Mortgage Priority; Legal Description Errors

Keybank National Association v NBD Bank, 699 NE2d 322, (Ind App 1998).

Facts: A buyer took title to a parcel of real estate with the following legal description: "Sections 13 and 14, Township 12 North, Range 1 West." [emphasis added] The deed was properly recorded, and a mortgage for the property was given to NBD Bank. However, the mortgage contained the following erroneous legal description: "Sections 13 and 14, Township 12 North, Range 1 East," [emphasis added] which described a different parcel of real property. The mortgage was recorded with the erroneous legal description and was, therefore, not in the chain of title for the intended parcel. The same parcel was conveyed years later to a purchaser with a properly recorded deed containing the correct legal description. The second purchaser later quitclaimed a portion of the parcel in question with the following erroneous legal description: "Sections 13 and 14 Range 12 North, Range 1 West." This deed was properly recorded in the correct chain of title despite the error because it was obvious that "Range 12 North" should have read "Township 12 North," as a legal description cannot have two designations for range. The grantee in the quitclaim deed gave a mortgage for the property to Keybank and subsequently filed for Chapter 7 bankruptcy. When Keybank initiated a foreclosure action, neither bank was aware of the errors in their respective mortgages. The trial court held that Keybank's mortgage was a nullity due to the error in the legal description and that NBD's mortgage had priority. Keybank appealed.

Holding: Reversed. The first issue before the court was the validity of Keybank's mortgage. The appellate court found that Keybank's mortgage was effective because it met the test for sufficiency of legal description, that is, the error had not caused any ambiguity regarding the parcel that was intended to be mortgaged, and the intended parcel could be located despite the error. Moreover, the mortgage had been properly recorded within the intended parcel's chain of title despite the error. Because NBD's mortgage contained an erroneous legal description, which was not sufficient to identify the intended parcel, and thus, was recorded out of the chain of title of the intended parcel, Keybank had no constructive or actual notice of the NBD's mortgage. Accordingly, Keybank took its mortgage on the subject parcel as would a bona fide purchaser, for value, without notice, and thus, had priority over NBD's mortgage.

ILLINOIS ANALYSIS: Illinois law would likely produce a similar result. The first party to give notice of its mortgage lien on real property has the senior lien. Skidmore, Owings & Merrill v Pathway Financial, 173 Ill App 3d 512, 527 NE2d 1033 (3rd D 1988). Constructive notice is provided only where the record appears in the chain of title. Landis v Miles Homes, Inc, 1 Ill App 3d 331, 273 NE2d 153 (3rd D 1971).

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