In Secured Lending 101, we learn that the general rule is "first in time, first in right." Well, how does one determine who is "first in time"? Generally, secured lenders may rely on state and county recording offices to determine the priority of their lien against a borrower’s property. If public records show no existing liens on the property, the lender’s lien generally will have top priority.
Can a diligent lender’s lien lose its priority position despite good-faith reliance on the public records? Recently, in In re Rag East LP, No. 12-2454-CMB (Bankr. W.D. Pa. Mar. 4, 2013), U.S. Bankruptcy Judge Carlota M. Böhm of the Western District of Pennsylvania was asked to decide which lien had priority: a lender whose properly recorded liens were fraudulently released by recording of lien "satisfaction" documents filed with state and county recorders’ offices without its permission, or subsequent lenders who relied on the forged satisfaction documents and believed they were getting first priority liens? Faced with this difficult situation, the court held the forged statements were nullities and the first lender retained its first priority position.
Three Innocent Lenders and Two Bad Documents
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