The following compilation of cases is a continuation of a February 9, 2010 post, Illinois Bona Fide Purchaser, Possession, Duty Of Inquiry, which represented a selected group of cases from the Illinois Courts of Appeals, and that address the issue of the effect of possession by an occupant of real property by one other than the seller/vendor on a prospective purchaser's status as a bona fide purchaser.
Banco Popular v. Benefit Sys., 335 Ill. App. 3d 196; 780 N.E.2d 1113; 2002 Ill. App. LEXIS 1003 (Ill. App. Ct. 1st Dist., 1st Div 2002):
- For example. possession of property can be equivalent to the recording of a deed as to a judgment creditor who claims an interest in the property of which another has possession when the creditor secured the judgment. See Beals. 99 Ill. App. 3d at 844; see also Miller. 381 Ill. at 243 (possession in accordance with deed is notice even if deed has not been recorded). What constitutes "possession" in this respect will depend on the facts of each case, and thus becomes an open question of fact. See Beals, 99 Ill. App. 3d at 844; 77 Am. Jur. 2d Vendor and Purchaser §464 ("question of whether knowledge of possession will be imputed in any given case is one of fact").
- It has been established that one need not live or reside on the property in order to be in possession. See Carnes v. Whitfield 352 Ill. 384, 390, 185 N.E 819 (1933) (actual residence not required for possession); Beals, 99 Ill. App. 3d at 844. The "possession" must simply "provide some measure of notice to the outside world of the possessor's interest in the" property. See Beals, 99 Ill. App. 3d at 844; see also Atwood v. Chicago. Milwaukee & St. Paul Ry. Co., 313 Ill. 59, 62, 144 N.E. 351 (1924) (as long as possession is not occasional or temporary, it amounts to constructive notice, viable against the world, of any rights person in that possession may have). This may include improvements on the property, signs posted thereon, or possession by a tenant of the person claiming possession. See Carnes, 352 Ill. at 390 (possession of tenant is constructive notice of rights of landlord in property, even if legal title to property indicates another); Dana Point Condominium Ass'n v. Keystone Service Co., 141 Ill. App. 3d 916, 922-23, 96 Ill. Dec. 249, 491 N.E.2d 63 (signs and stickers placed on property sufficient to indicate possession); Beals, 99 Ill. App. 3d at 844-45 ("[i]mprovements or acts of dominion over" property may be sufficient to constitute possession).
- Whatever the actions, they are sufficient to constitute possession if they provide notice of who has control of the property. See Beals, 99 Ill. App. 3d at 844. That is as long the holder of a prior unrecorded deed is in "possession" of the property that is "actual, open and visible," his interest will be given priority to a judgment creditor who obtained a lien from a judgment entered subsequent to the deed. See Adam v. Tolman, 77 Ill. App. 179, 182-83 (1898); see also Brainard v. Hudson, 103 Ill. 218, 222 (1881) ("[w]here a person is in the possession of a tract of land under an unrecorded deed, that possession is notice to all subsequent purchasers or encumbrancers of whatever title is held by the person in possession, and a subsequently acquired title, although first on record, will be held subject to the title which the person in possession may have to the property"). This is because the creditor, who had been placed on constructive notice by this possession, is bound to inquire of the person in possession what right or interest he holds, and takes subject to what the right or interest may be. See Union Bank of Chicago v. Gallup, 317 Ill. 184, 188-89, 148 N.E. 2 (1925); Burnex Oil Co. v. Floyd, 106 Ill. App. 2d 16, 22-24, 245 N.E.2d 539 (1969) (creditor cannot claim innocent status once he is bound to inquire; for he is "chargeable with knowledge of facts which are inconsistent with the claims of ownership by the record owner").
- Bona fide purchasers assume title free of all prior interests in the property (Daniels v. Anderson (1993), 252 Ill. App. 3d 289, 296, 624 N.E.2d 1151, 191 Ill. Dec. 773), but one who purchases property with notice of other claims against it takes title subject to those claims in the same manner as his vendors. (See Stein v. Green (1955), 6 Ill. 2d 234, 241-42, 128 N.E.2d 743.) Through the operation of his businesses, Daniel maintained continuous, open and obvious possession of the property for over thirty years. This clearly placed the Secors, who operated a competing business across the street, on constructive notice of Daniel's interest, so as to trigger a duty on their part to make further inquiry into any property rights Daniel may have had. (See German-American National Bank v. Martin (1917), 277 Ill. 629, 115 N.E. 721; Stein, 6 Ill. 2d at 242.) The Secors' failure to make such inquiry precludes a finding that they were bona fide purchasers, and theoretically, would mandate that they take the property subject to Daniel's interest.
- The final question to be answered then is, exactly to what priority was the Bryants' interest restored upon negation of the subordination agreement in relation to the subsequently executed mortgage. The answer turns on whether Life, as Mortgagee, was a bona fide purchaser such that its interest was protected by the recording act. Metcalf v. Altenritter (1977), 53 Ill. App. 3d 904, 369 N.E.2d 498.
- A bona fide purchaser is one who takes without notice of a prior claim or encumbrance. (Guard ex dem. Robinson v. Rowan (1840), 3 Ill. (2 Scam.) 499.) A mortgagee of realty is regarded as a purchaser, and, if the mortgage is supported by consideration and is taken in good faith, the mortgagee will be protected against adverse claims of which it has no notice. (59 C.J.S. Mortgages sec. 232 (1949).)
- Where, however, the mortgagee, at the time of taking the mortgage, has knowledge or legal notice of a prior conveyance, it is not entitled to the protection of a bona fide purchaser. (Fidelity Trust & Savings Bank v. Williams (1936), 285 Ill. App. 131, 1 N.E.2d 739.) One who takes a mortgage upon property with knowledge, either actual or constructive, of an earlier although unrecorded conveyance of it, takes it subject thereto and will not be permitted by placing his mortgage first on the record to gain priority over the earlier lien. St. Boniface Building & Loan Association v. Demopoulos (1939), 302 Ill. App. 614, 24 N.E.2d 171.
- "Illinois courts have uniformly held that the actual occupation of land is equivalent to the recording of the instrument under which the occupant claims interest in the property. (Bullard v. Turner (1934), 357 Ill. 279, 192 N.E. 223; Beals v. Cryer (1981), 99 Ill. App. 3d 842, 426 N.E.2d 253). The open and visible possession of land by the equitable owner is sufficient to charge a mortgagee with notice of the rights of such owner, and the mortgagee will take subject to the rights of the person in possession. Williams v. Spitzer (1903), 203 Ill. 505, 68 N.E. 49."
- Illinois courts have uniformly held that the actual occupation of land is equivalent to the recording of the deed or other instrument under which the occupant claims interest in the property. (German-American National Bank v. Martin (1917), 277 Ill. 629, 115 N.E. 721.) Generally, where the buyer of property under an unrecorded executory contract has prevailed as against persons claiming under or through subsequent conveyances or mortgages by the seller, it has been due to the fact that the subsequent party was charged either with actual notice of the buyer's rights or with constructive notice thereof through the buyer's possession of the property. Annot., 87 A.L.R. 1505 (1933).
- Possession of property is equivalent to the recording of a deed both as to subsequent purchasers and as to judgment creditors who claim interest in land of which another has possession when the judgment was secured. Doll v. Walter (1940), 305 Ill. App. 188, 27 N.E.2d 231; Union Bank v. Gallup (1925), 317 Ill. 184, 148 N.E. 2. Precisely what constitutes possession sufficient to be equivalent to recording depends upon the facts of each case. The fact that the person who exercises control over the land does not live on it does not imply that he is not in possession thereof; actual residence is not essential. ( Chicago Title & Trust Co. v. Darley (1936), 363 Ill. 197, 1 N.E.2d 846; Carnes v. Whitfield (1933), 352 Ill. 384, 185 N.E. 819.) As one example, the possession of a tenant is notice of the possession of his lessor. (Chicago Title & Trust Co. v. Darley.) Further, if the owner "is in actual possession and there are continuous acts of ownership there is sufficient notice to the world of his claim of title." Carnes v. Whitfield (1933), 352 Ill. 384, 390, 185 N.E. 819, 821.
- In order for possession to be equivalent to recording, it must provide some measure of notice to the outside world of the possessor's interest in the land. Improvements or acts of dominion over land sufficient to constitute possession are those which indicate to persons residing in the immediate neighborhood who has the exclusive management and control of the land. (Chicago Title & Trust Co. v. Darley.)
- Before it can operate as notice of an unrecorded deed, possession must be "open, visible, exclusive and unambiguous, such as is not liable to be misunderstood or misconstrued." ( Millikin Trust Co. v. Gregory (1937), 292 Ill. App. 28, 35, 10 N.E.2d 853, 856.) The prevailing rule is that, "where one purchases land of another which is at the time of the purchase in the actual, open, exclusive and visible possession of a third person, such possession is constructive notice to the purchaser of all the rights whatever of the possessor of the land at the time of the purchase." Union Bank v. Gallup (1925), 317 Ill. 184, 188, 148 N.E. 2, 3-4.
- The same issue presented here was addressed in Burnex Oil Co. v. Floyd (1969), 106 Ill. App. 2d 16, 245 N.E.2d 539, where the reviewing court, in discussing the applicable law, stated:
- "The parties agree on the general rule that a bona fide purchaser of real property from the record
owner acquires good title thereto free and clear of any interest therein except such interest of which he has notice. It is admitted that the defendants purchased the premises from the record owner (plaintiff's lease was not recorded), and hence the principal question is whether defendants had or are chargeable with notice of plaintiff's interest. Such notice may be actual or constructive and contemplates the existence of circumstances or facts either known to a prospective purchaser or of which he is chargeable with knowledge which imposes upon such purchaser the duty of inquiry. Where real estate is in the possession of someone other than the record owner, such possession is generally regarded as notice to the world of the interest represented thereby and is legally equivalent to the recording of such interest. Carnes v. Whitfield, 352 Ill. 384, 185 N.E. 819, and Slinger v. Sterrett, 283 Ill. 82, 118 N.E. 1008. A purchaser is bound to inquire of the person in possession by what tenure he holds and what interest he claims in the premises. Carnes v. Whitfield, supra. Possession having the same effect as recording, charges a prospective purchaser with notice of all legal and equitable claims of the occupant. Ambrosious v. Katz, 2 Ill. 2d 173, 117 N.E.2d 69. Because possession has such substantial significance and consequences it follows that the possession or evidence of continuing acts of ownership thereof must be visible, open, exclusive and unambiguous. Atwood v. Chicago, M. & St. P. Ry. Co., 313 Ill. 59, 144 N.E. 351." Burnex, 106 Ill. App. 2d 16, 21-22, 245 N.E.2d 539, 542-43.
(Editor's Note: This case could be extremely helpful towards undoing a sale leaseback, foreclosure rescue scam or other real estate swindle where title or home equity is ripped off. This case provides direct support for the proposition that a grantor who remains in possession of the property [ie. typically, the screwed-over homeowner], even after delivery and recording of the deed, is notice against subsequent purchasers [ie. typically, the foreclosure rescue operator or a straw buyer acting as the operator's alter ego] and mortgagees [ie. typically, the mortgage lender/financial institution that, albeit unwittingly, finances the scam and provides the funds that constitutes the equity strpping proceeds ending up in the scammer's pocket] of the grantor's possible interest in the property.)
- The rule of law which seems to control in a like situation is that the retention of possession by the grantor of the property conveyed is notice of his or her interest in the property, and to those claiming under the grantee, and such rule is laid down in the case of Ford v. Marcall, 107 Ill. 136, wherein the court said: "The law is, as this court has declared in White v. White, 89 Ill. 460, that when the grantor of real estate remains in possession, all persons acquiring title from the grantee are chargeable with notice of all the claims of the grantor."
- This rule was followed and approved in the case of Ronan v. Bluhm, 173 Ill. 277, where the court said: "It is proper we should remark, in answer to the discussion upon the point, that as it is conceded by all parties that the said Thomas Ronan did not deliver possession of the premises in question to the grantee, Carbine, but remained in the open and exclusive occupancy thereof, appellee, Bluhm, is deemed, as matter of law, to have taken the conveyance from Carbine with full notice of all the rights and equities of said Ronan in the premises. Illinois Central Railroad Co. v. McCullough, 59 Ill. 166; White v. White, 89 id. 460; Ford v. Marcall, 107 id. 136." It is to be noted from what the court said in this opinion that Bluhm was deemed as a matter of law to have taken the conveyance from Carbine, the grantee of Ronan, with full notice as to all the rights and equities of Ronan in the premises.
- This rule has been passed upon by the courts of this State, and the law is again discussed and approved in the case of Rock Island & Peoria Ry. Co. v. Dimick, 144 Ill. 628. The court in this opinion said: "The law is well settled in this State, as generally elsewhere, when not changed by the recording acts, that open and exclusive possession of lands, under an apparent claim of ownership, is notice to those subsequently dealing with the title of whatever interest the possessor has in the premises, whether the interest be legal or equitable in its nature. Wade on Notice, sec. 273; Davis v. Hopkins, 15 Ill. 519; Truesdale v. Ford, 37 Ill. 210; Smith v. Jackson's Heirs, 76 Ill. 254; Partridge v. Chapman, 81 Ill. 137. It has been held also in this State, that if the grantor remains in possession after conveyance, purchasers from the grantee are affected with notice of the grantor's rights in the land. White v. White, 89 Ill. 460; Ford v. Marcall, 107 id. 136."
- In the case of Porter v. Clark, 23 Ill. App. 567, this rule was also approved, and in discussing the subject matter of the litigation, the court there stated what we regard as pertinent in its application to the instant case. This statement is: "If Porter, knowing as he did that Clark was in possession, had gone to him and inquired as to his rights, he would undoubtedly have been told that the purchase money had not been paid, and that he, Clark, claimed a vendor's lien on the land."
(Editor's Note: Similar to Fidelity Trust & Savings Bank v. Williams (1936), 285 Ill. App. 131, 1 N.E.2d 739, this case supports the proposition that the continued possession of a so-called "grantor-in-possession" serves as notice of any retained equitable rights in the property. This precedent could come in handy when seeking to undo sale leaseback, foreclosure rescue or a forged deed scams where the victimized homeowner remains in possession of the premises and the scammer subsequently conveys the title or obtains a mortgage loan on the real estate):
- That possession of land by a grantor of it, is notice of his retained equitable rights in the land, see McConnell v. Reed, 4 Scam. 117; Metropolitan Bank v. Godfrey et al., 23 Ill. 579; I. C. R. R. Co. v. McCullough, 59 Ill. 166; White v. White, 89 Ill. 460; Ford v. Marcall, 107 Ill. 136; Pomeroy's Eq. Jur., 2d Ed. Sec. 115.
- That possession of land by a tenant is possession by the landlord, see Franz v. Orton et al., 75 Ill. 100; Smith v. Jackson, 76 Ill. 254; Whitaker v. Miller et al., 83 Ill. 381; Pomeroy's Eq. Jur., 2d Ed. Sec. 118.
(See Editor's Note for Rea v. Croessman, above):
- We have carefully considered all the evidence in this record, and we are unable to conclude from it that appellee Clark [ie. the grantor-in-possession] was estopped by anything that he did from asserting his vendor's lien against the land in the hands of Porter [ie. the purchaser from one, Parker, Clark's grantee]. [...] The evidence is not satisfactory with reference to the contract under which Clark paid rent after his deed to Parker [ie. Clark's grantee]. It would seem from Parker's letter to Clark, introduced in evidence, that the rent was applied on the notes for the purchase money from Parker to Clark. If that was the understanding, we could not say that Clark's possession as tenant was inconsistent with his claim of lien for the purchase money It would Seem to be the rule in this State that possession of land is notice of all rights of whatever nature, that the possessor has in the land.
- If Porter, knowing as he did that Clark was in possession, had gone to him and inquired as to his rights, he would undoubtedly have been told that the purchase money had not been paid, and that he, Clark, claimed a vendor's lien on the land. If Clark, on being asked, had set up no right other than under a lease, that would, no doubt, be evidence of a waiver of his lien. Taking Parker's note for the purchase money was no waiver of his lien, and putting the notice on record, though in law no notice of his lien, is at least evidence that he did not intend to waive it.
Davis v. Elite Mortg. Servs., 592 F. Supp. 2d 1052 (USDC D. Ill, E. Div. 2009):
(See Editor's Note for Rea v. Croessman, above. Note further that in this case, the plaintiff-homewoner alleges that the defendants organized a fraudulent scheme to persuade him to sign documents that he believed would refinance his home but which instead conveyed his home to a third party (ie. sale leaseback, foreclosure rescue scam). The plaintiff-homeowner also alleged that the transfer of title to plaintiff's home should be construed as creating an equitable mortgage rather than a formal conveyance of real property.).
The following is the District Court's statement of the relevant Illinois law, and its application to the specific facts in the case [bold text is my emphasis, not in the original]:
- "A bona fide purchase interest in property takes that interest free and clear from all claims except those of which [one] has notice." Daniels, 252 Ill.App.3d at 296. Notice may be actual or constructive and "contemplates the existence of circumstances or facts either known to a prospective purchaser or of which he is chargeable with knowledge which imposes upon such purchaser the duty of inquiry." Burnex Oil Co. v. Floyd, 106 Ill.App.2d 16, 21, 245 N.E.2d 539 (1st Dist. 1969).
- Under the doctrine of constructive notice, the law imputes to a buyer or lien claimant knowledge of the facts that a diligent inquiry would have brought to light. Miller v. Bullington, 381 Ill. 238, 44 N.E.2d 850 (1942). The Illinois Supreme Court has long held that a purchaser must inquire into "persons in possession of real estate and by what tenure they hold and by what interest they claim, and is put on notice of all claims, legal and equitable, which the pursuit of such inquiry would disclose." Ambrosius v. Katz, 2 Ill.2d 173, 182, 117 N.E.2d 69 (1954); Miller, 381 Ill. at 243; Stein v. Green, 6 Ill.2d 234, 242, 128 N.E.2d 743 (1955) (holding that it is the purchaser's responsibility to investigate the property and inquire as to the rights of any individual in possession of the property). Because possession has "substantial significance and consequences," it must be "visible, open, exclusive and unambiguous." Burnex, 106 Ill.App.2d at 21-22; Millikin Trust Co. v. Gregory, 292 Ill. App. 28, 29, 10 N.E.2d 853 (3d. Dist. 1937) ("Possession, before it can be held to operate as notice of an unrecorded deed, must be open, visible, exclusive, and unambiguous, such as it is not liable to be misunderstood or misconstrued."). The occupation of property by a party other than the record owner is "legally equivalent to the recording of such interest." Burnex, 106 Ill. App.2d at 21.
- The question then is whether NovaStar was a purchaser with notice. The record contains no evidence that NovaStar had actual knowledge of plaintiff's possession of the property, his equity in the property, or his claim to title. Nevertheless, were there facts to put NovaStar on constructive notice? NovaStar asserts that there was nothing in the loan file to suggest that plaintiff may have been in possession of, or had any interest in, the property. On the contrary, there were numerous signposts of plaintiff's possession that NovaStar failed to heed. In re Ryan, 851 F.2d 502, 511 (1st Cir. 1988) (Duty of inquiry arises only where one acquires knowledge of facts inconsistent with the mortgagor's claim or "facts which would make a prudent person suspicious.").
- The record shows that plaintiff was in actual and exclusive 1 possession and occupancy of the home at the time NovaStar approved the mortgage loan to Pierre in May 2006. In fact, plaintiff had lived in the home since 1947. The record also shows that based on documents in NovaStar's loan file, NovaStar had reason to know that there were several inconsistencies in the facts surrounding possession and occupancy of the property. First, the home appraisal states both that there were tenants occupying the property and that the property was vacant. Second, NovaStar's title audit documents show that less than a week before the May 11, 2006, closing, NovaStar had information that an individual named George Marshall was allegedly living in the property and that Rowell, the owner of record, "lives in property as primary and doesn't know anyone by the name of George Marshall." Third, NovaStar's title policy states that "DAVID THOS, TOOK TITLE BY DEED" on March 4, 1997.
- Despite these inconsistencies, NovaStar failed to make any inquiry into actual possession and claims on the property. NovaStar's own employee, in her deposition in the instant case, testified that given the inconsistencies in the loan file, it would have been prudent for NovaStar to inquire into the matter further. Had NovaStar made the proper inquiry, it would have found that: (1) the property had never been occupied by Marshall, Rowell, or Thos; (2) the name David Thos does not appear anywhere in the Cook County Recorder of Deeds grantor-grantee index, the Permanent Index Number ("PIN") index, or any other document in the record; and, most importantly, (3) plaintiff had visible, open, exclusive and unambiguous possession of the property and claimed to title on the property.
- NovaStar argues that an inquiry into possession would have revealed only that plaintiff was a tenant of Rowell, the tenancy expired 11 days before the loan closing date, and that plaintiff had failed to exercise two consecutive options to repurchase the property from Rowell. An inquiry into possession, however, would have also revealed that plaintiff's attorney had filed a Notice of Equitable Mortgage and Affidavit of Interest (the "Notice") on February 14, 2006, with the Cook County Recorder of Deeds in which plaintiff claims sole legal and equitable interest in the property. Though the Recorder placed the Notice in the PIN index, and not in the grantor-grantee index, this, in combination with plaintiff's possession of the property, was sufficient to alert NovaStar about the dispute about the property's title.
- NovaStar argues that the Notice was insufficient to supply notice for several reasons. First, NovaStar argues that the Notice was not in the grantor-grantee index, and therefore did not give constructive notice. Krueger v. Oberto, 309 Ill.App.3d 358, 368, 724 N.E.2d 21, 243 Ill. Dec. 712 (2d Dist. 1999) ("recording outside of the grantor-grantee index in other indices is recording merely for convenience and does not operate to give constructive notice to subsequent purchasers."); see Skidmore v. Pathway Financial, 173 Ill.App.3d 512, 515, 527 N.E.2d 1033, 123 Ill. Dec. 395 (3d Dist. 1988) (same). Second, NovaStar contends that the Notice was not an "instrument of writing" as contemplated under 765 ILCS 5/31 ("Deeds, mortgages and other instruments of writing relating to real estate shall be deemed, from the time of being filed for record, notice to subsequent purchasers and creditors"). Finally, NovaStar argues that plaintiff should have filed a lis pendens, pursuant to 735 ILCS 5/2-1901, instead of the Notice if he wanted to notify the world of his claim to the property. NovaStar's arguments might have some merit if the Notice, standing alone, was the only means by which Pierre and NovaStar had notice of the title dispute. But here the Notice, coupled with plaintiff's open, exclusive, continuous, and unambiguous possession of the property, was enough to satisfy constructive notice.
- The court notes that the PIN index for the property reveals that the Notice was not buried among hundreds of other entries, but was the last entry before those recording the transfer of title from Rowell to Pierre. Further, plaintiff's name appears nearly 20 times in 35 entries in the PIN index for the property. As plaintiff points out, NovaStar's own title commitment confirms that it examined the PIN index in identifying "David Thos" as possibly being in the chain of title. If NovaStar had made even minimal effort to exercise due diligence in investigating the property, it would have learned that plaintiff was not a mere tenant or random name in the PIN index, but the primary individual with historical and current claim to title to the property.
- The uncontested facts establish that NovaStar made the mortgage to Pierre with constructive notice of plaintiff's claim to the property, and therefore neither Pierre nor NovaStar are entitled to bona fide purchaser status. The motion for summary judgment as to the first and second affirmative defenses is granted.
- NovaStar's argument that the fact that plaintiff's nephew lived with him during the relevant period somehow destroys plaintiff's "exclusive" possession is specious. If co-residence by family members negated exclusivity only single occupants would qualify for possession of real estate. No court has never reached such an absurd result.
- A person who takes property for valuable consideration without notice of another's adverse claim is regarded as a bona fide purchaser whose rights are superior to competing claims. Life Savings & Loan Association v. Bryant, 125 Ill. App. 3d 1012, 81 Ill. Dec. 577, 582, 467 N.E.2d 277 (1st Dist. 1984).
- A mortgagee of realty is afforded the same protections as a bona fide purchaser if the mortgagee secures the mortgage without knowledge or notice of adverse claims to its mortgage. Id. Notice of a competing interest in the realty may be predicated upon actual or constructive knowledge, and may also be imputed if the circumstances impose a duty of inquiry upon the purchaser/mortgagee. Burnix oil Co. v. Floyd, 106 Ill. App. 2d 16, 23, 245 N.E.2d 539 (1st Dist. 1969). A person is charged with the duty of inquiry only upon gaining knowledge of facts inconsistent with the mortgagor's claim or those "facts which would make a prudent person suspicious." In re Ryan, 851 F.2d 502, 511 (1st Cir. 1988).
- Inquiry notice imputes knowledge of all those facts which a diligent inquiry would have revealed. In re Cutty's-Gurnee, Inc., 133 Bankr. 934, 950 (N.D. Ill. 1991). The most common example of inquiry notice charged to a mortgagee is when a person other than the vendor is in possession of the property. Life Sav. & Loan Ass'n v. Bryant, supra, 81 Ill. Dec. at 582, 467 N.E.2d 277.
- However, inquiry notice is imputed whenever the cumulative facts or circumstances create a reasonable suspicion that the mortgagee's interests are subject to an adverse claim. See, e.g., In re Cutty's-Gurnee, Inc., supra, 133 Bankr. at 952-53. Factors, besides possession, which can serve as red flags to place a party on inquiry notice include: the extensive involvement of the putative bona fide purchaser in the transaction; the precarious financial status of the plaintiff; the low purchase price of the property; and the ease at which minimal investigation would uncover the fraudulent nature of the transaction. Shacket v. Roger Smith Aircraft Sales, 651 F. Supp. 675, 691-92 (N.D. Ill. 1986).
In re Cutty's-Gurnee, Inc., 133 B.R. 934 (USBC N.D. Ill. 1991):
- [t]he issue of notice and priority of an equitable lien must be addressed on a case-by-case basis according to the facts and equities. Specifically, the facts must be examined to determine whether the subsequent claimant held actual or inquiry notice of the prior equitable mortgage. Actual notice is that knowledge the subsequent claimant had at the time he acquired his claim. Constructive notice is knowledge that the law imputes to a purchaser or lien claimant, regardless of the actual knowledge held at the time he acquired his claim.
- There are two kinds of constructive notice: record notice and inquiry notice. Under the doctrine of record notice, when a mortgage is properly recorded, the public record provides constructive notice of this interest to the whole world.
- Inquiry notice is the knowledge the law imputes to a lien claimant or purchaser of real property when such claimant is under a duty of inquiry. Inquiry notice imputes knowledge of all facts that a diligent inquiry would have brought to light. Miller v. Bullington, 381 Ill. 238, 44 N.E.2d 850 (1942).
- The lien claimant's duty of inquiry depends upon all the facts and circumstances. It is clear that where a physical inspection of the property would reveal an adverse interest or where there is a party in possession other than the record title owner, the subsequent lien claimant has a duty to inquire of the possessor as to his interest and is charged with knowledge of the facts discoverable from such an inquiry or inspection. Miller, 381 Ill. at 244, 44 N.E.2d at 853; Burnex Oil Co. v. Floyd, 106 Ill. App. 2d 16, 23, 245 N.E.2d 539, 544 (1st Dist. 1969); In re Ehrlich, 59 Bankr. 646, 650 (Bankr. N.D. Ill. 1986).
- Outside of these types of obvious inconsistencies, however, it is not so clear what facts will suffice to create a duty of further inquiry. The general rule is that where the court is satisfied that the subsequent purchaser acted in bad faith, and that he either had actual notice or might have had that notice had he not willfully or negligently shut his eyes against those lights which with proper observation would have led him to knowledge, he must suffer the consequences of his ignorance and be held to have had notice so as to taint his purchase with fraud in law. . . . The law will not allow him to shut his eyes when his ignorance is to benefit himself at the expense of another, when he would have had them open and inquiring had the consequences of his ignorance been detrimental to himself and advantageous to the other. German-American Bank v. Martin, 277 Ill. 629, 115 N.E. 721 (1917) (quoting Doyle v. Teas, 4 Scam. 202).
- Inquiry notice is the knowledge the law imputes to a purchaser of real property when a duty of inquiry arises. Inquiry notice encompasses all facts that a diligent inquiry would have brought to light. Miller v. Bullington, 381 Ill. 238, 44 N.E. 2d 850 (1942). If a physical inspection of the property would reveal an adverse interest, then the purchaser is charged with knowledge of the facts discoverable by such an inquiry. Id. at 244, 44 N.E.2d at 853. Where there is a party in possession other than the vendor, the purchaser has a duty to inquire of that party as to his tenure and interest in the premises. Burnex Oil Co. v. Floyd, 106 Ill. App. 2d 16, 245 N. E.2d 539 (1969). The prospective purchaser is charged with knowledge of facts that are inconsistent with the claim of ownership by the record owner. Id. at 23, 245 N.E. 2d at 544.