In the

United States Court of Appeals

For the Seventh Circuit ____________

Nos. 06-2586 & 06-2587

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

JEFFREY GROSSMAN,

Defendant,

APPEALS OF:

WELLS FARGO BANK and 

AURORA LOAN SERVICES, LLC, 

Third Party-Petitioners.

____________

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 02 CR 678—Elaine E. Bucklo, Judge.

____________

ARGUED MAY 29, 2007—DECIDED SEPTEMBER 10, 2007

____________

Before BAUER, WOOD, and WILLIAMS, Circuit Judges.

BAUER, Circuit Judge. This is a criminal forfeiture

proceeding, ancillary to a federal criminal action, in which

Wells Fargo Bank and Aurora Loan Services claim a

superior interest in property seized by the government.

The district court granted the government’s motion to

dismiss. On appeal, Wells Fargo and Aurora claim that

the property is not subject to forfeiture and that they

did not have notice of the government’s interest. We affirm
2 Nos. 06-2586 & 06-2587

the dismissal of Wells Fargo’s petition for untimeliness,

but we vacate the dismissal of Aurora’s petition and

remand for further proceedings.

I. Background

Jeffrey Grossman pleaded guilty to bank fraud, wire

and mail fraud, money laundering, and obstruction of

justice, all relating to real estate developments in the

Chicago area and elsewhere. Using some of the proceeds

from this criminal activity, Jeffrey Grossman had funded

the construction of a residence in South Haven, Michigan

(“the property”). His wife, Bette Grossman, was the record title holder of the property. The government sought

to forfeit the property as part of the criminal proceedings

and recorded a lis pendens with the Van Buren County,

Michigan Register of Deeds on May 8, 2003. The lis

pendens was recorded in the book of levies but did not

name Bette Grossman.

After the government recorded the notice of lis pendens,

Aurora and Wells Fargo acquired interests in the property

by granting mortgages to Bette Grossman. Aurora took a

mortgage assignment on the property, recorded on June

24, 2003 with the Van Buren County Register of Deeds;

Wells Fargo extended a mortgage on the property, recorded

on March 2, 2004 with the Van Buren County Register

of Deeds.

Jeffrey Grossman admitted that the property was subject to forfeiture and agreed to entry of a forfeiture judgment in the amount of $4,000,000. Bette Grossman

executed a quit claim deed to the government for the

property, and the district court entered a preliminary

order of forfeiture against the property on December 14,

2004. The government served both Wells Fargo and Aurora

with notice of the forfeiture order on March 7, 2005.
Nos. 06-2586 & 06-2587 3

Wells Fargo and Aurora filed petitions seeking a declaration that their mortgages from Bette Grossman were

superior to any interest the government could take in its

forfeiture action. On April 5, 2005, Aurora filed its petition, and on August 2, 2005, Wells Fargo filed its petition. The government moved to dismiss both petitions,

which the district court granted. Wells Fargo and Aurora

timely filed this appeal.

II. Discussion

Under the criminal forfeiture statute, a third party may

petition for a hearing to adjudicate its interest in a

property to be forfeited. 21 U.S.C. § 853(n)(2). Federal Rule

of Criminal Procedure 32.2 governs the procedure of this

proceeding. Under this rule, when a third party files a

petition asserting an interest in property to be forfeited,

the court must conduct an “ancillary proceeding,” Fed R.

Crim. P. 32.2(c)(1), which closely resembles a civil action.

“In the ancillary proceeding, the court may, on motion,

dismiss the petition for . . . failure to state a claim . . . .”

Fed. R. Crim. P. 32.2(c)(1)(A). This procedure is treated

like a motion to dismiss pursuant to Federal Rule of

Civil Procedure 12(b). Fed. R. Crim. P. 32.2 advisory

committee’s note. Dismissal of a claim is appropriate only

where “it is clear that no relief could be granted under

any set of facts that could be proved consistent with the

allegations.” Hishon v. King & Spalding, 467 U.S. 69, 73,

104 S. Ct. 2229, 81 L. Ed. 2d 59 (1984) (citing Conley v.

Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80

(1957)). In ruling on a motion to dismiss, we construe

all well-pleaded allegations of the petition as true and

draw all reasonable inferences in favor of the plaintiff.

Christensen v. County of Boone, 483 F.3d 454, 466 (7th Cir.

2007). We review the grant of the motion to dismiss

de novo. Licari v. City of Chicago, 298 F.3d 664, 666 (7th

Cir. 2002).
4 Nos. 06-2586 & 06-2587

To obtain relief, each petitioner must establish by a

preponderance of the evidence either (a) that its interest

is superior to that of the defendant because it arose

before he committed the criminal acts giving rise to the

forfeiture, or (b) that it was a bona fide purchaser for value

without actual or constructive knowledge of the government’s interest in the property. 21 U.S.C. § 853(n)(6)(A-B).

Wells Fargo and Aurora obtained their interest in the

property after the conduct giving rise to forfeiture so the

first condition does not apply. We are therefore only

concerned with whether Wells Fargo and Aurora could

show that they were bona fide purchasers for value

without notice. We look to Michigan property law to

determine what constitutes notice. See United States v.

5 S 351 Tuthill Rd., 233 F.3d 1017, 1021 (7th Cir. 2000)

(“State law defines and classifies property interests for

purposes of the forfeiture statutes, while federal law

determines the effect of the property interest on the

claimant’s standing.”).

A. Wells Fargo

The government claims that Wells Fargo was untimely

in filing its petition. We agree. Under the criminal forfeiture statute, a third party must file its petition within

thirty days of the earlier of its receipt of (1) actual notice

of the order of intent to dispose or (2) the final publication of the notice. 21 U.S.C. § 853(n)(2). If the third party

does not file its claim within the thirty days, “the United

States shall have clear title to property that is subject to

the order of forfeiture.” 21 U.S.C. § 853(n)(7). We construe

this provision “liberally . . . to effectuate its remedial

purposes.” 21 U.S.C. § 853(o).

Wells Fargo admits that its petition was not filed within

thirty days after its agent received notice. The government

served its notice to Wells Fargo on March 7, 2005, and
Nos. 06-2586 & 06-2587 5

Wells Fargo filed its petition five months later: on August

2, 2005. Wells Fargo claims it failed to file its petition

within thirty days because the government failed to

provide it with adequate notice. We find this argument

meritless. The notice provided by the government included

the preliminary order of forfeiture, which identified the

property by legal description, PIN number, and street

address. It also warned that “the foregoing funds and

real property are subject to forfeiture based on the defendant’s conviction for the above reference violations.” We

find that the notice was adequate, and the district court

properly dismissed Wells Fargo’s petition.

B. Aurora

Aurora first challenges the district court’s ruling that

the property was subject to forfeiture. Aurora claims that

the lis pendens notice, which referred only to Jeffrey

Grossman’s interest in the property, could not affect the

interest of Bette Grossman, the record owner. Alternatively, Aurora claims that because Jeffrey Grossman had

no recorded interest, he had no interest in the house that

could be forfeited. We disagree.

The interests subject to forfeiture encompass all the

fruits of a defendant’s crimes, including assets held in the

name of third parties. 21 U.S.C. § 853(c). Jeffrey Grossman

admitted that funds from his illegal activity funded the

construction of the house and agreed that it was subject

to forfeiture.

Lastly, Aurora asserts that the government’s lis pendens

was ineffective constructive notice because it was filed

under Jeffrey Grossman’s name, outside the chain of title.

Further, Aurora claims that because Van Buren County

has no tract index, the government’s lis pendens could not

be discovered by a prudent title search. The government
6 Nos. 06-2586 & 06-2587

counters that a recorded interest is sufficient constructive

notice. Because it filed its lis pendens in the book of levies

first, the government claims that it has priority to the

property regardless of how the filing was indexed. We

must determine whether the government’s lis pendens

served as constructive notice under Michigan law.

A lis pendens is a public notification that “warn[s] all

persons that certain property is the subject matter of

litigation, and that any interests acquired during the

pendency of the suit are subject to its outcome.” Black’s

Law Dictionary (8th ed.). The effect of a lis pendens is to

give notice to interested parties that the property is

subject to a lawsuit. See Continental Paper & Supply Co.

v. City of Detroit, 545 N.W.2d 657, 662 (Mich. 1996).

However, to give notice to interested parties, a lis pendens

must be recorded in accordance with Michigan law. Mich.

Comp. Laws. § 565.25 sets forth Michigan’s race-notice

statute, which establishes that recorded instruments

generally serve as constructive notice:

(1) In the entry book of deeds, the register shall enter

all deeds of conveyance absolute in their terms, and

not intended as mortgages or securities, and all copies

left as cautions. In the entry book of mortgages the

register shall enter all mortgages and other deeds

intended as securities, and all assignments of any

mortgages or securities. In the entry book of levies the

register shall enter all levies, attachments, liens,

notices of lis pendens, sheriffs’ certificates of sale,

United States marshals’ certificates of sale, other

instruments of encumbrances, and documentation

required under subsection (2), noting in the books,

the day, hour, and minute of receipt, and other particulars, in the appropriate columns in the order in

which the instruments are respectively received.

. . .
Nos. 06-2586 & 06-2587 7

(4) The instrument shall be considered as recorded

at the time so noted and shall be notice to all persons

except the recorded landowner subject to subsection

(2), of the liens, rights, and interests acquired by or

involved in the proceedings. All subsequent owners or

encumbrances shall take subject to the perfected liens,

rights, or interests.

Mich. Comp. Laws. § 565.28 requires each party named in

an instrument accepted for recording to also be entered

into an alphabetical grantor-grantee index:

Each register of deeds shall keep a proper general

index to each set of books in which he or she shall

enter alphabetically the name of each party to each

instrument recorded by the register of deeds, with

reference to the book and page where the instrument

is recorded . . . .

Finally, Mich. Comp. Laws. § 565.29 summarizes the effect

of these Michigan recording statutes by stating that

recordings not performed in accord with the provisions of

Chapter 565 are ineffective against subsequent purchasers in good faith and for a valuable consideration:

Every conveyance of real estate within the state

hereafter made, which shall not be recorded as provided in this chapter, shall be void as against any

subsequent purchaser in good faith and for a valuable

consideration, of the same real estate or any portion

thereof, whose conveyance shall be first duly recorded.

The fact that such first recorded conveyance is in the

form or contains the terms of a deed of quit-claim and

release shall not affect the question of good faith of

such subsequent purchaser, or be of itself notice to

him of any unrecorded conveyance of the same real

estate or any part thereof.

The government argues that the chain of title is irrelevant, relying heavily on a negative inference created in
8 Nos. 06-2586 & 06-2587

Graves v. Am. Acceptance Mortg. Corp., 677 N.W.2d 829

(Mich. 2004). In Graves, amicus and one of the parties

advanced arguments that a property interest must be

recorded in the grantor-grantee index. The court declined

to review this argument and there is no discussion of it

in its opinion. The government also relies on Cipriano v.

Tocco, 772 F. Supp. 344 (E.D. Mich. 1991), Schepke v. Dept.

of Nat. Resources, 464 N.W.2d 713 (Mich. Ct. App. 1990),

and Thomas v. Bd. of Supervisors, 182 N.W. 417 (Mich.

1921). In each of these cases, a tract index was available

as an additional method of title searching. In Van Buren

County, however, the grantor-grantee index is the only

searchable method.

We construe the Michigan statutes together to mean

that an interest must be recorded within the chain of title,

in the grantor-grantee index, to have priority over a bona

fide purchaser. The register of deeds is required to keep

a grantor-grantee index, and under M.C.L. 565.29, it is

only effective against a bona fide purchaser if it is in the

grantor-grantee index. This position is also supported by

Michigan case law. See Bristol v. Braidwood, 28 Mich. 191,

193 (Mich. 1873) (“prior mortgage might describe the

same land, yet, if executed by some one having no connection with the real title, but outside of the chain of title, it

could in no way defeat or affect the [later filed] mortgage

or impair its security”); Meacham v. Blaess, 104 N.W. 579,

580 (Mich. 1905) (“the record of deeds not in [the] chain of

title [of a party] is no notice [to that party]”); Schweiss v.

Woodruff, 41 N.W. 511, 513 (Mich. Ct. App. 1889) (“The

question . . . is whether the record contains sufficient

[information] to apprise a party that some right or title is

claimed or attempted to be conveyed in the premises, and,

if it does, the purchaser is bound to use reasonable diligence to ascertain what it is that is so claimed or attempted to be conveyed.”). Because the government’s

lis pendens was recorded outside the chain of title and
Nos. 06-2586 & 06-2587 9

because Van Buren County has no tract index, there was

no way for Aurora to learn of the government’s interest.

The idea that the government’s filing could be constructive

notice defies logic. We find that the district court erred

by dismissing Aurora’s case.

III. Conclusion

For the aforementioned reasons, the judgment of the

district court as to Wells Fargo is AFFIRMED, and the

judgment of the district court as to Aurora is VACATED

and REMANDED for further proceedings.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—9-10-07