Trusts Appearing Upstream In Chain Of Title & Property Ownership Rights Of Subsequent Purchasers

A recent ruling by the Georgia Court of Appeals may be of some interest to title examiners and attorneys in the title insurance industry when insuring property containing a trust as a title holder somewhere upstream in the chain of title.

While I'm sure that this post will be of interest to absolutely no one other than possibly title insurance professionals and bona fide purchaser aficionados, I know I'll be referring back to this case in the future. Accordingly, it makes the cut and gets posted(1) (bold text is my emphasis):

• 1. Kitchings first argues that the trial court erred in holding that Patch Nursery and Ameris Bank were bona fide purchasers for value. Kitchings contends that the co-trustees' distribution of all the property in a single transfer to Christine Cannon was sufficient to put a reasonably prudent title examiner on notice that the transfer was a mismanagement of the assets of the trusts, a breach of the trust agreement and a breach of the co-trustees' fiduciary duty to the remainder beneficiaries.
  
  "As a general rule, a bona fide purchaser for value is protected against outstanding interests in land of which the purchaser has no notice. Farris v. Nationsbanc Mtg. Corp., 268 Ga. 769, 770 (2) (493 SE2d 143) (1997); OCGA §§ 23-1-19, 23-1-20. We have long held that a grantee in a security deed who acts in good faith stands in the attitude of a bona fide purchaser, and is entitled to the same protection." Brock v. Yale Mtg. Corp., 287 Ga. 849, 852 (700 SE2d 583) (2010).
  
  To qualify as a bona fide purchaser for value without notice, a party must have neither actual nor constructive notice of the matter at issue. Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found that such inquiry might have led. Whiten v. Murray, 267 Ga. App. 417, 421 (2) (599 SE2d 346) (2004). A purchaser of land is charged with constructive notice of the contents of a recorded instrument within its chain of title. VATACS Group v. HomeSide Lending, 276 Ga. App. 386, 391 (2) (623 SE2d 534) (2005). Furthermore, the grantee of a security interest in land and subsequent purchasers are entitled to rely upon a warranty deed that is regular on its face and duly recorded in ascertaining the chain of title.
  
  Deutsche Bank Nat. Trust Co. v. JP Morgan Chase Bank, 307 Ga. App. 307, 309 (704 SE2d 823) (2010).
  
  Here, Thomas Cannon, Sr.'s will granted to the trustees the power "[t]o sell, exchange, partition or otherwise dispose of any property at any time held or acquired under this will . . . for such purposes as my personal representatives may deem best. . . ." The will further provided: "[m]y primary desire is that my spouse be supported in a reasonably comfortable manner throughout life rather than the preservation of principal until the termination of this trust, and I wish my Co-Trustees to be guided by this consideration in determining the amount to be used for the support of my spouse. . . ." (emphasis supplied).
  
  The title search shows that the property was transferred to Christine Cannon through a Trustees Deed of Distribution, from the remainder trust to the primary beneficiary of the trust. The wording of the trusts at issue, as set out previously, allows the trustees to sell or dispose of any property, at any time, for reasons they may deem best, for the benefit of Christine Cannon.
  
  "A purchaser of land is charged with constructive notice of the contents of a recorded instrument within its chain of title. Conversely, a purchaser is not charged with constructive notice of interests or encumbrances which have been recorded outside the chain of title." Gallagher, supra at 625. Here, there is nothing in the chain of title or the trust instruments that would put either the bank or Patch Nursery on notice that there were any issues affecting title to the properties.
  
  The provisions of Cannon, Sr's will gave broad discretion to the trustees. Thus, there was nothing in the documents themselves sufficient "to excite attention and put a party on inquiry." See Whiten, supra at 421. See also Beecher v. Carter, 189 Ga. 234 (5 SE2d 648) (1939) ("Where a purchaser of land from one in possession, who holds a deed thereto [that] is absolute on its face, has paid the purchase-price and taken possession, parties claiming an equity therein of which the purchaser had no notice are not entitled to have purchaser's deed canceled.").
  
  Accordingly, there was no error in the trial court's grant of summary judgment to Ameris Bank and Patch Nursery on the grounds that they were entitled to the protection of bona fide purchaser for value on Kitchings's claim to cancel their deeds.

For the ruling, see Kitchings v. Ameris Bank, A11A0323 (Ga. Ct. App. June 8, 2011).

(1) Apologies to the handful of you who are here reading this blog on July 4th weekend instead of being away on vacation, and thanx for your forebearance and patronage!