Title Insurance 101 – How Recording Laws Determine Date of Policy

One of the essential provisions of a title policy is the Date of Policy.  This is made clear in the very first part of every title policy adopted by the American Land Title Association (“ALTA”), which states:

“Subject to the Exclusions from Coverage, the Exceptions from Coverage contained in Schedule B, and the Conditions,  ___________ (the “Company”) insures, as of Date of Policy, . .”

The term “Date of Policy” is defined in Paragraph 1 of the Conditions as “The date designated as ‘Date of Policy’ in Schedule A.”   This definition doesn’t give much guidance as to how the Date of Policy is determined.   The Date of Policy entered on Schedule A is not arbitrary, and is determined by the transaction creating the interest insured.

For the purposes of almost every title policy, the Date of Policy is the date on which the document creating the interest insured is recorded in the public records.  This means that, for an Owner’s policy, the Date of Policy is the date that the Deed into the Insured is recorded in the local land records.  For Loan policies, the date of policy will be the date that the Mortgage or Deed of Trust is recorded.

Every state has laws dealing with the recordation of documents and the requirements that must be satisfied in order for a document to be recorded.  Virtually every deed, mortgage and deed of trust, in order to be recorded, must be in proper form and must have been notarized.  The document is then presented to the county recorder or clerk’s office to be filed for record and a fee paid.  Documents are accepted in the order in which they are received or filed, and then recorded in the order in which they have been filed.  The order in which a document has been filed and recorded will determine its priority vis à vis other documents affecting the same land.

Title policies use the recording date for the Date of Policy because the act of recording a document puts the public on notice that the document exists.  This is the theory of “constructive notice”, which is that all persons are presumed to be on notice of all documents that have been recorded in the land records, and which can be discovered through a search of those land records.   The theory of constructive notice protects a purchaser of property who, after a search of the land records, pays value for the property.  If the purchaser for value has no actual knowledge of any outstanding interests or defects affecting the land, and a land record search reveals no other recorded interests in the subject property, that purchaser can be a “bona fide purchaser”, a legally protected status.  Title insurers require that the interest insured under a title policy carries the protection of the recording laws, and do everything they can to make sure that the deed or mortgage to be insured is entitled to constructive notice.

When a document is received in the recorder’s office, it is stamped with a filing number, along with a date stamp showing the date and time it was received.   The filed document is then recorded in the land records.  Recording can take several different forms.  A hundred years ago, recording a document meant that a clerk would copy every word in the original document by hand into a large bound book, in numerical sequence by volume and page in each book.   There would also be a separate index where the names of the grantors and grantees were listed, along with the type of document that was being recorded, and the volume and page of the large book where the official copy of the document could be found.  Starting in the late 1950’s and 1960’s, recorders switched to micro-filming the original documents, and placing the micro-filmed documents in chronological order, essentially replacing the old hand-written volumes with microfilm, but retaining the fiction of a volume and page number, and retaining the index to help locate documents.  Now, more and more land records are being digitized.  In localities where the documents are fully computerized, the original documents are scanned at the time of filing, the documents are given a sequential document number, no longer using the volume and page system, and often the originals are returned immediately.  As technology advances, more and more county systems are adopting digital recording processes.  While this is good, it tends to create more diversity between recording systems, as urban areas are more quickly adopting the new technology, but rural areas remain hampered by the older, slower systems.

Sometimes, where the filing and recording system has not been computerized, the recorder’s office is so backed up with documents that have been filed that it can takes days, weeks or even months before they can be filmed and given an official volume and page number.  Technically, until this happens, the document has not been officially “recorded” for constructive notice purposes.  This time difference is called the “Gap”, and can cause serious problems when other documents affecting the property are filed for record during this gap period.  We will discuss the gap issues soon in another blog.

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