SunTrust Bank, N.A. v. Northen, No. 10-2027

Decided Feb. 10, 2012

The Fourth Circuit affirmed avoidance of SunTrust’s lien on a tract of land owned by debtor John McCormick. SunTrust contended that even though recordation of the lien on the tract was deficient, the Trustee was imputed with constructive knowledge of the lien because he either had constructive knowledge of the deed of trust that was properly recorded as to an adjacent tract of land, which by its terms also created a lien on the contested tract of land; or because the deed was recorded in an unofficial index in Orange County and a careful and prudent title examiner would have found the lien on Tract I in that index. The Fourth Circuit held that the Trustee’s status vis-à-vis the title of Tract I is, under § 544(a)(3), that of a bona fide purchaser under North Carolina law, and North Carolina law allows a purchaser to rely exclusively on the official recordation index of the county to discover liens, regardless of what other independent knowledge that purchaser might have. Therefore, SunTrust’s lien was avoided and the bankruptcy court’s decision was affirmed.

Full Citation

-Sara I. Salehi

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