Pennsylvania Bona Fide Purchaser, Possession, Duty To Inquire - Federal Cases

The following compilation of cases is a continuation of an earlier post, Pennsylvania Bona Fide Purchaser, Possession, Duty Of Inquiry, and which represents a selected group of cases from various Federal courts that apply Pennsylvania case law addressing 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.

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U.S. Court of Appeals - 3rd Circuit

Stewart v. Shubert, No. 08-2360, 325 Fed. Appx. 82 (unpublished) (3rd Cir. 2009):

A summary of the facts in this case follow:

1. Stewart obtained title to the Property in 1951 when she purchased it jointly with her husband, who died in 1990.
2. On December 9, 2002, Stewart executed a deed to the Property to the Debtor for the sum of one dollar ("First Deed"). Stewart had the First Deed prepared in an attempt to minimize inheritance taxes on her estate.
3. The Bankruptcy Court credited testimony by Stewart and the Debtor that both understood that the First Deed was conveyed for estate planning purposes and that Stewart, not the Debtor, would remain the owner of the Property until Stewart died. Stewart v. Shubert (In re Stewart), 368 B.R. 445, 448 & n.4 (Bankr. E.D. Pa. 2007).
4. Several months later, Stewart realized that she had inadvertently omitted her daughter, Susan Harris ("Harris"), from her estate-planning effort. She therefore requested that the Debtor transfer half of his interest to Harris, and the Debtor did so by executing a deed on March 6, 2003, which purported to transfer the Property jointly to the Debtor and Harris for the sum of one dollar ("Second Deed").
5. Notwithstanding these conveyances, Stewart continues to reside at the Property and pay all of the bills and taxes associated with the Property out of her own funds.
6. In September 2005, after the Debtor's son had incurred substantial credit card debt for which the Debtor was liable, the Debtor voluntarily filed for bankruptcy under chapter 7.
7. In his bankruptcy filings, the Debtor listed his ownership interest in the Property as "1/2 Bare Legal Title of Caroline Stewart's property." App. II at 211.
8. The Trustee subsequently filed a motion to sell the Debtor's interest in the Property pursuant to 11 U.S.C. § 363(h).
9. The Debtor contested that motion and filed an adversary complaint seeking to enjoin the Trustee from selling the Property.
10. After holding a trial, the Bankruptcy Court held that the Trustee could not sell the Property. According to the Bankruptcy Court, under Pennsylvania law Stewart's transfer of the Property to the Debtor was subject to a resulting trust in favor of Stewart, who was therefore the equitable owner of the Property.
11. Accordingly, the bankruptcy estate succeeded only to bare legal title in the Property and the Trustee's proposed sale was not appropriate under § 363(h). Stewart, 368 B.R. at 457.
12. Finally, the Trustee appealed to the District Court, which affirmed.
13. Among other things, the bankruptcy trustee asserted that, even if a valid resulting trust existed, the trustee should be allowed to avoid Stewart's interest because it did not have notice (either actual or constructive) thereof.

In affirming both lower courts in ruling that the home belonged to Stewart and, therefore, not property of the bankruptcy estate, the 3rd Circuit made this observation on the issue of the bankruptcy trustee's asserted lack of notice:

• However, under Pennsylvania law, Stewart's clear and open possession of the Property put the Trustee on constructive notice of Stewart's equitable interest therein, and therefore the Trustee may not avoid that interest under § 544(a)(3). See McCannon v. Marston, 679 F.2d 13, 16-17 (3d Cir. 1982).

In re Graves, No. 93-1709, 33 F.3d 242 (3rd Cir. 1994):

• In Pennsylvania, clear and open possession of real property constitutes constructive notice to subsequent purchasers of the rights of the party in possession. See McCannon v. Marston, 679 F.2d 13, 17 (3d Cir. 1982); Overly v. Hixson, 169 Pa. Super. 187, 82 A.2d 573, 575 (Pa. Super. Ct. 1951).

***

• The bankruptcy court correctly stated Pennsylvania's general rule for constructive notice; however, an exception to the rule provides that where a possessor lives with a record owner in a manner consistent with the record ownership, no constructive knowledge is imputed. Overly, 82 A.2d at 575. The Pennsylvania Superior Court explained the rule, stating:
  
  There can be no doubt whatever of the proposition that where the land is occupied by two persons . . . and there is a recorded title in one of them, such joint occupation is not notice of an unrecorded title in the other. *** The rule is universal that, if the possession be consistent with the recorded title, it is no notice of an unrecorded title.
  
  Indeed, this conclusion is but an application of the general principle that, in the absence of proof to the contrary, actual possession is presumed to be in him who has the record title. It would be intolerable to require an intending purchaser or incumbrancer to ask every person living in a property, be they many or few, whether or not he has a better title than the record owner, who is also in possession.
  
  Overly, 82 A.2d at 575 (citations omitted).

***

• Under Pennsylvania law actual or constructive knowledge of an unrecorded deed defeats a subsequent claimant's interest. See Long John Silver's, Inc. v. Fiore, 255 Pa. Super. 183, 386 A.2d 569, 573 (Pa. Super. Ct. 1978) ("to qualify as a bona fide purchaser, the subsequent buyer must be without notice of the prior equitable estate)(citation omitted); Overly v. Hixson, 169 Pa. Super. 187, 82 A.2d 573, 574 (Pa. Super. Ct. 1951); see also United States v. Purcell, 798 F. Supp. 1102, 1116 (E.D. Pa. 1991), aff'd 972 F.2d 1334 (3d Cir. 1992).

***

• When a purchaser buys real property with knowledge of an unrecorded interest, the purchaser's interest is subject to that of the unrecorded interest holder. See, e.g., Long John Silver's, 386 A.2d at 572-73; Purcell, 798 F. Supp. at 1116-17. For example, in Long John Silver's, when two purchasers had actual notice of an unrecorded equity interest in a piece of property, the court held the equity interest was superior to that of the subsequent purchasers. 386 A.2d at 572-73. The Superior Court explained, "if the subsequent purchaser has notice of the first agreement of sale or deed, he has no protection as a bona fide purchaser and his title is subject to the interest vested in the first purchaser." Id. at 573.

• The Pennsylvania Supreme Court has stated "a fundamental rule in construing recording laws generally [is] that actual notice of an unrecorded instrument, if received by a subsequent lienor before his interest attaches, is equivalent to the constructive notice which recording provides." Purcell, 798 F. Supp. at 1117 (quoting In re 250 Bell Road, 388 A.2d 297, 299-300 n.1 (Pa. 1978)). Because a purchaser's knowledge of the unrecorded interest subordinates the purchaser's interest to that of the unrecorded interest holder, Fleet's knowledge of an outstanding unrecorded ownership interest prevents it from being a bona fide purchaser.

McCannon v. Marston, 679 F.2d 13 (3rd Cir. 1982):

A summary of the facts in this case follow:

1. On March 19, 1973, Miriam H. McCannon entered into an agreement with a partnership doing business as The Drake Hotel (the debtor) for the sale of a condominium apartment and of a certain percentage of the common areas in that hotel.
2. The agreement contained a contingency that the hotel, located in Philadelphia, be declared a valid condominium according to the terms of the then applicable Unit Property Act. That contingency was satisfied later in 1973.
3. Pursuant to the agreement, McCannon paid a deposit of $ 500 toward the purchase price of $ 17,988.
4. She began residence in the apartment in April of 1975 and remained in residence through the relevant times.
5. The bankruptcy court found, however, that "for a variety of reasons, settlement on the property has never taken place."
6. McCannon never recorded her agreement for sale.
7. In November of 1979, the debtor filed a Chapter 11 bankruptcy petition.
8. McCannon filed a complaint in February of 1981 seeking relief from the automatic stay imposed by Section 362 of the Code and requesting specific performance of the agreement to purchase the apartment that she entered into with the debtor/The Drake Hotel on March 19, 1973, almost eight (8) years earlier.
9. Holding that the trustee, as a bona fide purchaser without regard to any knowledge on his part, may avoid McCannon's interest in the property pursuant to Pennsylvania law and to Section 544(a)(3) of the Code, the bankruptcy court granted the trustee's motion for judgment at the close of the plaintiff's case.
10. The district court affirmed the bankruptcy court's judgment, employing the same interpretation of Section 544 and concluding that Section 365(i) did not apply.
11. McCannon then appealed.

In reversing both lower court rulings, the 3rd Circuit found that the bankruptcy trustee was not a bona fide purchaser and that McCarron was entitled to specific prerformance on her March 19, 1973 purchase contract with The Drake Hotel.

The court made the following statements in reviewing and enforcing the applicable Pennsylvania case law [bold text is my emphasis, not in the original]:

• The law of Pennsylvania considers a purchaser under a written agreement for the sale of real property to be the equitable owner of that property. E.g., Allardice v. McCain, 375 Pa. 528, 101 A.2d 385 (1953); Dubin Paper Co. v. Insurance Co. of North America, 361 Pa. 68, 63 A.2d 85 (1949). After reviewing the contract, we find no fault with the conclusion of the bankruptcy court that McCannon acquired such an equitable interest once the condition that a valid condominium be created was satisfied.

• Pennsylvania law gives subsequent purchasers of real property priority over the rights of prior purchasers if the subsequent purchasers are bona fide purchasers for value without notice. Record notice defeats the claims of a subsequent purchaser. McCannon's equitable interest was unrecorded.

• However, in Pennsylvania, clear and open possession of real property generally constitutes constructive notice to subsequent purchasers of the rights of the party in possession.

• Such possession, even in the absence of recording, obliges any prospective subsequent purchaser to inquire into the possessor's claimed interests, equitable or legal, in that property. See, e.g., Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933); Long John Silver's, Inc. v. Fiore, 255 Pa. Super. 183, 386 A.2d 569 (1978).

• Thus in Pennsylvania the rights of a subsequent purchaser do not take priority over those of one in clear and open possession of real property.

***

• The trustee argues that the circumstances of McCannon's possession, as the occupant of one of many condominium apartments, a number of which were leased, are not constructive notice obliging a subsequent purchaser to inquire as to her interests. The only Pennsylvania cases cited, however, find no obligation to inquire in circumstances where the grantor was both record owner and in possession and where the one in possession was sharing possession with the record owner. Salvation Army Incorporated Trustees v. Lawson, 293 Pa. 459, 143 A. 113 (1928); Overly v. Hixson, 169 Pa. Super. 187, 82 A.2d 573 (1951).

• We believe that were the Pennsylvania Supreme Court asked to consider whether a subsequent purchaser of a condominium building had a duty to make inquiry as to the rights of persons in possession of apartments in that building, it would hold that such possession provides constructive notice, as a matter of law, no different than in the case of possession of a single family home.

Federal District Courts

U.S. v. Purcell, No. 89-3642, 798 F. Supp. 1102 (E.D. Pa. 1991):

• Under Pennsylvania law, either actual or constructive notice of a prior deed may defeat a subsequent claimant's interest. In Long John Silver's, Inc. v. Fiore, 255 Pa. Super. 183, 386 A.2d 569 (1978), the Pennsylvania Superior Court stated that at the time of signing an unconditional agreement for the sale of land the buyer acquires an equitable interest in the land, see Byrne v. Kanig, 231 Pa. Super 531, 332 A.2d 472 (1974), which can be defeated by a subsequent purchaser without notice of a prior transaction pursuant to the recording act:

• However, in order to qualify as a bona fide purchaser, the subsequent buyer must be without notice of the prior equitable estate. Overly v. Hixson, 169 Pa. Super. 187, 82 A.2d 573 (1951). If the subsequent purchaser had notice of the first agreement of sale or deed, he has no protection as a bona fide purchaser and his title is subject to the interest vested in the first purchaser.

• Either actual or constructive notice is sufficient to prevent the subsequent purchaser from acquiring the status of a bona [fide purchaser.]

• Because constructive notice is not limited to instruments of record, a subsequent purchaser may be bound by constructive notice of a prior unrecorded agreement. Overly v. Hixson, supra; Smith v. Miller, 296 Pa. 340, 145 A. 901 (1929). This is true because the subsequent purchaser could have learned of facts that may affect his title by inquiry of persons in possession or others who the purchaser reasonably believes know such facts. Lund v. Heinrich, [410 Pa. 341, 189 A.2d 581 (1963)]; Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77 (1942).

Federal Bankruptcy Courts

In re Fowler, 425 B.R. 157 (Bankr. E.D. Pa. March 3, 2010):

• [i]t is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute, but as well by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title. Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77, 82 (Pa. 1942) (emphasis added) (internal quotations omitted).

• As one court explained:
  
  A purchaser of real property must exercise ordinary diligence to qualify as a bona fide purchaser. Knowledge of every fact which "the exercise of ordinary diligence would have put him in possession" is imputed to that purchaser. Constructive knowledge . . . consists of what a purchaser . . . would have discovered from inspecting the public record in the office of the recorder of the deeds as well as from inquiring of the person in possession of the property or anyone else the purchaser has reason to believe has knowledge of facts which might affect title to the property. Lauver, 372 B.R. at 760 (emphasis added); see also Ingomar, 2008 U.S. Dist. LEXIS 17668, 2008 WL 660099, at *6.

***

• As our Court of Appeals observed in reviewing Pennsylvania law:
  
  in Pennsylvania, clear and open possession of real property generally constitutes constructive notice to subsequent purchasers of the rights of the party in possession. Such possession, even in the absence of recording, obliges any prospective subsequent purchaser to inquire into the possessor's claimed interests, equitable or legal, in that property. McCannon v. Marston, 679 F.2d 13, 16 (3d Cir. 1982) (emphasis added) (citing Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (Pa. 1933)); see also Long John Silver's, Inc., 386 A.2d at 573.

• Consistent with our Court of Appeals' observation, a long line of Pennsylvania courts have held that, as part of the duty to exercise ordinary diligence in the purchasing process, a buyer of real property is obliged to ask those in physical possession of property (who are not also the current record titleholders) if they have some title to, or interest in, the occupied property that is adverse to the prospective buyer's title. 60 Pennsylvania imposes the same duty of inquiry on a mortgagee. 61 A purchaser or mortgagee who fails to make such inquiry concerning the basis of the possessor's interest takes title subject to the possessor's interest. 62

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Case Footnotes 60-62

60 See, e.g., Malamed v. Sedelsky, 367 Pa. 353, 80 A.2d 853, 855 (Pa. 1951) ("it has long been settled that it is the duty of a purchaser of real property to make inquiry respecting the rights of the party in possession and failing to do so[,] they are affected with constructive notice of such facts as would have come to [their] knowledge in the proper discharge of that duty"); Smith v. Miller, 289 Pa. 184, 137 A. 254, 256 (Pa. 1927) ("One about to purchase land, either at sheriff's or private sale, is bound to inquire of those in possession of the premises and is charged with what such inquiry would have disclosed."); Stonecipher v. Keane, 268 Pa. 540, 112 A. 233, 234 (Pa. 1920)("A prospective purchaser of land is required to make inquiry of those in possession thereof, and failing to do so, is affected with constructive notice of all that such inquiry would have disclosed."); Bugbee's Appeal, 110 Pa. 331, 1 A. 273 (Pa. 1885) (same); Rowe v. Ream, 105 Pa. 543, 14 Week. Notes Cas. 293 (Pa. 1884) (same); Hood v. Fahnestock, 1 Pa. 470, 1845 WL 5137, at *4 (Pa. Sept. Term 1845) ("every purchaser of land must be presumed to know, whether the possession be vacant or not" and the purchaser of real property "in the possession of tenants is chargeable with notice of the extent of their interests as tenants" and must "inform himself of the conditions of the lease").

61 See, e.g., Sidle, 29 A.2d at 82 ("[i]t is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds . . . but as well by what they could have learned by inquiry of the person in possession") (internal quotations omitted) (emphasis added).

62 See, e.g., Malamed, 80 A.2d at 855-856; Hunter v. Hunter, 20 Pa. D. & C.3d 96, 100 (Cumberland Cty. C.P. Ct. 1981); Crowell v. Bell, 40 Pa. D. & C. 326, 56 Mont. County L. Rep. 322 (Montgomery Cty. C.P. Ct. 1940).

End Case Footnotes 60-62

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In re Best, 417 B.R. 259 (Bankr. E.D. Pa. 2009):

• In McCannon v. Marston, the Third Circuit held that under Pennsylvania common law a bona fide purchaser of real estate does not defeat the property interests of one in open possession of the realty:
  
  [I]n Pennsylvania, clear and open possession of real property generally constitutes constructive notice to subsequent purchasers of the rights of the party in possession. Such possession, even in the absence of recording, obliges any prospective subsequent purchaser to inquire into the possessor's claimed interests, equitable or legal, in that property.
  
  Id., at 16. Furthermore, the Third Circuit also instructed that Pennsylvania statutory law provides that "[r]ecord notice defeats the claims of a subsequent purchaser." Id. This follows because, pursuant to state law, a purchaser has constructive notice of all properly recorded interests. See, e.g., 21 P.S. § 357 3 (recording of deed places a party upon constructive notice of property interest); Mid-State Bank & Trust Co. v. Globalnet Int'l, Inc., 557 Pa. 555, 565, 735 A.2d 79 (1999) ("A party is on constructive notice of another's interest in real property where the party 'could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect title, and also by what appeared in the appropriate indexes in the office of the recorder of deeds.'") (quoting Lund v. Heinrich, 410 Pa. 341, 346, 189 A.2d 581 (1963)); Volunteer Fire Co. of New Buffalo v. Hilltop Oil Co., 412 Pa. Super. 140, 150, 602 A.2d 1348 (1992).

In re Aulicino, 400 B.R. 175 (Bankr. E.D. Pa. 2008):

• In Malamed v. Sedelsky, 367 Pa. 353, 80 A.2d 853, (Pa. 1951), the Pennsylvania Supreme Court observed the long held view that it is just as careless to purchase without having viewed the premises as it is to purchase without having searched the register, and held that "it is the duty of the purchaser of real property to make inquiry regarding the rights of the party in possession and failing to do so they [sic] are affected with constructive notice of such facts as would have come to his knowledge in the proper discharge of that duty." Id. at 855.

In re Lauver, 372 B.R. 751 (Bankr. W.D. Pa. 2007):

• Under Pennsylvania law, a purchaser of real property having no notice or knowledge of a prior interest in the property is protected against that interest. Long John Silver's, Inc. v. Fiore, 255 Pa. Super. 183, 190, 386 A.2d 569, 573 (1978). This principle is codified in the recording statute found at 21 Pa. C.S.A. §351. Either actual or constructive notice of the prior interest will disqualify one from becoming a bona fide purchaser. Id., 255 Pa. Super, at 190-91, 386 A.2d at 573.

***

• Under the law of Pennsylvania, a purchaser of real property without actual or constructive notice of a third party's claim with respect to the property takes it free of the claim of that party. Lund v. Heinrich, 410 Pa. 341, 346, 189 A.2d 581, 584 (1963)

• A purchaser of real property must exercise ordinary diligence to qualify as a bona fide purchaser. Knowledge of every fact which "the exercise of ordinary diligence would have put him in possession" is imputed to that purchaser. Fidelity-Philadelphia Trust Co. v. Lehigh Valley Coal Co., 294 Pa. 47, 58, 143 A. 474, 478 (1928).

• Constructive knowledge in the present context consists of what a purchaser of debtors' property would have discovered from inspecting the public record in the office of the recorder of deeds as well as from inquiring of the person in possession of the property or of anyone else the purchaser has reason to believe has knowledge of facts which might affect title to the property. See Sidle v. Kaufman, 345 Pa. 549, 557, 29 A.2d 77, 81 (1942). A purchaser will not be adversely affected by facts which could not be discovered by inquiring, Salvation Army v. Lawson, 293 Pa. 459, 143 A. 113, 114 (1928).

• To qualify as a bona fide purchaser under Pennsylvania law, a prospective purchaser has a duty to so inquire of one who is in possession of the property. A purchaser who fails to do is "affected" with constructive knowledge of any salient facts which might have been discovered had such inquiry been made. Malamed v. Sedelsky, 367 Pa. 353, 357, 80 A. 228, 231 (1951).

D'Antonio v. Bella Vista Assocs., LLC (In re Bella Vista Assocs., LLC), 2007 Bankr. LEXIS 4348 (Bankr. D. N.J. 2007) (applying Pennsylvania law):

• Other cases have taken a substantially broader view of constructive notice requirements, emphasizing the duty of a purchaser to exercise ordinary diligence in the purchasing process, and to inquire of one who has possession of the property about encumbrances or obstacles to obtaining clear title. See, e.g., Mid-State Bank & Trust Co. v. Globalnet Int'l, Inc., 557 Pa. 555, 735 A.2d 79, 85 (Pa. 1999); Roberts v. Estate of Pursley, 718 A.2d 837, 843 (Pa. Super. 1998). These cases hold that if such an inquiry is not made, but would have alerted the purchaser to such problems, the purchaser is charged with constructive notice of the encumbrance. Id.

• See also Malamed v. Sedelsky, 80 A.2d 853, 855, 367 Pa. 353 (Pa. 1951) (purchaser must inquire of parties in actual possession); Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77, 82 (Pa. 1942) (purchaser failed to inquire further despite knowing someone else had been in actual possession of the property); Volunteer Fire Co. of New Buffalo v. Hilltop Oil Co., 412 Pa. Super. 140, 602 A.2d 1348, 1353-54 (Pa. Super. 1992) (a gap in the title required the purchaser to inquire further); Long John Silver's, Inc. v. Fiore, 255 Pa. Super. 183, 386 A.2d 569, 573 (Pa. Super. 1978) (purchaser had actual knowledge of a prior interest and should have inquired further).

• Still other Pennsylvania courts have recognized an exception to the duty of a purchaser to inquire where the party in possession is also the record owner. See McCannon v. Marston, 679 F.2d at 17 ("The only Pennsylvania cases cited . . . find no obligation to inquire in circumstances where the grantor was both record owner and in possession and where the one in possession was sharing possession with the record owner."); In re Lauver, 372 B.R. 751, 762 (Bankr. W.D.Pa. 2007) ("Such duty of inquiry normally does not arise when the person in possession of the property also is the title owner thereof."); Incorporated Trustees of Salvation Army in Pennsylvania v. Lawson, 293 Pa. 459, 143 A. 113, 114 (Pa. 1928). See also Schell v. Kneedler, 359 Pa. 424, 59 A.2d 91, 92 (Pa. 1948); Stewart v. Freeman, 22 Pa. 120 (Pa. 1853) (verifying possession and record ownership, the purchase "is required to look no further"); Lefever v. Armstrong, 15 Pa. Super. 565 (1900). Here, the land was comprised of unimproved lots, but the debtor held both possession and record ownership.

In re Johnston, 333 B.R. 724 (Bankr. W.D. Pa. 2005):

• Although Pennsylvania law considers a mortgage to be a conveyance, in some contexts and a security interest in others, a mortgage is treated as a conveyance for purposes of actions involving Pennsylvania recording statues. Pines v. Farrell, 577 Pa. 564, 574, 848 A.2d 94, 100 (2004).

***

• A subsequent purchaser of real property having actual or constructive notice of the prior rights of another in the property is disqualified from obtaining the status of a bona fide purchaser. Long John Silver's, Inc. v. Fiore, 255 Pa. Super. 183, 189, 386 A.2d 569, 573 (1978). An innocent purchaser of such property for value without such notice of the right or interest of a third party, however, acquires the property free and clear of such secret right or interest. Lund v. Heinrich, 410 Pa. 341, 346, 189 A.2d 581, 584 (1963).

• Where one of two innocent parties must suffer, the one whose neglect makes the injury possible must bear the responsibility. Puharic v. Novy, 317 Pa. 199, 203, 176 A. 233, 234 (1934). The purpose of this principle is to discourage secret liens against or secret equities in real property where the holder of the secret interest or lien may record it to secure its permanent record and place it in a position from which those who deal with the property thereafter may learn that the owner of the property does not hold perfect title to the land. Id. Puharic v. Novy, 317 Pa. at 202-03, 176 A. at 234.

• One has constructive notice of another's interest in real property if one could have inquired of a person in possession of the property or could have inquired of another whom they had reason to believe had knowledge of facts which might affect title to the property. Constructive notice also is provided by what appears in the appropriate indexes of the office of the Recorder of Deeds in the county where the property is located. Lund, 410 Pa. at 346, 189 A.2d at 584.

In re Mitchell, 80 B.R. 350; (Bankr. W.D. Pa. 1987):

• On the other hand, a trustee is bound by any constructive notice he has. See R.A. Beck Builders, Inc. v. Schmitt, 66 B.R. 666 (Bankr. W.D. Pa. 1986). The law in Pennsylvania provides that in order for a buyer to hold the status of a bona fide purchaser, he must take title to the property without notice, actual or constructive, of any claim to the property. R.A. Beck Builder, supra; Long John Silver's, Inc. v. Fiore, 255 Pa. Super. 183, 386 A.2d 569 (1978).

• The question in the case at bar is not whether the Trustee had actual knowledge of the unrecorded Contract. Rather, the question is whether the Trustee had constructive notice that Debtor's title to the property might be flawed.

***

• The law in Pennsylvania states:
  
  "Clear and open possession of real property generally constitutes constructive notice to subsequent purchasers of the rights of the party in possession. Such possession . . . . obliges any prospective subsequent purchaser to inquire into the possessor's claimed interests, equitable or legal, in that property."
  
  R.A. Beck Builder, supra at 671, quoting McCannon v. Marston, 679 F.2d 13 (3rd Cir. 1982); Long John Silvers, Inc., supra.

• The Trustee had constructive notice. He had a duty to view the property, and by finding an individual other than the Debtor on said property, he had a duty to inquire. Such inquiry would have led to the knowledge that the party in possession claimed equitable ownership in same. Therefore, the Trustee cannot be a bona fide purchaser and is not able to avail himself of the § 544 avoiding powers.

In re R.A. Beck Builders, Inc., 66 B.R. 666 (Bankr. W.D. Pa. 1986):

• Our determination, that constructive notice did exist, does not rest exclusively upon the recording statute. The property in question bore a "For Sale" sign, which included two telephone numbers, traceable to Auld and Lisk. We must further determine if this sign (and the additional sign erected on the property several months later) constitute constructive notice.

• The law in Pennsylvania states:
  
  clear and open possession of real property generally constitutes constructive notice to subsequent purchasers of the rights of the party in possession. Such possession . . . . obliges any prospective subsequent purchaser to inquire into the possessor's claimed interests, equitable or legal, in that property.
  
  McCannon v. Marston, supra at 16; see also, Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933); Long John Silver's, Inc. v. Fiore, supra.

• If the sign merely said "For Sale", we believe there would be no duty to further inquire into the claimed interest. Similarly, if the sign said "For Sale -- call Auld or Lisk", we believe there would be an inherent duty to inquire. In turning to the facts of the case at bar, we hold that the existence of the two telephone numbers on the sign, traceable to Auld and Lisk, is a sufficient claimed interest to put a prospective subsequent purchaser on constructive notice.

• The position of a bona fide purchaser is a lofty one; it is available only to the reasonably prudent person. A truly reasonable purchaser would inquire about a "For Sale" sign bearing unfamiliar telephone numbers. A simple telephone call to either of the posted numbers would have adduced the ownership claims of Auld, Lisk and White, purchasers who paid good and fair consideration for their ownership rights.