In First Bank v. East West Bank, 2011 Westlaw 4908756 (Cal.App.), California’s Second District Court of Appeal ruled that two deeds of trust against real property marked “recorded” at exactly the same moment have equal priority, notwithstanding the fact that one was indexed first.
This case arises from a scam in which the borrower, Kyung Ha Chung, obtained two loans from two different banks on the same day, without telling the other what he was doing. Each bank believed it would be in first position. Both banks waited about a week to record their deeds of trust, which were delivered to the recorder’s office on the same day before business hours. When the recorder’s office opened at 8:00 am, both deeds of trust were marked “recorded” as of 8:00 am, although they were indexed approximately 4 hours apart. First Bank’s lien was indexed second, and East West Bank sued for declaratory relief. In the meantime, Chung absconded with the money.
In holding that the liens share equal priority, the court explained that neither lien was the “first duly recorded” pursuant to the recording statute. East West Bank argued that the time of indexing should be used as a “tiebreaker,” but the court found that the statute provides for recording and indexing as separate duties of the recorder, with recording establishing priority, not indexing.
The court’s ruling may be technically incorrect. Specifically, Chung could not have executed both deeds of trust simultaneously (in fact, he probably attended two separate signings). The deed of trust executed earlier in time would prevail under common law, and the recording statute would not invalidate the lien because neither bank was the first to record.
This case provides two practical warnings: First, record as soon as possible. It is not clear why the banks both waited about a week to record, but either one could have avoided losing priority by recording promptly. Second, when multiple deeds of trust are to be executed simultaneously, be sure to provide proper recording instructions.
(Also seen on Insight Into Banking)