avenue East in Birmingham.  At the time of the
sale, Ruthia Cullen Dumas held duly recorded title to the
property.  Apparently, the dues assessed by the fire district
for fire-protection services were delinquent, and to satisfy
the delinquency the fire district sold the property in
accordance with the procedure outlined under "The Municipal
Public Improvement Act," § 11-48-1 et seq., Ala. Code 1975.
See generally Special Assets, L.L.C. v. Chase Home Fin.,
L.L.C., [Ms. 1060083, Dec. 21, 2007] ___ So. 2d ___, ___ (Ala.
2007) (discussing the local amendment authorizing the creation
of fire districts in Jefferson County and the assessment of
dues for fire-protection services by those fire districts);
see also § 12 of Act No. 79, Ala. Acts 1966 (Special Session),
as amended by Act No. 500, Ala. Acts 1978, which states that
a service charge levied for fire districts in Jefferson County
is "a personal obligation of the owner of the property served
by the system," and creates a "lien against said property in
favor of the district, which lien shall be enforceable by sale
1060902
3
thereof in the same manner in which the foreclosure of a
municipal assessment for public improvements is authorized."
With a bid of $603.45, the fire district was the highest
bidder at the sale.  The business manager of the fire district
executed a deed purporting to convey the property from the
fire district, as grantor, to the fire district, as grantee.
The fire district then recorded the deed in the Jefferson
County Probate Office on October 28, 1998.  The deed was not
listed in the grantor/grantee index, did not refer to Dumas as
the owner of record, and contained what the trial court
determined was an inadequate description of the property.
On November 9, 1999, Dumas secured a loan of $67,550 by
executing a mortgage on the property in favor of First
Franklin Financial Corporation.  First Franklin recorded that
mortgage in the Jefferson County Probate Office on January 13,
2000.  On July 31, 2004, First Franklin assigned the mortgage
to JPMorgan, and that mortgage was recorded on June 14, 2005.
On December 18, 2004, the fire district executed a
quitclaim deed to the property to First Properties, in
consideration of $2,851.25.  The quitclaim deed listed Dumas
as the owner of record before the foreclosure sale held on
1060902
4
October 19, 1998.  On December 23, 2004, First Properties
recorded the quitclaim deed in the Jefferson County Probate
Office.
On June 8, 2005, JPMorgan filed an action seeking a
judgment declaring that it was a bona fide holder for value of
the property without notice of the foreclosure sale by the
fire district.  JPMorgan claimed that it was entitled to
status as a bona fide holder for value because, it alleged,
the foreclosure deed to the fire district and the quitclaim
deed from the fire district to First Properties were outside
the chain of title and therefore did not serve as constructive
notice to JPMorgan of the claimed interests of the fire
district and First Properties.  JPMorgan later amended its
complaint to, among other things, request that the court enter
an order quieting title in favor of JPMorgan.
JPMorgan and First Properties each filed motions for a
summary judgment.  On March 29, 2006, the trial court entered
an order granting the summary-judgment motion of First
Properties 
and 
denying the summary-judgment motion of
JPMorgan.  However, JPMorgan filed a motion under Rule 59(e),
Ala. R. Civ. P., to alter, amend, or vacate the judgment.  The
1060902
5
trial court granted that motion on June 8, 2006, and set aside
its order of March 29, 2006.  The court found that there were
genuine issues of fact that prevented a summary judgment in
favor of First Properties, and it set the matter for a trial
on the merits.
Before the date set for a trial, JPMorgan and First
Properties filed a "joint stipulation" waiving their right to
a trial on the merits and submitting the case for a final
decision based on the evidentiary submissions accompanying the
parties' summary-judgment materials.  The parties also
stipulated to the following additional facts:  (1) First
Franklin's mortgage of the property was recorded in the
Jefferson County Probate Office; (2) JPMorgan held the
mortgage to the property by virtue of First Franklin's
assignment of that mortgage to JPMorgan; and (3) at the time
of the fire-dues foreclosure sale, the fire district did not
send a warning to redeem to First Franklin or JPMorgan.
On November 29, 2006, the trial court entered a final
order that included the following holdings: 
"1.  JPMorgan is a bona fide encumbrancer of the
property, 
for 
value, 
without 
notice 
of 
the
foreclosure 
deed under which First Properties
1060902
6
claims.  As a result, the foreclosure sale and deed
are ineffective as against JPMorgan.  
"2.  Alternatively, JPMorgan was entitled to
actual notice of the fire dues foreclosure sale and
expiration of the redemption period. JPMorgan,
having received no such notice, was consequently
deprived of its rights in the subject property
without notice in violation of due process of law.
Accordingly, the foreclosure deed is ineffective as
against JPMorgan.
"3.  Alternatively, the legal description
contained in the foreclosure sale notice and deed
were defective, thus rendering the foreclosure sale
and foreclosure deed invalid.
"4.  Alternatively, JPMorgan is entitled to
redeem the property within three months from the
date this order becomes final and, alternatively,
for so long as its mortgagor, Mrs. Dumas, holds
possession of the property."
The trial court later denied a subsequent Rule 59(e) motion
filed by First Properties, and First Properties filed a timely
notice of appeal.
Discussion
First Properties argues that the trial court erred in
finding that JPMorgan is a "bona fide encumbrancer" for value.
"'A bona fide purchaser is one who (1) purchases
legal title, (2) in good faith, (3) for adequate
consideration, (4) without notice of any claim of
interest in the property by any other party.  First
National Bank of Birmingham v. Culberson, 342 So. 2d
347, 350 (Ala. 1977).  Notice sufficient to preclude
a bona fide purchase may be actual or constructive
1060902
More specifically, First Properties contends that
1
JPMorgan was "put on constructive notice of anything of record
in the probate court no matter how difficult to find those
documents may be."  (First Properties' brief, p. 29.)
7
or may consist of knowledge of facts which would
cause a reasonable person to make an inquiry which
would reveal the interest of a third party.  Hill v.
Taylor, 285 Ala. 612, 614, 235 So. 2d 647, 649
(1970).'"
Wallace v. Frontier Bank, N.A., 903 So. 2d 792, 797 (Ala.
2004) (quoting Rolling "R" Constr., Inc. v. Dodd, 477 So. 2d
330, 331-32 (Ala. 1985)).  First Properties does not dispute
that JPMorgan meets the first three requirements, i.e., that
JPMorgan purchased legal title in good faith for adequate
consideration.  First Properties contends, however, that
JPMorgan did not purchase the property without notice of the
fire district's and First Properties' claims to the property.
As noted, the fire district recorded the foreclosure-sale
deed on October 28, 1998, before Dumas executed a mortgage on
the property in favor of First Franklin.  First Properties
argues that First Franklin, which subsequently assigned the
mortgage to JPMorgan, "was on constructive notice of all
documents of record in the probate court," and, therefore,
that JPMorgan had constructive notice of the foreclosure-sale
deed.  (First Properties' brief, p. 16.)   We disagree.
1
1060902
JPMorgan, in addition to citing legal authority that
contradicts First Properties' argument in that regard,
explains the impracticality of First Properties' position:
"First Properties argues that all documents
recorded in a probate court impart constructive
notice to any buyer.  Under that logic, a buyer
would be required to inspect all recorded documents
in searching title to property.  The average number
of documents recorded daily in Jefferson County is
posted at the Probate Court each day, and is thus
open to judicial notice. Considering both divisions,
Birmingham and Bessemer, the daily number is just
under 1,000, amounting to approximately 260,000 per
year.  A 20-year search, therefore, would require
review of 5,200,000 documents.  The implications of
First Properties' argument do not end there.  It
must be considered that such a search would include
a duty to look [not only] for any instrument out of
the record owner, but also for any document of any
nature containing the legal description of the
property.  Recognizing that the legal description at
issue in this case does not close, First Properties
would subject a title searcher to the duty of
inspecting 5,200,000 documents and tracing millions
of miles of calls in legal descriptions, handicapped
by the even more severe burden of being subject to
notice imparted by incomplete legal descriptions."
(JPMorgan's brief, pp. 14-15.)
8
Although the fire district recorded the foreclosure-sale
deed in the Jefferson County Probate Office on October 28,
1998, that deed does not list the record owner (Dumas).  Thus,
when the foreclosure-sale deed was indexed in the probate
records the fire district was listed as both the grantor and
1060902
See 
Robin 
Paul 
Malloy 
& 
Mark 
Klapow, 
Attorney 
Malpractice
2
for Failure to Require Fee Owner's Title Insurance in a
Residential Real Estate Transaction, 74 St. John's L. Rev.
407, 432 (2000):
"A major pitfall in most recording systems
involves the so-called wild deed.  A wild deed is an
instrument of conveyance that is literally recorded,
but cannot be found by using the recordation index.
Because it cannot be found, the wild deed poses a
significant problem for searchers."
(Footnote omitted.)
9
the grantee, and the undisputed evidence before the trial
court showed that a search of the grantor-grantee index in the
Jefferson County Probate Office would not have uncovered the
foreclosure-sale deed.  Consequently, the foreclosure-sale
deed is a "wild deed,"  outside the chain of title, and the
2
fact that it was recorded did not impart constructive notice
to First Franklin or to JPMorgan.  As explained in Wallace,
903 So. 2d at 797:  "'A purchaser is chargeable with notice of
what appears on the face of the instruments in his or her
chain of title. Ball v. Vogtner, 362 So. 2d 894, 897 (Ala.
1978); Union Oil Co. v. Colglazier, 360 So. 2d 965, 969-70
(Ala. 1978).  However, an instrument outside a purchaser's
chain of title does not give constructive notice.'" (quoting
Dodd, 477 So. 2d at 332) (emphasis added).  Accord Brannan v.
1060902
10
Marshall, 184 Ala. 375, 377, 63 So. 1007, 1007 (1913), which
states:
"It is well settled by numerous decisions in this
state that the registration of a conveyance executed
by one who is a stranger to the title as it is shown
by the records--that is, by a grantor who does not
appear in the chain of recorded conveyances, or
other title records, as one who has acquired an
interest 
in 
the 
land 
in 
question--is 
not
constructive notice to a subsequent purchaser in the
regular chain of title.  Fenno v. Sayre, 3 Ala. 458
[(1842)]; Gimon v. Davis, 36 Ala. 589 [(1860)];
Scotch Lumber Co. v. Sage, 132 Ala. 598, 32 South.
607, 90 Am. St. Rep. 932 [(1902)]; Tenn. C., I. & R.
Co. v. Gardner, 131 Ala. 599, 32 South. 622
[(1902)]."
Accordingly, First Properties' argument that the foreclosure-
sale deed provided constructive notice to JPMorgan is without
merit. 
First Properties also contends, however, that JPMorgan
knew of, or reasonably should have known of, facts that would
have put it on "inquiry notice"--i.e., "facts which would
cause a reasonable person to make an inquiry which would
reveal the interest" of the fire district through which First
Properties claims title to the property.  Wallace, 903 So. 2d
at 797.  To support that contention, First Properties relies
on the title commitment that Stewart Title Guaranty Company,
which issued a title-insurance policy to First Franklin for
1060902
11
the property, provided to First Franklin at the time of the
execution of the November 9, 1999, mortgage.  
First Properties alleges that the title commitment from
Stewart Title "disclosed to First Franklin that the property
was in a fire district and subject to fire dues."  (First
Properties' brief, p. 8.)  However, the only portion of the
title commitment that First Properties cites is a sentence
that reads: "The following requirements must be met and
completed to the satisfaction of [Stewart Title] before its
policy of title insurance will be issued: ... 4.  Proof that
there are no unpaid due and payable, improvement assessments
and/or fire dues against subject property."   The handwritten
word "affidavit" appears above item "4" quoted above, which,
according to the parties, indicates that either Stewart Title
or its agent, Birmingham Title Services Corporation, accepted
an affidavit from Dumas as satisfactory proof that there were
no unpaid fire dues.  First Properties implies that it was
unreasonable for Stewart Title and Birmingham Title to rely on
an affidavit as proof that there were no unpaid fire dues on
the property, and, without citing any authority to support the
proposition, First Properties suggests that Stewart Title and
1060902
As JPMorgan points out, First Properties does not cite
3
any evidence in the record that suggests that contacting the
fire district would have disclosed that the property had been
sold for unpaid fire dues.  JPMorgan explains that because the
fire district sold the property in 1998 to satisfy the unpaid
fire dues, a call by First Franklin in 1999 might have
revealed only that there currently were no unpaid fire dues,
not that the property had been sold previously to satisfy
unpaid fire dues.
12
Birmingham Title should have inquired to determine what fire
district the property was located in and whether there were
any unpaid fire dues.3
Other than noting that the undisputed evidence in the
record shows that the foreclosure-sale deed was outside the
chain of title and therefore that a search of the Jefferson
County Probate records at the time of the 1999 mortgage would
not have located the foreclosure-sale deed, we express no
opinion regarding whether the title insurer had an obligation
to inquire further as to whether there were any fire dues on
the property that remained unpaid.  Even if First Properties
were correct in its claim that Stewart Title and Birmingham
Title had knowledge of facts that should have caused them to
inquire further regarding the existence of any unpaid fire
dues, First Properties has not offered any evidence suggesting
that First Franklin (and, by extension, JPMorgan) should be
1060902
13
charged with that same knowledge.
In Wallace, supra, J. Steve Wallace and Lucy S. Wallace
recovered a $60,000 judgment against Robert P. Sholund, Inc.
("RPS").  903 So. 2d at 793.  Soon after the judgment was
entered, RPS conveyed several properties to Robert P. Sholund
and Patricia Sholund, and the Sholunds recorded the deeds to
those properties.  Four days after the deeds were recorded,
the Wallaces recorded a certificate of judgment against RPS.
Some time later, the Sholunds executed a deed to one of the
properties to Nicholas Lee and Tammy Lee.  The Lees then
executed a mortgage on the property in favor of Frontier Bank,
N.A., and both the deed from the Sholunds to the Lees and the
mortgage from the Lees to Frontier were recorded.  903 So. 2d
at 793-94.
The Wallaces subsequently brought an action seeking to
set aside the deed from RPS to the Sholunds and to declare
that both the deed from the Sholunds to the Lees and the Lees'
mortgage to Frontier were subject to the voiding of the
earlier deed.  903 So. 2d at 793.  The Wallaces alleged that
the Lees were not bona fide purchasers for value without
notice because, the Wallaces contended, the Lees' title
1060902
14
insurer "had, or should have had, knowledge of the [Wallaces']
recorded judgment and the mid-December cluster of conveyances
from RPS to the Sholunds, and that [the title insurer's]
knowledge is imputed to the Lees and Frontier."  903 So. 2d at
799.  
The underlying premise of the Wallaces' argument was that
the title insurer (and its agent) were "'acting as the title
examining agents for the Lees and Frontier.'" 903 So. 2d at
799 (quoting the Wallaces' brief).  In rejecting the Wallaces'
position, this Court noted that the Wallaces had not offered
any evidence suggesting an agency relationship between the
title insurer and the Lees and Frontier:
"[A]gency may not be presumed;  the party asserting
it has the burden of adducing sufficient evidence to
prove its existence.  Kennedy v. Western Sizzlin
Corp., 857 So. 2d 71, 77 (Ala. 2003).  There is a
distinction between an abstract of title and title
insurance.  When a title insurance company is
engaged by a party merely to issue a title insurance
policy, without the additional duty of preparing and
delivering an abstract of title, and when the party
procuring 
the 
insurance 
neither 
retains 
nor
exercises any supervision or control over the manner
in which the title insurance company determines the
status of title, the title insurance company
functions as an independent contractor and not as
the agent of the party.  Under such a relationship,
notice to, or knowledge obtained by, the title
insurance company does not constitute actual or
constructive notice or knowledge to the party
1060902
15
retaining the title insurance company.  Rice v.
Taylor, 220 Cal. 629, 32 P.2d 381 (1934); Colegrove
v. Behrle, 63 N.J. Super. 356, 164 A.2d 620 (1960);
Soper v. Knaflich, 26 Wash. App. 678, 613 P.2d 1209
(1980); Focus Inv. Assocs., Inc. v. American Title
Ins. Co., 797 F. Supp. 109 (D.R.I. 1992); and
Huntington v. Mila, Inc., 119 Nev. 355, 75 P.3d 354
(2003).
"The only fact the Wallaces point to in support
of their argument that Lawyers Title acted as 'the
title examining agent for the Lees and Frontier' is
that the Lees paid the premiums for the title
insurance as a part of the closing costs.  That fact
is in no way indicative of an agency relationship
between the Lees and Lawyers Title;  rather, it is
indicative of a transaction between an insured and
an independent-contractor insurer.
"Accordingly, because there is no evidence in
the record indicating that Lawyers Title knew or
should have known of the Wallaces' judgment against
RPS on January 13, 2003, when the Lees closed their
purchase on lot 30 from the Sholunds, and because
there is no evidence indicating that Lawyers Title
was acting as the Lees' agent in issuing the title
insurance policies in question, there is no support
for 
the 
Wallaces' 
contention 
that 
notice 
or
knowledge of the Wallaces' judgment against RPS
should be imputed to the Lees.  Such notice or
knowledge as Lawyers Title, the Lees, or Frontier
obtained after the closing is irrelevant to the
issue whether the Lees were bona fide purchasers for
value or whether Frontier was a bona fide mortgagee
for value at the time of the January 13, 2003,
closing."
903 So. 2d at 801-02.
In the present case, the trial court's order of final
judgment states:  "The record in this case contains no
1060902
16
allegation or proof that the title company in this case was
the agent of First Franklin."  
First Properties does not
explain how that ruling of the trial court was erroneous.
Instead, to support its contention that Birmingham Title was
acting as the agent of First Franklin, First Properties cites
an affidavit from the president of Birmingham Title.  That
affidavit indicates that Birmingham Title "researches and
prepares title insurance binders and policies as agent for
Stewart Title" and that Birmingham Title "performed a title
search and prepared a title commitment" relating to the Dumas
property.  The affidavit indicates only that the "title
commitment was prepared for the benefit of First Franklin."
Thus, the affidavit does not indicate that the transaction
between First Franklin and Stewart Title was anything other
than 
a 
"transaction 
between 
an 
insured 
and 
an
independent-contractor insurer."  See Wallace, 903 So. 2d at
802.  Consequently, First Properties has not offered evidence
of an agency relationship between Stewart Title or Birmingham
Title and First Franklin or JPMorgan, and any alleged notice
that the title insurer had is not imputed to First Franklin or
JPMorgan.
1060902
17
First Properties has not demonstrated that the trial
court erred in holding that JPMorgan was a bona fide holder
for value without notice of the foreclosure-sale deed.
Accordingly, the trial court's judgment is due to be affirmed.
Conclusion
The judgment of the trial court is affirmed.
AFFIRMED.
Cobb, C.J., and See, Woodall, and Parker, JJ., concur.