![]() It is not uncommon during the course of a financing for the parties to wish to change the terms of the loan. Some Common Priority Disputes Involving Deeds of Trusts Modification of Senior Loans Thus, for example, an unrecorded Deed of Trust is valid to create a lien on real property as against the trustor, but the beneficiary may or may not have seniority over other lenders to whom the trustor also granted a security interest. As between the parties to the document, the transaction is valid and enforceable if it complies with contract law for the creation of the interest. The foregoing priority rules apply only to relative rights as between third party lien claimants. Lenders commonly rely on title company searches and title insurance to establish and protect the priority of deeds of trust vis-à-vis other interests. Recent California law has held that where documents are recorded simultaneously but indexed sequentially, the priority of the documents can be determined from the parties’ intent. California’s system differs from that in some other states that are pure “race” systems. This is generally referred to as a “race-notice” system. The effect of California’s recording law can result in a later-created Deed of Trust having priority over one created earlier if four conditions apply: 1) the earlier Deed of Trust was not recorded 2) the later beneficiary did not have notice of the earlier lien 3) the later beneficiary gave value and 4) the later Deed of Trust was recorded first. Effect of Recording Laws – Constructive Notice The primary method of establishing constructive knowledge is through the recording laws. to an agent for a principal) or constructive. Such notice can be actual, implied from circumstances, implied from possession, imputed (e.g. ![]() This rule, however applies only if the second beneficiary had actual or constructive notice of the prior interest. Thus, a Deed of Trust dated and delivered by the trustor to the beneficiary in January, 2018 will have priority over one dated and delivered in February, 2018. That section states that other things being equal, different liens on the same property have priority according to their time of creation. First in Time of Creation Is First in RightĬalifornia’s basic rule of priority governing consensual liens is in Civil Code Section 2897. Part 3 will cover certain non-consensual liens including judgment liens and tax liens. Part 2 will discuss parties’ voluntary alteration of their priorities using Subordination Agreements. Part 1 of this article is an overview of the general California rules of priority, and some common priority disputes involving deeds of trust. In the case of consensual liens, the parties may agree to alter their relative priorities, primarily through the use of Subordination Agreements. deeds of trust) or non-consensually and imposed by law (e.g. Broadly speaking, liens may be established consensually, per the agreement of the parties (e.g. When two or more persons have liens on real property, priority rules establish which liens are superior and which are subordinate. Williams & Associates Part 1: General Rules of Priority Deeds of Trust
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