Victory for Victim of Real Estate Fraud
Court of Common Pleas Judge Gene Cohen rendered an award in favor of a Philadelphia resident caught up in an unfortunate title dispute. Our client engaged us when she discovered that an investment property she purchased was previously sold to another buyer. Both our client and the prior purchaser were caught up in this dispute because the unscrupulous seller sold the same property in both 2005 and 2012.
Our client purchased the property as an investment in 2012 after a title search was conducted. The title search did not reveal the 2005 purchase because the buyer did not record the deed and did not reside in the property. Once our client recorded her 2012 deed, the prior purchaser immediately rushed to record his 2005 deed. The parties later initiated litigation which resulted in a trial.
The general rule in Pennsylvania regarding deed recording conflicts is Race-Notice. Race-Notice means that the first person to record a deed without notice of an alleged prior purchase will take the property. Notice does not mean actual knowledge. Notice is based upon what the subsequent purchaser either knew (actual notice) or should have known (constructive notice) under the circumstances. For example, a subsequent purchaser could be on constructive notice if the property was being maintained. A subsequent purchaser will not take legal title even if their deed is recorded first if there is either actual or constructive notice under the circumstances.
The prior purchaser’s defense at trial focused on notice. The arguments essentially boiled down to which party appeared more credible. Should the judge believe our client who claimed no knowledge of the prior purchase or the defendant’s claim that he spoke to our client many times about the property?
The case was won for our client through cross examination. The prior purchaser admitted on cross that he employed a company called Doctor Deed to “construct” a deed and alter the chain of title. This admission of fraud destroyed the defendant’s credibility and undermined his claim that he had conversations with our client before her purchase.
There are many morals to this story for investors of distressed-title properties. A title search is essential, but is no substitute for on-the-ground investigation. An investor can reduce risk by inquiring with neighbors about potential prior unrecorded sales. A property can be lost even if the deed is recorded first if the purchaser had reason to suspect that the property was previously sold.
Our client continues to live in Philadelphia and plans to do so for the rest of her life. Her now-secure investment property will soon be renovated and held as a rental.
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