An earlier post touched on the distinction between a deed that is void (void from the moment it is executed, "void ab initio" - a nullity) and a deed that is voidable (defined generally as a deed that, while possessing some defect, is nevertheless valid until the defect is raised as an issue, and the deed is successfully challenged and voided). See Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable?
The post contained excerpts from California case law that essentially said that a deed containing a signature that is not genuine and is a forgery, is void, whereas a deed containing a genuine signature from the grantor, but was procured through fraudulent means, may be either void or voidable, depending on the state of mind of the grantor. The rule with respect to deeds that are procured by fraudulent means, according to the above-referenced California case law, depend on the grantor's state of mind when signing the instrument, and can be described as follows:
- If a grantor is aware that the instrument he/she is executing is a deed and that it will convey title, but is induced to sign and deliver by fraudulent misrepresentations or undue influence, the deed is voidable and can be relied upon and enforced by a bona fide purchaser. Conversely, if the grantor is unaware of the nature of what he or she is signing and had no intention of conveying title to the real estate, the deed is void (in the same way as if the signature was actually forged), and a subsequent purchaser or encumbrancer, no matter how innocent, will hold no title or lien.
Subsequent to my earlier post, I stumbled into Colorado cases, excerpts that follow below, that say the same thing as the California cases. Specifically, the cases say that, in the context of a deed procured by fraud, the deed will be considered void if the person has been fraudulently deceived about the nature of the document, so that he or she is excusably ignorant about what has been signed, and is referred to therein as "fraud in the factum." Said another way, the deed in this situation will be treated as a forgery, despite the fact that the signature on the deed is genuine.
I emphasize this point because, in so many media reports, homeowners in foreclosure who unwittingly signed away their homes in equity stripping, foreclosure rescue scams have claimed that they were unaware that they were transferring title to their homes, recall signing numerous legal documents that were referred to or described as refinancing documents, and claim that they decided to do business with the foreclosure rescue operator that approached them because it represented itself as a firm of "foreclosure specialists" who help homeowners "save" their homes from foreclosure.
While the cases in California and Colorado are obviously not binding outside the borders of those two states, they nonetheless may be considered persuasive precedent. Further, they deserve careful analysis by anyone looking to unwind a foreclosure rescue scam (or any other deed or refinancing scam, for that matter) in that these cases may, in fact, reflect what the case law holds in other jurisdictions.
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(Any bold text is my emphasis, not in the original.)
Delsas v. Centex Home Equity Co., 186 P.3d 141; 2008 Colo. App. LEXIS 674 (Colo. App. 2008):
- There is an important difference between a void deed and one that is voidable. A void deed is a nullity, invalid ab initio, or from the beginning, for any purpose. It does not, and cannot, convey title, even if recorded. Empire Ranch & Cattle Co. v. Coldren, 51 Colo. 115, 121, 117 P. 1005, 1007 (1911). The interest of a good faith purchaser under a void deed is not protected. See Upson v. Goodland State Bank & Trust Co., 823 P.2d 704, 706 (Colo. 1992).
- In contrast, a voidable deed conveys property and creates legal title unless, and until, it is set aside by the court. 23 Am. Jur. 2d Deeds § 162 (Mar. 2008); see Logue v. Von Almen, 379 Ill. 208, 224, 40 N.E.2d 73, 81-82 (1941); Dent v. Calhoun, 326 So. 2d 320, 321-22 (Miss. 1976).
- The interest of a good faith purchaser who asserts ownership under a voidable deed will be protected. "[T]he distinction between void and voidable deeds becomes highly important in its consequences to third persons, 'because nothing can be founded upon a deed that is absolutely void, whereas from those which are only voidable, fair titles may flow.'" Medlin v. Buford, 115 N. C. 260, 20 S.E. 463, 463 (1894) (quoting Somes v. Brewer, 19 Mass. (2 Pick.) 184, 203, 2 Pick. 184 (1824)).
- Courts have developed rules to determine what sorts of defects render a deed void or voidable, and which defects have no effect. For example, a forged deed is void. Upson, 823 P.2d at 705-06. Generally, deeds obtained by fraud are voidable. Svanidze v. Kirkendall, 169 P.3d 262, 266 (Colo. App. 2007). Thus, the interest of a good faith purchaser in a deed voidable because of fraud will be protected.
- A deed obtained as a result of fraud committed against the grantor or by use of undue influence by the grantee may be rescinded by the grantor. If a grantor is aware that the instrument he is executing is a deed and that it will convey his title, but is induced to sign and deliver by fraudulent misrepresentations or undue influence, the deed is voidable and can be relied upon and enforced by a bona fide purchaser. Fallon v. Triangle Management Services, Inc., 169 Cal. App. 3d 1103, 1106, 215 Cal. Rptr. 748, 749-50 (1985) (citation omitted).
- However, a deed procured by a particular kind of fraud, called fraud in the factum, is void. If a person has been fraudulently deceived about the nature of a document, so that he or she is excusably ignorant about what has been signed, courts recognize "fraud in the factum." Unlike other types of fraud, fraud in the factum yields an instrument that is void, and not merely voidable. Svanidze, 169 P.3d at 266 (citation omitted); see also Upson, 823 P.2d at 706; Dan B. Dobbs, Handbook on the Law of Remedies § 9.6, at 645-46 (2d ed. 1993).
Svanidze v. Kirkendall, 169 P.3d 262; 2007 Colo. App. LEXIS 1515 (Colo. App. 2007):
- Plaintiffs assert that § 38-30-144(2) offers no protection to bona fide purchasers or encumbrancers if the pertinent corporate instrument has been forged. And they assert that, in this case, the warranty deed was forged because it was "obtained by fraud." We accept the legal premise of plaintiffs' argument but reject the factual premise. The undisputed evidence shows that the deed was not forged or otherwise void.
- It is well established that a forged deed is void and conveys no title. Upson v. Goodland State Bank & Trust Co., 823 P.2d 704, 705 (Colo. 1992). It is similarly clear that fraudulent acts generally render a deed voidable, but not void. See Bray v. Trower, 87 Colo. 240, 247, 286 P. 275, 278 (1930); Sec. Servs., Ltd. v. Equity Mgmt., Inc., 851 P.2d 921, 924 (Colo. App. 1993). If a deed is voidable for fraud, it will convey good title to a bona fide purchaser. See Martinez v. Affordable Housing Network, Inc., 123 P.3d 1201, 1205 (Colo. 2005); Sec. Servs., Ltd. v. Equity Mgmt., Inc., supra, 851 P.2d at 924.
- If a person has been fraudulently deceived about the nature of a document, so that he or she is excusably ignorant about what has been signed, courts recognize "fraud in the factum." See Meyers v. Johanningmeier, 735 P.2d 206, 207 (Colo. App. 1987) (explaining relationship between statutory defense against holders in due course of negotiable instruments and the common law defense of fraud in the factum). Unlike other types of fraud, fraud in the factum yields an instrument that is void, and not merely voidable. Akins v. Vermast, 150 Ore. App. 236, 945 P.2d 640, 643 n.7 (Or. Ct. App.), adhered to on reconsideration, 151 Ore. App. 430, 950 P.2d 907 (Or. Ct. App. 1997); Bennion Ins. Co. v. 1st OK Corp., 571 P.2d 1339, 1341-42 (Utah 1977).
- Here, plaintiffs did not allege fraud in the factum. They did not dispute that Warren signed the deed, knowing that it would convey an interest in real property. Therefore, even if Warren and her husband defrauded the corporation as plaintiffs allege, the deed was merely voidable and conveyed good title [...]
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Addendum:
While it is made clear in these cases that a bona fide purchaser or encumbrancer's interest is protected by the recording statutes when it is acquired from one with a voidable title, a victim of a foreclosure rescue scam looking to undo the transaction and the associated damage is not without recourse in such a situation.
Where a subsequent buyer or mortgage lender, who neither participated in, nor had knowledge of the scam, attempts to assert the protection of the recording statutes by claiming the status of bona fide purchaser/encumbrancer, their entitlement to that protection will depend on whether "inquiry notice" will operate to impute knowledge to the buyer or lender where the circumstances surrounding the transaction are such that they would have aroused the suspicions of an ordinary purchaser.
An illustration of this can be found in Martinez v. Affordable Hous. Network, Inc., Case No. 04SC421, 123 P.3d 1201; 2005 Colo. LEXIS 1075 (Colo. 2005). The Colorado Supreme Court ruled that, while the deed in the foreclosure rescue scam at issue was found to be voidable, and not void, the subsequent purchaser acquiring his interest from the foreclosure rescue operator was not entitled to the protections accorded a bona fide purchaser. The court ruled that, because the possession of the home involved was still in the exclusive possession of the financially strapped homeowners who were victimized in the scam, knowledge of the scam was imputed to the purchaser, despite the lack of proof that he either participated in, or had knowledge of, the scam. Among other things, the Colorado Supreme Court stated:
- It is well settled in Colorado that, with certain exceptions inapplicable here, possession of real estate is sufficient to put an interested person on inquiry notice of any legal or equitable claim the person or persons in open, notorious, and exclusive possession of the property may have.
Go here for more on Bona Fide Purchaser, Possession & Duty Of Inquiry; and here for case law on California Bona Fide Purchaser, Possession, Duty Of Inquiry.
Go here for more on void and voidable deeds. DeedVoidVoidable
