Chapter 25 - § 25.3 • NOTICE AS SUBSTITUTE FOR RECORDING

• Jurisdiction: Colorado

§ 25.3 • NOTICE AS SUBSTITUTE FOR RECORDING

§ 25.3.1—General Principles

There are three forms of notice by which a party is charged with knowledge of the rights of another: actual notice, constructive notice, and inquiry notice.²³³ Facts sufficient to put one upon a duty of inquiry are sufficient constructive notice to satisfy the notice requirements of the recording act.²³⁴ In some cases, a statutory presumption of notice is created. For example, the owner or purchaser of building lots is presumed to have notice of public plans, maps, and reports of the planning commission affecting property within its jurisdiction.²³⁵

§ 25.3.2—Actual Notice

With regard to actual notice, the Colorado Court of Appeals has said:

"Actual notice" is a term frequently used in, but not defined by, the statutes. There are relatively few cases in Colorado which have construed the term "actual notice." See Everett v. Todd, 19 Colo. 322, 35 P. 544 (1894); Adelson v. Board of County Commissioners, 875 P.2d 1387 (Colo. App. 1993). We conclude that "actual notice" is such notice as is positively proved to have been given to a party directly and personally, or such as the party is presumed to have received personally because the evidence within the party's knowledge was sufficient to put the party upon inquiry. See Black's Law Dictionary 1061 (6th ed. 1990).²³⁶

More recently, the Colorado Supreme Court has said that actual notice occurs when one has actual knowledge of another's claim.²³⁷

Actual notice is the full equivalent of constructive notice.²³⁸ Where "each and every of the parties interested had actual notice" such actual notice is as effective as constructive notice imparted by the public records.²³⁹

A principal is not bound by the unofficial knowledge communicated to his agent, unless the knowledge is present to the agent's mind at the time of effecting the purchase.²⁴⁰ If the agent, at the time of effecting a purchase, has knowledge of any prior lien, trust, or fraud affecting the property, no matter when he or she acquired such knowledge, his principal is affected thereby. If the agent acquires the knowledge when he or she effects the purchase, no question can arise as to his having it at that time. If the agent acquired it previous to the purchase, the presumption that he or she still retains it, and has it present to his mind, will depend on the lapse of time and other circumstances.²⁴¹

Issues pertaining to actual and inquiry notice are questions of fact.²⁴²

Actual Notice of Recorded Instrument

If a person has actual notice of a recorded instrument, it is immaterial that the instrument is not recorded within the period of notice.²⁴³ For example, when one encumbrance is recorded later in time than another, yet is intended by agreement to be superior to the encumbrance first recorded, the title acquired pursuant to the public trustee's deed upon the foreclosure of the encumbrance second recorded is not subject to the encumbrance first recorded if the holder of the first encumbrance has notice of the intended priority.²⁴⁴ Nothing in former C.R.S. § 38-39-110,²⁴⁵ which provided that following the expiration of the redemption period, a foreclosing lienor's title "shall be free and clear of all liens and encumbrances recorded or filed subsequent to the recording or filing of the lien on which the sale . . . was based," requires a different result. The term "liens and encumbrances recorded or filed subsequent" excepted superior liens not of record where actual or imputed notice of them was established.²⁴⁶

Actual Notice of Unrecorded Instrument

If a person has actual notice of an unrecorded instrument, it is immaterial that the instrument is not recorded.²⁴⁷ An unrecorded instrument is valid "between the parties thereto and those having notice thereof."²⁴⁸ The effect of the actual notice will depend upon the circumstances. See Examples 16, 26, and 27.

But notice by a record grantee of a deed to a prior grantee, delivered in escrow to be held subject to the occurrence of a condition, does not prevent the second grantee from taking title from the grantor free of the interest of the prior grantee.²⁴⁹

Actual Notice of Matters In Pais

One who purchases land with irrigation ditches thereon has notice of the right of way.²⁵⁰

Where a person purchases property with his own funds but places title in joint tenancy with another person, intending thereby to make a gift to the other person conditional upon their marriage, one who has knowledge of that intent and that the condition has failed, cannot acquire from the donee an interest in the property superior to that of the donor.²⁵¹

§ 25.3.3—Constructive Notice

Constructive notice is tantamount to actual notice.²⁵² Constructive notice is, for all practical purposes, record notice.²⁵³ The proper recording of an instrument provides constructive notice to all those claiming under the same chain of title.²⁵⁴ So long as an instrument is properly recorded, it provides constructive notice even if the party charged with notice did not locate the instrument.²⁵⁵

§ 25.3.4—Inquiry Notice

In General

Inquiry notice arises when a party becomes aware or should have become aware of certain facts which, if investigated, would reveal the claim of another. By operation of law, the party is charged with all knowledge that a reasonable investigation would have revealed.²⁵⁶

Knowledge of circumstances may be equivalent to actual notice.²⁵⁷ Inquiry notice requires sufficient facts to attract the attention of interested persons and prompt a reasonable person to inquire further.²⁵⁸ If a person has knowledge of circumstances which, in the exercise of common reason and prudence, ought to put him or her upon particular inquiry, he or she will be presumed to have made the inquiry, and will be charged with notice of every fact which would in all probability have been revealed had the inquiry been undertaken.²⁵⁹

A person will not be charged with actual notice if he or she has made a reasonable inquiry without discovering the fact in question,²⁶⁰ or if a reasonable inquiry would not have revealed the fact in question.²⁶¹ A fortiori, he or she will not be charged with notice if his inquiry reveals the actual or supposed nonexistence of such fact.²⁶² But if, after full inquiry and full knowledge of the facts, a purchaser relies on mistaken legal advice, he or she cannot claim to be a bona fide purchaser without notice.²⁶³

Early Colorado cases have said that inquiry notice is a form of constructive notice.²⁶⁴ More recently, however, the Colorado Supreme Court has said:

We recognize that traditionally, inquiry notice has been considered merely a form of constructive notice. We find this construction cumbersome and misleading, as inquiry notice is sufficiently distinct from constructive notice to merit separate consideration. Unlike constructive notice, inquiry notice depends on extrinsic factual inquiry. For these purposes, we limit constructive notice to notice imputed solely through operation of the recording acts.²⁶⁵

Information Putting One on Inquiry

Facts sufficient to put one upon a duty of inquiry are sufficient constructive notice to satisfy the notice requirement of C.R.S. § 38-35-109(1).²⁶⁶ Among those facts which may create a duty of inquiry are the following:

• The fact that no consideration is given;²⁶⁷
• The fact that a recorded deed of trust is past due with no release or extension having been recorded;²⁶⁸
• An unauthorized release of the property from the operation of a deed of trust²⁶⁹ (but there is no duty of inquiry where the prospective purchaser does not know that the release was unauthorized²⁷⁰ ), or the fact that a release of a deed of trust was executed at the request of an apparent stranger;²⁷¹
• The fact that a trust deed was released by the trustee at a time when the trustee was the owner of the encumbered property;²⁷²
• The fact that a deed of trust was foreclosed before the due date of the indebtedness secured;²⁷³
• A provision in purchase agreement referring to special improvement district;²⁷⁴
• A deed of trust referring to a note without mentioning the amount of the note,²⁷⁵ or providing for attorney fees;²⁷⁶
• Actual knowledge of pending sale;²⁷⁷
• The fact that a note was allegedly cancelled but the deed of trust securing it was not released;²⁷⁸
• An ambiguous or incomplete description;²⁷⁹ and
• A recital in an instrument that the party executing it "does not warrant or guarantee title in himself to the said premises, but merely agrees to lease . . . the said premises under such title as he has acquired."²⁸⁰

A recorded document which is defective in some respect may put a purchaser on notice,²⁸¹ particularly where the defect is such as may be corrected by reformation.²⁸²

But the use of a quitclaim deed does not charge the purchaser with notice of outstanding equities not appearing of record,²⁸³ nor does a delay in recording a deed.²⁸⁴ The fact that a person who is a personal representative of the estate holding a mortgage or deed of trust bids in property at the foreclosure sale does not charge subsequent purchasers or encumbrancers with inquiry notice regarding the interest of the estate in the property purchased.²⁸⁵ The fact that a deed deposited in escrow was returned to the owner upon the failure of the purchaser to comply with the terms of the escrow does not charge a purchaser who has knowledge of these facts with inquiry notice regarding the subsequent return of the deed into escrow.²⁸⁶

It appears that a purchaser or encumbrancer may always be on inquiry notice regarding the existence of mechanic's liens not yet recorded.²⁸⁷

A purchaser or encumbrancer having knowledge of a judgment lien is not charged with notice of the possibility of future litigation which could result in the amendment of the judgment nunc pro tunc.²⁸⁸

§ 25.3.5—Notice from Recitals in Instruments Not in Chain of Title

Recorded Instrument Referring to Unrecorded Instrument

In Delta County Land &...