Bilden Props., LLC v. Birin

• Decision Date: 21 August 2013
• Docket Number: No. 2012–387,2012–387
• Citation: 75 A.3d 1143,165 N.H. 253
• Parties: BILDEN PROPERTIES, LLC & a. v. S. Gerald BIRIN & a.
• Court: New Hampshire Supreme Court

165 N.H. 253

75 A.3d 1143

BILDEN PROPERTIES, LLC & a.

v.S. Gerald BIRIN & a.

No. 2012–387

Supreme Court of New Hampshire.

Argued: June 4, 2013

Opinion Issued: August 21, 2013

As Modified on Denial of Reconsideration Sept. 30, 2013

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

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

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

DALIANIS, C.J.

The petitioners, Bilden Properties, LLC (Bilden Properties) and TD Bank, N.A. (TD Bank), appeal, and the respondents, S. Gerald and Gail Birin (the Birins), cross-appeal, an order of the Superior Court (Nicolosi, J.) finding, among other things, that the petitioners are bona fide purchasers for value, who acquired interests in the subject property without notice of the Birins' mortgage on it. We affirm in part, reverse in part, vacate in part, and remand.

The trial court found or the record supports the following facts. The property at issue is 719 Daniel Webster Highway in Merrimack. On December 18, 2001, Austin James Properties, LLC acquired title to the property and granted first and second mortgages to Southern New Hampshire Bank. The managing member of Austin James Properties, LLC was Scott Desantis. In 2006, to secure a number of debts Desantis and entities that he controlled owed to the Birins, Austin James Properties, LLC granted a $1 million mortgage on the property to the Birins. The $1 million mortgage far exceeds the property's fair market value.

The Birins' mortgage deed is captioned incorrectly. Although the text of the deed identifies the grantor as "Austin James Properties, LLC," the caption identifies the grantor as "Austin James Development, LLC." (Emphases added.) Perhaps because of the caption error, the grantor index in the registry of deeds lists Austin James Development, LLC as the grantor of the Birins' mortgage instead of Austin James Properties, LLC.

In May and July 2007, Austin James Properties, LLC granted mortgages on the property to Blackfoot Capital, LLC. The May 2007 mortgage lists the grantor as Austin James Properties, LLC. The May 2007 mortgage encumbers two properties:

the subject property and 31 Temple Street in Nashua.

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

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

By searching the grantor index under Austin James Properties, LLC, the title abstractor discovered the July 2007 mortgage to Blackfoot Capital, LLC, which identifies one of the grantors as Austin James Properties, LLC a/k/a Austin James Development, LLC. However, she did not search the grantor index for conveyances by Austin James Development, LLC. Instead, she contacted the Office of the New Hampshire Secretary of State and was informed that no entity with that name was registered there.

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

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

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

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

New Hampshire is a "race-notice" jurisdiction. C F Invs. v. Option One Mortgage, Corp., 163 N.H. 313, 315, 42 A.3d 847 (2012). In a "race-notice" jurisdiction, "priority is given to a subsequent purchaser who acquires an interest without notice of the prior interest, but only if the subsequent purchaser also records that subsequent interest before the owner of the prior interest records that prior interest." 14 R. Powell, Powell on Real Property § 82.02[1][a] (3) (Michael Allan Wolf ed., 2013); see RSA 477:3–a (2001). Thus, in this case, the Birins' mortgage is not enforceable against the petitioners if the petitioners acquired their interest in the property without notice of the Birins' mortgage and the petitioners recorded their interest first. See Powell, supra § 82.02[1][c][iii].

Notice may be of three types: (1) actual; (2) record; and (3) inquiry. Id . § 82.02[1][d]; see C F Invs., 163 N.H. at 316, 42 A.3d 847. "Actual notice" refers to "information concerning the fact—as, for example, concerning the prior interest, claim, or right—directly and personally communicated to the party." Powell, supra § 82.02[1][d][i] (quotation omitted).

"Record notice" is "notice arising solely from the record." Id. § 82.02[1][d][ii]. "Record notice" is sometimes referred to as "constructive notice." See id. "A subsequent purchaser ... is on constructive notice of all claims revealed by the record, regardless of whether [the subsequent purchaser] ever looks at the record or ever sees the information contained there." Id. ; see Thomas v. Finger, 144 N.H. 500, 503, 743 A.2d 1283 (1999) ("a real estate purchaser will be charged with constructive knowledge of what may be revealed by an examination of the record" (quotation omitted)). "Record notice" is "notice inferred from the record." Powell, supra § 82.02[1][d][ii] (quotation omitted).

"Inquiry notice" is notice that arises from a legal inference. Id. § 82.02[1][d][iii]. "Inquiry notice" is notice of a fact that is "sufficiently ‘curious’ or ‘suspicious,’ according to normal human experience, that the purchaser should, as a matter of law, make an investigation into it." Id. ; see Thomas, 144 N.H. at 503, 743 A.2d 1283. "If upon making the investigation into this first fact a second fact, namely that another person has a claim to the title of the property, is revealed, then the purchaser is considered to have inquiry notice of the claim itself." Powell, supra § 82.02[1][d][iii]; see Thomas, 144 N.H. at 503, 743 A.2d 1283. "In other words, because of the nature of the first fact, of which the purchaser has actual or constructive notice, a rebuttable inference is made that the purchaser has notice of the second fact. However, if a reasonable inquiry would not reveal the second fact, then the inference is rebutted." Powell, supra § 82.02[1][d][iii]; see Thomas, 144 N.H. at 503, 743 A.2d 1283.

Actual notice is not an issue in this case. Whether the records in the petitioners' chain of title gave notice of the Birins' prior mortgage to a subsequent purchaser is a question of law, which we review de novo. See C F Invs., 163 N.H. at 317, 42 A.3d 847.

We conclude that the petitioners had record notice of the July 2007 mortgage held by Blackfoot Capital, LLC because that mortgage deed was in the petitioners' chain of title. See id. That deed lists one of the grantors of the mortgage as Austin James Properties, LLC a/k/a Austin James Development, LLC. Moreover, we hold that notice of that fact—that Austin James Properties, LLC used or was known by a different name—constituted notice of a fact that is "sufficiently ‘curious’ or ‘suspicious,’ according to normal human experience, that [a] purchaser should, as a matter of law, make an investigation into it." Powell, supra § 82.02[1][d][iii]. Had the grantor index been searched under the name "Austin...