• Attorney Responsible For Recorder's Error
  • September 10, 2003 | Author: Harris Ominsky
  • Law Firm: Blank Rome LLP - Philadelphia Office
  • The Pennsylvania Commonwealth Court has found that an attorney may be liable for malpractice merely because he failed to check that a recorded document is properly indexed. Antonis v. Liberati, 821 A.2d 666 (Pa. Cmnwlth. 4/21/03). The decision has created a flurry of comments and criticism, and may change the customary protocols followed by lawyers in real estate closings.

    Scary Case

    Let's take a look at this scary case. In Antonis, an attorney was retained by a lender to assist in the recording of a mortgage, and the attorney delivered it in proper form for recordation. After the delivery, the lender contacted the attorney several times for reassurance that the mortgage had been recorded, and the attorney reassured the attorney that "everything was in order."

    Unfortunately, a clerk in the recorder's office misspelled the name of the borrower and as a result the borrower later was able to sell the property to a buyer who had no actual or constructive notice of the mortgage. The borrower later died without paying the mortgage and a trial court ruled that the bona fide purchaser cut off the rights of the lender.

    The lender then sued the borrower's estate, as well as the recorder and the lawyer for his loss, and the trial court found for the lender against all parties. On appeal to the Commonwealth Court, that judgment was reversed against the recorder, and the lawyer wound up holding the bag. The court held that the recorder is not liable for the negligence of its employee, despite the fact that a Pennsylvania statute states "it shall be the duty of the recorder to index in its appropriate place and manner, every deed and mortgage thereafter recorded in his office at the time the same is recorded, and in case he neglects to do so he and his sureties shall be liable in damages to any person aggrieved."

    The court held that this statute does not impose liability for negligent indexing, and that the recorder is protected by the Pennsylvania Tort Claims Act. The lawyer had argued that the trial court erred both in finding that he had any duty beyond the delivery to the recorder, and that the borrower's fraud should have been identified as an intervening cause of the loss. In addition, he alleged that the trial court erred in refusing to admit expert testimony on the issue of a lawyer's duty after delivery of a document for recording.

    100-Year Precedent

    The Commonwealth Court rejected these arguments and relied on a 1909 Pennsylvania decision that was used by the trial court to support the bona fide purchaser against the improperly indexed mortgage. In that case, the court held that mortgagees and grantees should protect themselves:

    It is an easy matter for a mortgagee or a grantee...either in person or by a representative, to look at the record and see that the instrument has been properly entered...There is every reason why it should be made the duty of the mortgagee to see that his instrument is properly recorded...The obligation of seeing that the record of an instrument is correct must properly rest upon its holder. If he fails to protect himself, the consequence cannot be shifted upon an innocent purchaser."

    That quote from a Pennsylvania Supreme Court decision, almost 100 years old, was written in an era in which recording realities were very different. In major cities like Philadelphia, recorders' officers must now sometimes handle thousands of recordings a week and frequently fall behind in filing and indexing documents. The indexing could occur months after the documents are submitted. It is no longer "an easy matter" for a lawyer to check the proper indexing of a document after a closing. In light of that, some commentators maintain that the court should have taken expert testimony on the burden involved in making such a check and on the customary practices of closing attorneys.

    Title Insurance

    In Philadelphia and many other areas in the state, most closings are done using title insurance, and title companies frequently act as the closing agents. While the Antonis case does not discuss whether a title company was involved in that closing, it seems that none was used in that case.

    When title insurance is used, the title company insures the lien of the mortgage as of the date of the closing, as evidenced by the customary "marked-up title report," which places the title company in the position of insuring both recording and proper indexing. Therefore, generally, closing lawyers do not have much concern about whether the recording is properly filed and indexed. It is not even clear whether title companies which are on the hook for insuring these mortgages even follow up to check whether the indexing was properly performed by the recorder.

    When title companies are involved, lawyers should be able to rely on the title company for proper recording and clients should be able to rely on the title insurance to protect them. The Antonis case highlights one of the advantages of using title companies, even in transactions that parties might treat more casually, such as mortgages or deeds between family members.

    Customary Conduct

    An informal survey of Pennsylvania lawyers reveals that very few, if any, now follow up after a closing to see that a mortgage is properly indexed. Unfortunately, in light of this recent case, everyone who handles real estate closings, without title company involvement may now be vulnerable to clients for a recorder's mistake in indexing either a deed, mortgage or other document.

    It is noteworthy that Liberati got blamed for malpractice even though he was apparently not doing anything different than most attorneys. As discussed earlier, when the lender checked with Liberati, he assured the lender "that everything was in order." While the opinion does not seem to be based on this misleading comment, it is possible that the court was influenced by that.

    One of the possible conclusions from the Antonis case is that wherever a lawyer is accused of malpractice, the lawyer may not be able to rely on a defense that the lawyer has not done anything different from what is customary under similar circumstances. The standard of malpractice is apparently not just what other lawyers do, but what a lawyer should do under all of the circumstances.

    In this case the lawyer's failure to check the record after closing may have cost his client the mortgage. But, as it has been said, "hindsight is always 20/20."