To date the legislative response to the increased threat of fraudulent public real estate records has been various restrictions on access to the records to protect those who predominantly have been targets: law enforcement and certain other public officials. A challenge raised with these initiatives is that they threaten the reliability on which the existing system depends if they make the information available to purchasers and lenders less complete. This article explains how injecting confidentiality could undermine the reliability of the legacy system.
Part II describes the nature and scale of the emerging threat to the system. Part III explains how the real estate recording system really works. Part IV considers the difficult balance between modern privacy expectations and public access to real estate records. Part V considers possible protective measures, some of which are already available. The article concludes that the best approach includes a better understanding of the system and responsible practices among those who depend on it, which can make it more difficult to do harm yet preserve the system’s fundamental openness and reliability.
II. Fraudulent Practices
In recent years some who are unscrupulous or disaffected have used public real estate records to cause trouble for police officers, prosecutors, judges, and other public officials — actions that tend to arise out of a claim of government persecution. The targets are vulnerable to financial harm because of the open nature of a highly efficient and reliable real estate recording system, which depends on immediate and unrestricted access to information about ownership interests.2
A. A Typical Scenario
Consider the following hypothetical scenario. In 2012, deputy police officer Malcolm Leahy pulled over and ticketed Billy Cook for driving fifteen miles per hour over the speed limit and for driving with an expired license. After the interaction both parties went their separate ways and never came in direct contact with one another again. Two months later, Deputy Leahy’s wife began receiving a string of phone calls during which the caller would direct profanities at her, mentioning her name explicitly. The caller never identified himself. Around the same time, a number of other officers from Deputy Leahy’s department had trash strewn in their yards and faced other home vandalism. After about ten days of what seemed to be becoming alarming harassment, the upsetting events began tapering off and finally subsided. Much to the thankfulness of Deputy Leahy and his colleagues, all seemed back to normal. However, the consequences of another vengeful action inflicted upon Deputy Leahy would not surface until three years later.
In 2015, two weeks before Deputy Leahy and his wife were to close on the purchase of a new home after learning they were having a child, their attorney told them that there was an unexpected problem found in the preliminary title search and the buyer’s lender was not ready to go forward with the mortgage loan. The problem was a document recorded with the register of deeds that claimed a $2 million lien. As it turned out, Billy Cook had recorded the document claiming a lien without any legitimate basis and never telling Leahy or anyone else about it. Cook found the ownership information with an online search of tax bill information simply by entering Leahy’s name, used this information to generate a form obtained from the Internet, had it notarized by a friend, and recorded it at the register’s office by paying a $26 recording fee.
With the hold on the sale of their current home, the Leahys were unable to go forward with the closing on the new home. Their attorney spent months arguing with lenders about giving the false lien filing any value. The problem was not resolved until months later when the Leahys obtained a court order declaring Cook’s filing to be void. By then they had to find a new home to purchase. They also had to pay a settlement both to the buyer of their current home and to the seller of the home they had wanted to own.
B. Nature and Scale of the Threat
The scenario just described uses fictional details but such aggressive tactics are used against public officials throughout the country. For example, an Alabama jury convicted two men for filing fraudulent liens against two circuit judges, a sheriff, and a circuit clerk.3 The documents claimed the officials were obliged to pay $89.2 million in silver coins.4 A Nebraska federal jury found a woman guilty of filing false liens against two U.S. district court judges, the U.S. Attorney for the District of Nebraska, two Assistant U.S. Attorneys, and an Internal Revenue Service special agent, as well as for filing a $660,000 false lien claim against the United States.5 A Washington federal jury convicted a man for filing false liens against the director of the Federal Bureau of Prisons and the warden at the Federal Correctional Institution in Phoenix, which he filed while incarcerated as part of a conspiracy.6 The conspirators used false financial documents called “Bonded Promissory Notes” to pay for lien-filing charges.7 They held out the “notes” as issued by the Federal Reserve and United States Treasury.8 Another man was convicted in a Maryland federal court for filing a frivolous retaliatory lien against a public employee, and for filing three false claims against the United States for income tax refunds for hundreds of thousands of dollars.9 He filed a false lien claim for $1.313 billion against the federal prosecutor in a tax case.10 As is sometimes the case, he would file the documents marked with fingerprints in his blood.
The ease of filing real estate records, as explained in section III, enables other kinds of fraudulent activity. One such activity for individuals who see the government as corrupt is to improperly deed government-owned property to themselves. As the Office of Inspector General of the U.S. Department of Housing and Urban Development said, “groups take advantage of State laws in most States that require county clerks to accept and file any quitclaim deed presented to them as long as the forms are properly signed and fees are paid. No proof of ownership is required. It becomes the burden of the true property owner to go to court and clear the title.This process takes time and is costly … "Over the last 4 years, HUD OIG has presented a number of investigations for prosecution, resulting in 20 convictions and criminal recoveries of more than $17 million.”11
Many who are prosecuted for filing false liens are associated with what are known as the “sovereign citizens.”12 The FBI describes them as “a domestic terrorist movement, which, scattered across the United States, has existed for decades, with well-known members, such as Terry Nichols, who helped plan the Oklahoma City, Oklahoma, bombing.”13 The FBI further describes them as operating “as individuals without established leadership [who] only come together in loosely affiliated groups to train, help each other with paperwork, or socialize and talk about their ideology.”14 They sometimes refer to themselves as “constitutionalists” or “freemen” and deny the legitimacy of federal, state, and local laws.15
The full scale of activity by groups promoting use of injurious real estate recordings among adherents is difficult to know but unquestionably is substantial and serious. According to a national media report, such activities have resulted in “a voluminous influx of documents that clog the courts and other government agencies.”16 The Southern Poverty Law Center, which says it monitors hate and extremist groups, notes the difficulty of having a clear sense of scale “in part because there is no central leadership and no organized group that members can join.”17 The reality is, instead, that there are a “variety of local leaders with individualized views on sovereign citizen ideology and techniques.”18 According to the Center, “a reasonable estimate of hardcore sovereign believers in early 2011 would be 100,000, with another 200,000 just starting out by testing sovereign techniques for resisting everything from speeding tickets to drug charges, for an estimated total of 300,000.”19
For those who are so inclined, information about the fraudulent lien tactics is readily available. As the Center found in its research, “Those who are attracted to this subculture typically attend a seminar or two, or visit one of the thousands of websites and online videos on the subject and then simply choose how to act on what they’ve learned.”20 Some resources give targeted advice about lien documents,21 maintaining that valid liens against “judges, politicians, law enforcement personnel and media are completely and perfectly within the law.”22 Such advice may encourage readers to file liens against public officials when they believe they have been wronged in some way.
Those who present fraudulent lien documents typically do so peacefully and by complying with local filing requirements as to form and recording fees. Registers of deeds to whom such documents are presented report to the authors that in most cases the submitter will peacefully accept refusal when told the document does not comply with filing requirements.23 Noncompliance with a filing requirement likely is because the person was relying on something learned informally online and is therefore not surprised that there could be an unknown formal office filing rule.
Government agencies have responded to the growing risks of sovereign citizen aggression by providing direct training to law enforcement officers and other government officials and by issuing guidance on how to respond to threats.24 Stepped up law enforcement and prosecution has resulted in the kinds of convictions mentioned above in this part.25 As explained in the next part, there is less clear direction about measures to reduce the opportunities that exist to do harm through use of the real estate recording system.
III. How the System Works
The real estate lien claim techniques commonly employed against law enforcement and other public officials in recent years are possible because of the very public nature of real estate recording in this country. The system’s accessibility and reliability are vital to personal home ownership, public housing, and the trillion-dollar real estate industry. At a fundamental level, nearly everyone in the country relies on occupancy rights that rest on public real estate records. For most people, these rights are the most valuable asset they will own in their lives. At another level, misinformation about real estate ownership rights and values can contribute to serious problems in the worldwide economy, as was demonstrated by the 2007 recession.26 Consequently, schemes that potentially undermine the public recording system can affect everyone. Policy makers and lawmakers should be alert to institute preventive measures that can address those threats while still maintaining the system’s essential characteristics.
Those who use the real estate recording system to harm others act on three system characteristics: open access, the indeterminate variety of real estate documents, and the sudden and serious effect that discovery of an unexpected record can have on a real estate closing. The next three subparts address each of these characteristics.
A. Open Access
State law governs real estate and all states have recording offices that function in the same basic way.27 In forty-eight states the register of deeds is a local government office (sometimes called a “registrar” or “recorder,” and sometimes the function is performed by court or local government clerks; for simplicity the official responsible for real estate recordings in all states will be referred to generally in this article as a “register”)28. Alaska and Hawaii use a centralized, state office. In every state, the office provides a public record with which potential buyers and lenders can assess ownership interests in property offered for purchase or as security for financing.29
What makes real estate records unique is that the act of recording is not just a matter of memorializing an event. It legally operates to establish rights. The time of recording determines the priority of competing claims.30 A document recorded with the register gives “constructive notice” to anyone who might later be interested in the property, whether the interested party actually knows about or finds the record.31 Thus, recording promptly and properly is extremely important. Those who first make a public record of their ownership in good faith have priority over those who do not. Potential buyers can protect themselves against fraud and verify sellers’ rights to convey by examining the public record for prior conveyances.
Registers do not check to see whether someone recording a document has a legitimate interest in the rights it describes. One reason why the American real estate conveyance system is so efficient in enabling transfers and mortgage lending is that the parties are free to structure and consummate their arrangements without need for government review or approval. Parties are left to protect themselves with legal advisors who perform due diligence in title searches and through private assurance mechanisms, principally title insurance.32 The vast majority of both residential and commercial transactions occur in this system without any title problems.
Registers are not entirely inattentive to what they can accept for recording. To discourage false filings they typically check submissions for evidence of authenticity before recording, such as a certificate completed by a notary who witnessed the signature and identified the person making it.33 However, checking for a notarial acknowledgment is not by itself much assurance against fraud in the generation of a false document. Many filers present their documents by mail, and increasingly electronically through a channel established by the register, and rarely does the register know the notary whose seal and signature appears on the record. Registers also typically insist that a conveyance instrument presented for recording — principally a deed or mortgage — be an original, signed document, except in certain permitted circumstances such as when a certified copy is allowed.34 These requirements are at least some disincentive to fraud or hasty filings that cause problems.
Modern technology offers the potential for making it much more difficult to record inauthentic documents. One possibility is use of a digital signature generated in an encryption process with mathematically related keys, such as with a public key infrastructure. This technology also can reveal alterations made to a record after the digital signature by use of a function that creates a digital representation of the entire record upon sending.35 Despite technical feasibility, no register in this country has a shared secure system with register authentication in general use. Implementation of such a system would require substantial investments in government and private systems and restrictions on the ability of those who do not engage professionals to file documents. Most registers who do accept electronic filings rely on vendor agreements and safeguards such as the use of closed networks or other methods of verifying the source of submission. This effectively limits a register’s acceptance of such filings to particular trusted sources, such as financial institutions that regularly file numerous records. But these options available to some submitters do not preclude someone from recording a document by presenting it in the proper form at the counter in the register’s office, something that citizens have always been able to do in this country.
Notwithstanding the rapid changes in the form in which submitters can file and review public real estate records, the register’s limited role remains essentially the same as it has always been. There is no real momentum to change this role to more of a gatekeeper, which might seem to be a natural reaction, but would have wide-ranging and fundamental effects on real estate conveyances and finance. Though most people do not know how registers of deeds work, not much effort is necessary to discover the reality that registers do not actively police submissions for legitimacy.
B. Challenge of Identifying Fraudulent Documents
A second reality about real estate recording that fraudulent filers see opportunistically is that lenders and their counsel often use sophisticated financing instruments that have titles and terms that are not familiar even to those who practice in the field.36 Consequently, someone can file a document that is fraudulent but does not immediately appear so.
Most real estate transactions are residential conveyances with purchase money mortgages.37 To document these conveyances lenders use standard, federally approved forms, and closing attorneys use local bar forms for the deeds. But there is no template with which all parties must comply in their transactions in order to record, and registers of deeds do not have legal authority to impose any.38 Nor would imposing such restrictions be practical. Even with the usual transaction in standard form, registers are accustomed to seeing names and loan arrangements that only sophisticated bankers understand. Mostly this is due to the secondary mortgage market that federal agencies first established to pool resources and spread the risk of default, which made financing more widely available for home ownership. Securitized trusts often hold many loans, with participation shares sold to investors.39 Most borrowers are unaware that their loan is in these pools.40 A borrower makes mortgage payments to a servicer regardless of what entity might hold the real interest in the loan at any given time. When a borrower pays off the loan, either according to the original schedule or upon a sale or a refinance, payment is made through the servicer that will record the documents showing satisfaction of the mortgage.41 These closing and recording mechanisms usually work without problems, even though a borrower can easily lose track of the loan’s real owner.
A recent development that causes owner confusion is widespread use of the Mortgage Electronic Registration System, known by the acronym “MERS.” In 1997, major institutions in the mortgage industry, including Freddie Mac and Ginnie Mae, created the system to reduce the costs of transferring mortgage loans.42 When a loan is originated, rather than initiating a chain of recording successive loan assignments among lenders, the originating lender assigns once to MERS as a “nominee.”43 Thereafter the loan’s transfer is recorded only with MERS.44
Borrowers have brought litigation to challenge foreclosures brought by MERS or MERS assignees. Some of these cases have involved allegations of fraud in the creation of the loan arrangement or breaches of lender loan servicing obligations.45 Some courts have been troubled by the way the system operates outside the public records. As the Chief Judge of the New York Court of Appeals said, using MERS will “detract from the amount of public data accessible for research and monitoring of industry trends,” as well as “function, perhaps unintentionally, to insulate a noteholder from liability, mask lender error and hide predatory lending practices.”46 While courts generally have rejected borrowers’ attempts to prevent foreclosure based on lenders’ use of off-record registration systems, the existence of these complaints about transparency and confusion demonstrate that very few people, including those involved in real estate transactions, would be able to tell the difference between a legitimate lienholder arrangement and an artfully crafted illegitimate one.
Common use of these sophisticated real estate finance arrangements means that the typical owner might not recognize the name that appears on a document holding the mortgage to which an owner is making payments, or understand the legal significance of the document on which the name appears. It also means that a fraudulent document in an unusual form and with an unrecognizable name may pass unnoticed until someone asks about it in connection with a pending loan or sale.
C. Ease of Derailing a Closing
The real estate recording system depends on the ability to find all rec-ords that convey interests in any particular parcel of real estate. Title researchers link current and historical owner names in the operative instruments of conveyance, known as the “chain of title.” A complete and accurate indexing system is essential for finding all of the pertinent documents.
Registers maintain an index subdivided into lists of grantors and grantees and human and non-human names.47 Human names are arranged by given and surnames, and nonhuman names by strings of characters.48 In a typical title search, the examiner will begin with the current owner’s name and recording information from the current owner’s deed, and work backward to identify prior interest holders. The examiner then checks each name in the chain for mortgages and other rights that may have been conveyed during ownership, to ensure all outstanding interests are accounted for.
Consider this simple and typical example: someone wants to buy a home from Malcom Leahy. Both the buyer and the lender giving a mortgage to the buyer will want to be sure that no one but Leahy has a claim to the property and there are no mortgages, easements, or other interests to interfere with a full conveyance of ownership to the buyer, and that there will be an enforceable first priority right to foreclose from the buyer to the buyer’s mortgage lender. The attorney representing the buyer will research the title to see whether Leahy or Leahy’s predecessors-in-title have made any unaccounted-for transfers. Any document claiming a lien against Leahy or a predecessor that might apply to the subject premises will require investigation.
Legal counsel engaged to carry out a conveyance ordinarily will conduct the title search to identify potential issues in the records a few days or weeks before the scheduled closing date. They expect to find an unbroken chain of conveyances to the current owner for the duration of a reasonable search period — something like thirty-five years, depending on title insurance requirements and local custom. They also want to confirm that every mortgage and other lien to which the real estate was made subject has been discharged as shown by a satisfaction document, except for what is likely one outstanding mortgage that the seller will pay off with the closing proceeds. The title searcher will do an update when the closing documents are ready to be recorded to see if anything new has appeared in the record.
If a document claiming an unexpected, apparently still-enforceable lien is found, counsel will bring this to the parties’ and the lender’s attention. Even the most diligent lender will need some time to review the issue and determine whether the lien claim is valid. If this cannot be concluded satisfactorily before the scheduled closing date, both the buyer and seller will be harmed by the delay. This harm can be significant, not only with legal costs, but also with such things as costs for additional moving and storage and temporary housing. A delay of the closing can also start a sequence of problems for the seller with third parties whom the seller has engaged expecting payment of the purchase price upon closing, such as the owner of another property that the seller sought to purchase with the proceeds of the delayed sale. If someone filing a frivolous lien times the action right, by design or luck, trouble and loss will follow, unless everyone involved immediately recognizes the false and ineffective lien for what it is and is willing to proceed as previously planned based on that determination.
IV. Privacy Interests and Public Records
While the legacy American real estate conveyance system depends on unfettered public access to personal information about ownership,49 such access may not seem fully compatible with modern notions of privacy, particularly in a world in which individuals reasonably wonder who has access to their personal information and communications. Samuel Warren and Louis Brandeis first introduced the modern notion of privacy rights in 189050 These preeminent legal thinkers enjoyed immediate and broad reception for their writing, perhaps because of the growing consensus that society was becoming too nosy. They set forth a definition of privacy as the “right to be let alone,” which they argued is broader than any legal rights related to tangible property or punishments for offenses against the physical person.51 Their perceptive argument was aimed at identifying how, if at all, the notion of privacy could be fitted within law and the extent to which it could be protected.52
In modern times, privacy interests have become firmly entrenched in the law at least since Griswold v. Connecticut.53 As concurring Justice Goldberg said in that case, “the right of privacy is a fundamental personal right, emanating ‘from the totality of the constitutional scheme under which we live.’ ”54 Everyone has a personal interest in being free from invasion of privacy and harassment. Many would argue the public at large also holds an interest in keeping public officials free of such harms. The public relies on them to be willing to take on responsibilities in their behalf, and if they are increasingly subjected to harassment recruitment and retention rates may suffer. Public officials also become less able to undertake their public service duties if their time is consumed responding to and coping with the aftereffects of harassment. Similar to victims of cyber-bullying,55 law enforcement officers in particular face acts intended to cause them emotional distress and they are subjected to messages that encourage violence against uniformed officers.56
Privacy interests, though, are difficult to articulate.57 The notion of privacy can mean something very different from one person to the next, can relate to personal, group, or societal concerns, and can be regulated through law, addressed through social norms, or ignored nearly altogether. A look into the scholarly literature about defining privacy interests and harms can help point to the rationale behind legal provisions intended to make information confidential that would otherwise be public.
M. Ryan Calo presents his conceptualization of privacy harms in a 2011 law review article, describing that one of the predominant views of privacy harms is flawed.58 Calo acknowledges Daniel Solove’s well-known “taxonomy of privacy harms”59 and argues that delimiting privacy principles, instead, will help prevent overextension of the concept that would render it meaningless.60 In narrowing the concept of privacy, Calo writes that harms fall into two fundamental categories — subjective and objective.61 The subjective type of privacy harms involves the anxiety, embarrassment, and fear caused by the belief that one is being observed.62 The objective type of privacy harms involves the “unanticipated or coerced use of information concerning a person against that person.”63 This would include misuse of personal information by third parties, even if such information alone is innocuous and frequently used for identification purposes. For example, everyone except extreme hermits interact with the outside world to some degree. In doing so, everyone puts certain personal information into the public sphere. Often, members of the public are not aware they put or do not pay any attention to putting their personal information into the collective marketplace. Nothing about this sharing of information is inherently concerning. Sharing a personal telephone number, for example, enables people to contact one another. Opening a savings or checking account allows individuals to safely store their cash belongings and access money when needed via the withdrawal system. According to Calo’s concept of privacy, the results of misuse of a personal telephone number or checking account would be an objective type of privacy harm.64 He further clarified this privacy harm, stating: “The use must also be unanticipated. It is not a privacy harm to use a person’s information if he himself publicized it or if he understood and agreed to the use.”65 Knowingly or not, someone who purchases property or obtains a mortgage in this country is permanently publicizing the information in the documents recorded to consummate the transaction.
Certain groups of individuals are particularly vulnerable to objective privacy harms. Third parties identify unique or noteworthy weaknesses in certain populations and aim to take advantage by exploiting information. For example, the elderly face significant risks for identity theft because of the ability for hackers and identity thieves to capitalize on certain financial benefits offered to late-in-life adults.66 Public officials and especially law enforcement officers have become a vulner-able population subject to harassment from individuals connected to extremist movements.67 Other members of society also have need for privacy not associated with the public generally, in some cases even more so. For example, battered women and other victims of abuse may face ongoing threats that require that their residence address not be public information.
Privacy law does not aim to prevent individuals from sharing routine information — even personal — if generally accepted as appropriate by the parties involved in the information exchange (especially the individual whose information is being traded). To prevent objective privacy harms like the misuse of residential addresses and phone numbers, legislators and regulators have passed laws and rules aimed at ensuring certain individuals can anticipate how their information is used.68 Other laws and policies aim not to keep certain information completely sealed, but to create barriers to easy access. “Practical obscurity” is a feature of information management in which information is effectually kept from disclosure because of the creation of practical obstructions to access.69 Some examples of barriers include required travel to view the information, limits on findability technologies, and the passage of time.70 Access is more difficult with information that exists only in hard copy at a remote location and unavailable electronically via Internet connection. The information is not sealed or completely unavailable, but it is more practically unavailable because of the heightened requirements for retrieval.
No real estate recording system in the world is more open than in the United States.71 Other systems embed more of a privacy notion. In some European countries, for instance, only attorneys who are also notaries may file real estate documents. In other countries, such as Russia,72 the title registry requires proof of a pending transaction before it reviews its title records and agrees to issue a title license for the transfer, a process that takes several months.73 Such restrictions might actually be consistent with what Americans would expect in their country. For instance, they do not expect to be able to go online and easily find out who owns a particular motor vehicle, or the original amount of a loan secured by it, as someone can find about real estate ownership.
Restricting real estate ownership information to prevent the objective privacy harms that Calo describes74 promotes practical obscurity. Law enforcement officers and other public officials fall into an increasingly vulnerable population for attacks wielding their personal information for criminal purposes. However, throughout history, philosophers and democratic theorists have stressed that accountability schemes are most necessary for those with the most power and discretion in government.75 Recent protests against and criminal charging of police officers for betrayal of their duties through excessive (and often deadly) force have reawakened a mass conversation and concern over armed officer autonomy. Certainly, many would advocate for greater access to information so that officers could be more directly scrutinized and made to face consequences of illegitimate acts committed on the job. As with most all of law, and certainly privacy laws, trade-offs can be unavoidable. Even laws that seem to aptly address a notable societal issue may have unintended or complicated applications.
V. Protective Measures
Until recently the law has addressed fraudulent liens with remedial or punitive measures.76 Owners can obtain judicial relief in the form of an order declaring a recorded lien to be void, which when also recorded with the register of deeds will address the title issue.77 The problem with such a remedial measure is the harm may have already been done as a result of a delayed or lost closing, as explained in subsection III.C above. Someone harmed may have a civil remedy to recover for losses, such as for fraud as well as for slander of title.78 Such recovery measures are costly and of uncertain outcome, especially given the likelihood that the perpetrator does not have reachable assets to pay any damage award. Those who employ fraudulent documents also are subject to criminal prosecution for a number of crimes, including statutory and common law fraud, as well as violation of laws specifically aimed at fraudulent liens.79 Part II above has some examples of successful prosecutions. The threat of criminal prosecution may have some ameliorative effects that are difficult to measure. However, these existing measures leave unanswered the question of whether there are law or practice changes that would stop the harm from occurring in the first place.
Real estate transactions depend on the legacy system of public access to records in a way that implicates privacy expectations. Those who depend on the massive real estate investment and transaction industry — including lenders, title companies, conveyancing attorneys, brokers, and title insurers — are justifiably interested in preserving this system that is so important to home ownership, investment, and economic development. At the same time, public officials see the open records in this system as a door for unscrupulous individuals to interfere with their personal financial affairs. They are looking to state legislatures to enact countermeasures to make real estate ownership information more private. As the following describes, some such measures could undermine the integrity of the real estate recording system. Legislators, owners, and lenders could take different other steps for protection without such potentially undesirable consequences.
A. Privacy and Restricting Recording Access
Until recently those harmed by abuse of the real estate recording system have largely been left to common law remedies or attempts to shoe horn statutory provisions. In part this is due to the newly emergent nature of these harms; in part to concern about inadvertently affecting established rights that depend on structures like the recording systems; and in part to a lack of understanding about the systems and the harms that can be perpetrated through their abuse. As harassment has become more prevalent, legislators have responded by enacting laws meant to prevent or address such harm. In this way these new laws mostly are ex ante — meaning created (often in response to a pending issue) to prevent certain actions or harms.80
In recent years, registers of deeds and legislators became increasingly concerned with the existence of personally identifying information as offices were going “fully digital” and providing online access to real property records and their indices.81 For example, the North Carolina General Assembly authorized registers of deeds to remove certain information from records displayed on the public-facing Internet website when individuals request such information to be redacted.82 Individuals may submit to the register requests for redaction specifying the relevant document and the nature and location within the document of the information to be redacted.83 The information that may be removed is “Social Security, taxpayer identification, driver’s license, state identification, passport, checking account, savings account, credit card, or debit card number or personal identification code or password contained in the public records displayed on the register’s Internet website available to the general public.”84 Registers were generally supportive of these limited redaction responsibilities.85 The legislature also authorized North Carolina registers to remove Social Security numbers and driver’s license numbers from records available on their Internet websites without a request.86 Redaction of formulaic strings of characters such as Social Security or driver’s license numbers from electronic files is a fairly simple technological task; vendors can use character recognition to sweep through many records.87
To respond to concerns expressed within the law enforcement community, legislators in North Carolina also introduced bills that would require registers to remove address information from their records if requested by a law enforcement officer, prosecutor, or judge.88 These initiatives have not proceeded past the stage when the sponsor or legislative committee hears from conveyancing attorneys, mortgage lending representatives, and others about the problems such legislation would cause in the real estate recording system.89 Legislators have enacted more limited confidentiality provisions. For example, in 2015 the North Carolina General Assembly enacted legislation to protect public officials’ information deemed private in personnel files.90 It excludes from public records residence addresses, phone numbers, and certain other identifying information in such files.91 The legislation was not entirely clear about whether the confidentiality requirement applied to information in other public records, including real estate records. It provided that confidential information was not to be disclosed “[e]ven if considered part of an employee’s personnel file,”92 which does not necessarily mean the information is confidential only if in a personnel file. One could argue that if the provision was meant to apply only to personnel records it would be written without this dependent clause and, instead, explicitly point to personnel files as the location for non-disclosure. As applied the law has been interpreted as not extending beyond personnel files.93
A few other states across the country have enacted statutes similar to North Carolina’s public official confidentiality law but that also include real estate records. For example, the Idaho legislature barred disclosure of certain information connected to law enforcement officers in any public record when the officer submits an application and pays a fee.94 Florida statutes enable law enforcement officers, judges, states attorneys and a number of other public officials and their families to request redaction of their home addresses from the public records, including real estate records.95 The official must submit a written request with the recording information of a public document to enable the custodian to modify the document to remove the information.96
Authorizing registers to redact their records to remove residence information for certain individuals at most only bars one path for access to such information. Redaction after a record was once public is no assurance that no other copies exist. They may be in many places and many forms. Copies exist in backup files that the record keeper maintains as a customary and necessary practice in case of a system failure or other disaster.97 Unrelated parties also may have copies. Title insurance companies maintain title files on properties they insure as well as general title plants with which their agents can perform searches.98 National and international data brokers are in the business of collecting public records and selling access.99 By redacting addresses only from records that are currently open to the public generally, the government could essentially be limiting access to enterprises savvy enough to gather mass amounts of information on an ongoing basis.100 While this may give the appearance of practical obscurity, this state of affairs seems skewed in light of the principles of open government and accountability.
The effectiveness of redaction of residence information from the register’s records also is limited because real estate records are not the sole source of public information about property ownership. Litigation files in public court records may also contain information about ownership, particularly the probate files that identify beneficiaries who inherit real estate. Title examiners routinely research the probate files to confirm a link in the chain of ownership title that passed by inheritance. Another source of ownership information is local real estate tax records. Local governments tax real estate within their jurisdictions and track owners’ names and addresses for billing and collection. Most now make this information available through their websites with searchable databases. Searching by name and address, the public can also retrieve property information like sales history and tax bills.101 An owner might have a constitutional right of access to certain tax information if that information is related to a direct and tangible interest, such as the ability to determine whether a tax assessment is proportionate to other assessments, but there is no general right of public access to all such information,102 and there is no legal or practical necessity for making this information so readily accessible.103
Threats to law enforcement officials are not the only public policy concern that leads to real estate recording confidentiality legislation. A number of states have adopted programs aimed at real estate records of battered women.104 Individuals who need protection against violence, such as battered women or witnesses against violent offenders, sometimes get different names and can use them in their real estate documents.105 But such measures can have many consequences including difficulties with mortgage financing. Some states have aimed at extending some record privacy to threatened individuals who do not necessarily change their names. For example, in 2006 Minnesota’s enacted a so-called “Safe at Home Program” in which participants can require registers not to disclose “identity data” including residential street address.106 To become a participant, the Minnesota Secretary of State must certify the person’s qualifying status based on an attestation of being a victim of domestic violence, sexual assault, or stalking, or whose safety is in danger, among other things.107 Participation lasts for four years, subject to renewal.108 A register who receives notice of a protected document indexes the name on it so a searcher knows there is a recorded document in which that person has an interest, but the register does not allow access to the document so long as the participant owns the property.109 As described by a law review note commentator, Minnesota registers must “track the documents so that they can remove redactions and viewing restrictions when a participant is no longer protected by the program,” and “coordinate with the secretary of state to process requests for documents and maintain full copies of redacted or private documents to securely deliver to authorized outside parties.”110 As the author also noted, interested parties and title insurance companies “face increased risk when documents are more difficult to find” due to exceptions in indexing practices and lack of direct access to documents.111
An owner whose property is put into a protection program may on balance accept some possible later title concerns in exchange for confidentiality, believing that any future buyer or lender will be willing to work through them. But title implications are not confined to the subject property. Title examiners must factor into their analysis any possibility that they cannot see a full depiction of documents that could be entitled to the priorities of recording. For example, examiners commonly detect more than one version of a name that could belong to someone in a chain of title, and studying the actual document may be necessary to pinpoint both the property and owner identity for any particular record. Having to apply for permission to see that record and wait for access through the restricted process could have an impact on a title search for someone who is not in the confidentiality program.
While legislatures may decide as a policy matter that the threat to certain individuals such as battered women warrants special administrative procedures that come with some public cost and risk, such a program raises important policy concerns beyond general title search efficiency and reliability. To whom else should legislatures afford such protections? Legislatures have been actively considering protections for law enforcement officers, public attorneys, prosecutors, judges, and their families. Including these individuals as among those entitled to a confidentiality process would greatly expand the administrative burden, risk of error, and extent to which the records’ reliability can be trusted. Registers also would face thorny questions about how to actually administer such a program, including such things as how to identify someone who qualifies and how to track whether that status changes and what to do when it does. Is a retired police officer covered? A district attorney’s separated spouse? While record confidentiality may be appealing as a solution to those who are concerned about threatening situations, programs such as that implemented on a limited scale in Minnesota are not a practical solution on a wider scale.
These record and redaction and seclusion measures may ultimately provide some protection to some individuals who needed it. As this section has described, they also involve serious practical issues that are difficult to envision by someone who does not understand the intricacies of the real estate recording process and title examination, including those who propose such measures in a good faith response to a real concern. Regardless of the extent to which state policy makers determine that such measures should be in place, they give limited protection against someone who is truly determined to collect residence information from various sources.
Installing protective measures aimed at particular individuals identified as at risk, such as law enforcement, also raises a question of fairness with respect to those who do not get the same privacy opportunity. States that enact these measures make a list of those who are eligible, and there can be no magic for deciding where to draw the line between protected targets and everyone else. Individuals without public status may have activities, relationships, or sensitivities that in their minds warrant similar confidentiality. To date groups with sufficient policy influence have been able to persuade legislatures to install measures to protect the interests they represent. This leaves all others with the same risks that have always existed with the system of public recording.
B. Register Gatekeeping
As described in Part III above, the American real estate recording system depends on open access. There has never been any serious initiative to put registers in the position of assessing the legal validity of documents presented for recording. Most registers of deeds do not have legal educations and should not be expected to scrutinize the validity of documents drafted within the professional real estate conveyance and finance community. Given the priority afforded to a document that is first recorded, an erroneous rejection could be very costly to the parties involved, and to the recorder’s governmental unit if found liable for the loss. For example, this could happen if a register rejects a lien filing that seems unusual but is in fact legitimate, and a later recorded lien is given higher priority.
Notwithstanding these important reasons not to make registers gatekeepers of instrument legitimacy, there have been some limited measures to empower registers to refuse to record an obviously frivolous lien document. For example, North Carolina enacted such legislation in 2012.112 A statute authorizes registers to reject documents that seem to be falsely claiming a lien against a public officer or employee, or an immediate family member of the officer or employee on account of the officer or employee’s official duties.113 The statute provides that “if register of deeds has a reasonable suspicion that the lien or encumbrance is false … the register of deeds may refuse to record the lien or encumbrance” and that the register will not “be liable for recording or the refusal to record a lien or encumbrance” according to this law.114 Refusal is not mandatory — the law does not impose a duty on registers to review documents claiming liens or encumbrances and assess whether they appear to be valid.115 If a register refuses to record a document based on this law, the presenter may record a “Notice of Denied Lien or Encumbrance Filing” on a form that the N.C. Secretary of State has approved.116 A recording fee is not necessary for this notice. Any interested person, including the presenter, then has ten business days to file a court action to challenge the rejection.117 If the court determines that the document was recordable, the presenter can record the order with the register. If the court finds that there is no basis for the proposed filing, the court will declare that the proposed filing is void and order it not to be recorded, and a copy of the order is filed with the register.118 If a register receives a court order declaring that a filed lien or encumbrance is false, and therefore void, in addition to filing the order the register is required to conspicuously mark the filed record as false.119
In 2014, Utah enacted a different variety of such legislation, authorizing a register to reject a lien document that is not signed or expressly authorized by the submitter nor allowed by statute or court order.120 When such a document, called a “nonconsensual lien,” is rejected, the submitter may petition for an expedited court hearing to compel recording.121 This approach places the risk of wrongful rejection on the submitter for the period between the rejection and court action because there will be nothing on record during that time. Utah law also requires that someone who files a nonconsensual lien — regardless of whether the register rejects it — cause the sheriff to serve each person affected by the document with a copy of it and to commence a court proceeding to obtain an order that it is valid and enforceable.122 If in that proceeding the lien is deemed wrongful, Utah law subjects the filer to liability for damages, costs, and attorneys’ fees.123
North Carolina registers who have refused to record documents pursuant to the newly enacted authority report to the authors that they have done so only with filings that were obviously in a form commonly used by those associated with Sovereign Citizens activities.124 They also report that in the few instances in which they rejected such a document, in which case the presenter had the opportunity to challenge the decision with an expedited court filing, no one pursued such a challenge or reappeared to try to record the same document again.125
These reports suggest that many of the common attempts to file frivolous liens can be thwarted without legislative changes that alter the system’s fundamental nature. However, the system still is vulnerable to those who are more devious than usual and who better inform themselves about technical recording requirements. In this surreptitious activity, as in nefarious things in general, those who are most willing and able to be deceitful usually are the ones who are not caught until the harm is already done. Those who use clumsy or use obvious tactics naturally get the attention when policy makers consider preventive measures. Nonetheless, the North Carolina provision is an example of a slight change that can have at least some beneficial effect in terrorem, though its extent is difficult to assess due to the nature of the activity.
C. The Possibility of Less Disclosure in the System
A natural reaction to concerns about the ease with which someone can learn information about real estate ownership is to consider whether so much public information really is needed for a system to give the kind of notice necessary to protect owners’ interests. This subsection describes why changing the real estate system to allow less public information would be problematic.
A threshold question when considering how to make personal information about real estate ownership more obscure is the feasibility of changing the system to include less information. There is a more limited disclosure approach that works well across the country — personal property security interests under the Uniform Commercial Code (UCC). However, careful consideration of the differences between UCC filings and real estate recording leads to the conclusion that they need to be different.
The UCC’s “notice filing” requirement “indicates merely that a person may have a security interest in the collateral indicated. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs.”126 As a federal court described it, the financing statement that is recorded “serves the purpose of putting subsequent creditors on notice that the debtor’s property is encumbered. The description of the collateral … does not function to identify the collateral and define property which the creditor may claim, but rather to warn other subsequent creditors of the prior interest.”127 Unlike with a real estate mortgage, with a personal property security interest there are other ways that a creditor can have priority over someone who first records a financing statement for a security interest in personal property, such as by taking possession of the collateral.128 Accordingly, since the filing functions only to put someone on alert to find out more, not much is required for a statement covering personal property, not even the debtor’s signature.129
The real estate recording system has never functioned in this manner. Real estate is unique and precisely defined, and state laws give priority based on the sufficiency of those descriptions. The UCC itself incorporates this difference, requiring that a UCC filing for a security interest in personal property that will become a permanent part of the real estate, known as a fixture, must describe the real estate to be recordable with the register.130 As one commentator noted with respect to real estate recordings, “the proper legal description leaves no doubt as to what parcel of real estate the grantee intends.”131 The lesser requirement for personal property reflects the reality that it usually is less identifiable than real estate, is easier to destroy, and can be fungible.132
Consequently, however appealing it may be to adopt more of a “notice filing” for real estate recording, to do so would strike at the heart of the system’s reliability. The enforceability and transferability of real estate ownership interests depend on settled legal principles that entitle someone to rely on the public recordings as a complete statement of possible competing claims. Interests in real property may have arisen at any point in time during the chain of ownership, in many cases under circumstances in which someone with a possible claim cannot be contacted for additional information. Additionally, conveyances and mortgage lending occur at too vast a scale and on too rapid a time frame to be sustained in a system based on an expectation of further inquiry in every instance.
D. Filing Notice
Familiarity with the real estate recording process suggests other possible preventive measures that would not undermine the system’s openness and reliability. All state recording laws impose some type of information disclosure requirements as a condition to recording. For instance, to facilitate real estate tax billing, state law may require the grantee’s address be on a deed.133 State law may also require that a deed contain the local government’s parcel identifier number for the conveyed property.134 In the same vein, states can require some form of notice to be given to an owner when an instrument is recorded that has the apparent characteristics of a fraudulent lien.
Texas has enacted a law aimed at giving this notice. It provides that if a county clerk, who performs the register of deeds function in Texas, “has a reasonable basis to believe in good faith that a document or instrument previously filed or recorded or offered or submitted for filing or for filing and recording is fraudulent,” then within two business days the clerk is to send notice “to the stated or last known address of the person named in the document or instrument as the obligor or debtor and to any person named as owning any interest in the real or personal property described in the document or instrument.”135 A document claiming a lien is presumed to be fraudulent if it is not “provided for by the constitution or laws of this state or of the United States”; it is “not created by implied or express consent or agreement of the obligor, debtor, or the owner of the real or personal property or an interest in the real or personal property, if required under the laws of this state, or by implied or express consent or agreement of an agent, fiduciary, or other representative of that person”; or it “is not an equitable, constructive, or other lien imposed by a court with jurisdiction created or established under the constitution or laws of this state or of the United States.”136 Under the Texas statute, a lien document also is presumed fraudulent if it “is filed by an inmate or on behalf of an inmate” unless accompanied by a notarized statement from the named debtor about it being a security instrument.137 The statute also provides that a clerk is to engage the county or district attorney about the apparent fraudulent lien claim.138
The Texas statute creates a mechanism that could give owners the notice they need to address fraudulent liens before they can cause harm. The extent to which it is successful in a general sense depends on the clerk’s ability to make legal judgments about whether any particular filing meets the statutory conditions of being presumptively fraudulent. These are not readily apparent determinations even for real estate law practitioners. For instance, attorneys may reasonably disagree about whether lien claims can be created by implied consent, such as those associated with construction work or condominium assessments. Unless the clerk sees a document as obviously fraudulent, or concludes the difficult legal analysis that it meets the challenging statutory conditions for being presumptively so, many owners who are victimized by crafty filings will not receive notice of filings under this provision.
Another approach to giving notice of apparently fraudulent lien claims would be to remove the register of deeds from having to make a determination about a filing’s legal characteristics. Such a law could enable a register to ensure that an owner receives a copy of a document presented for recording if the owner or someone with a recorded power of attorney for the owner did not execute it (as it would with a deed of trust or mortgage), nor was it executed by a security interest holder of record (such as a mortgage holder assigning it to another lender, or a lender recording a satisfaction instrument after the mortgage is paid off). The recording fee could include a copying and postage charge. For example, legislators could amend their state recording statutes with the following additional provisions:
As a prerequisite to registration of a document purporting to be a deed of trust, mortgage, or other conveyance or claim of a lien or security interest, a register may require that the mailing address for each owner of the premises affected by the document be shown on the first page of the document, unless:
(A) The document is executed by an owner or an individual with power of attorney executed by an owner as shown on a document recorded with the register, or
(B) The document is an assignment or satisfaction instrument executed by a party to whom the owner granted a security interest of record, or an assignee of record of such a grantee.
The register of deeds shall send a copy of a document subject to this mailing address requirement to each owner at the mailing address shown, and before registration of the document shall collect an additional $x.xx dollars for each owner to whom such copy is to be sent.
This kind of a narrowly tailored requirement would not be a significant added burden on registers because many already routinely mail original filed documents back to submitters. They would not be expected to make any determinations about legal validity. Only a knowledgeable and luckily deceptive fraudulent lien filer would be able to avoid having the owner become aware of a filing. The frivolous lien claims commonly filed would not escape detection. Real estate attorneys still may be naturally concerned about any additional prerequisites to recording that could hold up a legitimate transaction, but policy makers may determine that this requirement would be worth the added protection given to owners against fraudulent liens. This policy choice depends to a significant degree on the rules and practices currently in place in particular jurisdictions.
Owners naturally may be surprised that this kind of notice is not already part of the system. They receive tax bills and notices of zoning proposals for neighboring properties, and might expect that they also would get notice when someone claims a lien on their property by filing something in a local government office. An owner who gets a copy of a fraudulent filing at least could immediately report it to law enforcement and address it with any lender or other party potentially affected. A notice requirement makes it less likely that a lien would be detected only when there is little time to address it before the parties must postpone a closing and incur losses.
E. Self Help and Responsible Lending
Methods already exist for parties to keep some information about ownership more private, including through use of ownership entities that do not immediately disclose personal information. Additionally, many fraudulent lien filings can be rendered impotent simply with responsible title examination and loan origination practices.
1. ENTITY AND TRUST OWNERSHIP
Methods already exist for owners to disclose less personal information in real estate records than usually included. State law has long provided for various ownership forms that individuals can create with standardized organizational filings and periodic reports. These forms enable owners to put title in the name of an entity or trustee that will appear as the current owner in the register’s index and in the public tax records.
Two common entity forms in which an individual can hold sole ownership are corporations and limited liability companies, each of which allow use of a fictitious name adopted upon formation.139 Family members also can create such entities and keep closely held control. When indexing a party’s name on a document that is a business entity, registers typically enter only the name of the entity that is the titleholder, not any names of officers or managers whose names might appear as signatories for the entities.140 To be recordable, real estate documents do not need to show shareholders or members.
Another technique for holding title to property indirectly is use of a trust. A trust technically is not a legal entity, but rather an agreement between someone transferring property to another — the trustee — with direction about how the property is to be held and transferred. There is no requirement to record all details about the trust agreement.141 To satisfy title concerns about trust status and capacity to own, state laws provide for recording a trust certificate with basic information including the trust and trustee names, identity of the settlor, and statements about existence and authority. Trust law enables purchasers and lenders to rely on this limited information in determining the trust’s existence and authority to transact.142 Those who benefit from the trust — the beneficiaries — need not be disclosed in the real estate filings.
The trustee holds legal title to property in the trust.143 An owner can use a third party — often an attorney or family member — to be the trustee to keep the owner’s name off the real estate tax listing and out of the register of deeds index. In such arrangements, the trust settlor typically retains ultimate control over the real estate with the right to revoke the trust. Those who create common forms of family trust usually do not try to keep their personal names confidential, instead choosing trust names with “family trust” appended to their own. Under these circumstances someone searching the individual names will also come across the trust name in the real estate. But nothing requires that the individual names be included in this way for real estate ownership purposes.
Use of an entity for property ownership does not entirely prevent someone from finding out about an individual’s ownership interest in the entity. Someone who is determined enough can likely piece together information in various public records to make the ownership connection. For example, a shareholder or member most likely will be the register’s indexed grantor in the deed transferring the property to the entity or trust, and someone can deduce that an individual making such a transfer likely has a continuing ownership interest in the entity or trust. Still these ownership forms afford some confidentiality because to make the necessary deduction someone needs to understand entities and trusts, how interests are held in them, and have reason to suspect a connection to the entity or trust interest holders.
These alternatives to holding title involve other readily apparent significant drawbacks from being a solution for most who are vulnerable. Entity formation and transfers require sophistication about property ownership and public records, and consequently should involve legal representation and its attendant costs. Lawmakers cannot reasonably expect widespread adoption of techniques that involve an additional layer of legal formalities at user cost, especially when they are only a veneer of added security. However, those who are most likely to be concerned about being targets of fraudulent real estate filings do have these methods available for making their ownership less conspicuous, and are better off if they at least know about them.
2. RESPONSIBILITY AND DUE DILIGENCE
As described in Part V.A above, state legislatures have enacted laws to limit public access to information about real estate ownership by individuals whose official duties or special circumstances warrant protection.144 Individuals who face these threats can lessen their risk of running into conveyance or mortgage finance problems if they periodically check the registry for something unexpectedly indexed in their names. Not every potential target of a frivolous filing with be alert to the possibility, or take steps to check to see if someone filed something in the registry. But someone else involved in the usual chain of events should be alert to the possibility and its potential effect: the lender presented with news about an obviously frivolous lien filing when a loan is being contemplated.
As discussed in Part III above, title examiners are most likely to discover a fraudulent lien claim a few days or weeks before a scheduled closing. With routine residential loans, lenders may not have a process to assess the validity of a lien claim in the ordinary course within the time remaining before the scheduled closing date. The natural inclination if any doubt exists is on the side of postponement. Nothing in current federal or state law requires lenders to make faster decisions, and the terms of their loan commitments likely will give them broad discretion not to close the loan while issues remain unresolved. Federal fair credit regulations impose disclosure deadlines but they do not help a borrower under these circumstances. A creditor has thirty days to give formal notice of action on a pending application.145 By the time the creditor is required to give this notice, the closing is likely postponed and substantial costs and liabilities incurred.
Although lenders may have a contractual basis to withhold financing because of a discovered lien claim document, lenders exercising good judgment and fair dealing should not give weight to obviously fraudulent documents. An attitude of willful indifference in lenders should concern anyone who lived through the mid and late 2000s. The housing market crash of 2008 was partially the result of lenders overly eager to extend credit. Lenders failed to consider borrowers’ ability to repay and advanced high-risk mortgages that ultimately caused massive defaults.146 While lenders initially profited from such a home loan boom, and brokers reeled in rich commissions for the growing quantity of loans they made, the aftermath was disastrous.
Withholding a loan automatically when a lien claim appears could reflect a similar attitude of complicity and complacency and an improper focus on form instead of substance. In essence the rationale goes, “one does not need to look deeper into the situation since denying outright or delaying is allowed.” Responsible leaders who seek to be good citizens have an interest in making loans to people who are likely to be the target of frivolous liens, including law enforcement, judicial officers, and other public officials. These borrowers likely have the means to repay loans and they face professional consequences if they fail to do so. Moreover, we all depend on citizens’ willingness to put themselves in positions of public responsibility, and they should not suffer from inattentiveness that serves to embolden those who seek to detract from the public’s business.
VI. Conclusion
For four centuries, the American real estate recording system has remained fundamentally unchanged, with local governments passively providing a means for those with interests in real property to give notice of their rights to the world. Though this system has risks of loss, both due to inadvertent error and intentional wrongdoing, it underlies a highly efficient real estate conveyance and financing market. Meanwhile the nature of real estate filings has changed. What once was a system that involved customary, hand-drawn documents in face-to-face transactions, has become a system with electronic submissions from distant institutions using behind-the-scenes arrangements about which most owners have no knowledge or understanding. Conspicuous examples of opportunistic use of this emergent obscurity have alarmed some lawmakers, resulting in good-faith measures to afford likely targets with more privacy and protection. While such steps may be helpful to some, tinkering with open access to real estate records threatens to undermine the system. To minimize the potential for harm while preserving the system’s reliability, those who make loans and handle transactions, and those who make policy and law, should be careful to understand how the system works and not give abuse of it unnecessary weight.
