Street Address in Recorded Deeds of Trust Not Enough

` Colorado Supreme Court Holds "Legal Descriptions" Necessary in Deeds of Trust to Put Subsequent Purchasers on Notice of Security Interests


In June 2012 the Colorado Supreme Court held that a recorded deed of trust containing a street address but not a legal description does not provide sufficient notice to a subsequent purchaser of another's security interest in the real estate. In re Rivera, 2012 CO 43, 11SA261. The Court observed that the result may appear harsh since in that case the omission was unintentional. However, the Court observed its holding was consistent with Colorado's recording statutes and longstanding practices. The Court found that no other conclusion conferred the necessary respect for Colorado's real property system's need for "certainty and stability."

The Court had agreed to answer the question at bar upon request by the United States Bankruptcy Court for the District of Colorado, pursuant to C. A. R. 21.1. The Court assumed the deed of trust was "properly recorded" only in the sense it was properly indexed in the grantor-grantee index, not that it was "free of all defects that might render it invalidly recorded." The Court concluded the trust deed was defectively recorded and could not provide constructive notice to a subsequent purchaser of the security interest referred to therein.

The Court founded its conclusions on Colorado's race-notice recording state which provides "no ... unrecorded instrument or document" shall be valid against a purchaser without notice who records first. C. R. X. § 38-35-109(1). Although that provision does not specify what information the instrument must contain, the reference to "legal description of the property" in section 38-35-122(1)(a), C. R. S. (2011) convinced the Court there was presumption that a valid deed of trust must necessarily contain a legal description in addition to a street address. The Court noted that actual notice of another's interest in property will defeat a purchaser from obtaining property free and clear of the encumbrance. However, a bankruptcy provision prevented that knowledge from being imputed to the plaintiff bankruptcy trustee in the case at bar.

A dissenting justice pointed out that "legal description" is not specifically defined by any statute. He also observed a street address might be considered one form of "legal description" that would satisfy the requirements for effectively recorded instruments or documents. The dissenter opined that if the legislature had intended "legal description" to adhere to a specific method or formula of description, it would have specified the formula or method. However, the single dissent was greatly outweighed by the unanimous joining by the other justices in the majority opinion.

Posted by:  Wes Howard