notice-race statute

notice-race statute

A law in some states that establishes the relative priority of claims when deeds or mortgages are not recorded in the public records in the chronological order in which they were executed. It provides that if a second mortgage lender provides money to a property owner without notice that there is already a first mortgage on the property, and the second mortgage lender records its mortgage before the first mortgage is recorded (usually because of some accident or oversight),then the second mortgage lender will have the first lien on the property.

Example Ralph borrows $140,000 from Big Lender to buy a home. He signs a mortgage. Big Lender makes a mistake and files the mortgage in the wrong county in Ralph's state. This has the same effect as not filing at all. A year later, Ralph borrows $25,000 from Easy Internet Loans. It takes a mortgage and files it in the right place. Two days later Ralph takes the cash and disappears. In a notice-race state, Easy Internet Money may foreclose on the property and take the first $25,000 in proceeds from the sale. The balance will go to Big Lender, who will usually not see enough money to pay the loan in full. Contrast with pure-race statutes and pure-notice statutes.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.