(When) Is It Safe to Exclude a Mortgage With a Faulty Legal Description as an Exception to Title?

Would you assume the risk in the following situation?

A mortgage is recorded with a legal description for land that the mortgagor does not own. The mortgage shows the street address and tax identifier for land that the mortgagor does own within the text of the mortgage.

The county recorder indexes the mortgage under the name of the mortgagor and the lot and subdivision shown on the legal description. An expert witness testifies that the mortgage is not in the chain of title for the property owned by the mortgagor and, as a title examiner, he would not read the mortgage to see if there was potentially a lien on the mortgagor’s land, based upon the recorder’s index.  Thus, he would exclude it from his title report.

In Kellner v. First Ohio Banc & Lending, Inc.(In re Geraci), No. 11-bk-31590, Adv. No. 11-ap-3386 (Bankr. S.D. Ohio 2014)(appeal pending), the court agreed with the expert and found that the mortgage did not provide constructive notice to a bankruptcy trustee.

The court did not follow the Sixth Circuit decision in Argent Mortgage Company v. Drown (In re Bunn), 578 F. 3d 487(6th Cir. 2011) where the court held that Ohio mortgages do not require formal legal descriptions so that if a purchaser would reasonably conclude from information contained in the mortgage what property was being encumbered, the purchaser was on notice.

Upon questioning, the expert testified that he would risk a claim on his title insurance policy over showing the mortgage. As a title examiner/underwriter, do you agree with the expert? 

Cast your vote.

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