Does A Credit Report Impart Notice?
Bank A failed to record its mortgage for seven years. During that time, Bank B made a loan to the Owner and promptly recorded its mortgage. As part of its approval process, Bank B had ordered a credit report on Owner. The credit report contained the entry: "Alliance Mtg F," an account number, and the notations "4/03," "$1.3M," and "conventional real." It was undisputed that this entry referred to the Bank A mortgage. Bank A contended that the report was sufficient to impart “actual knowledge” and defeat Bank B’s bona fide purchaser status.
The Court accepted the undisputed testimony of Bank B that the report is customarily used solely for examining the credit history of the borrower and obtaining her credit score. The title commitment is then used to determine the existence of liens on the property. In addition, it pointed to Bank A’s failure to present expert testimony concerning customary use of credit reports in the banking industry, the interpretation of credit report nomenclature and whether it creates a duty of inquiry concerning specific entries. Ultimately, Bank B (and an additional private lender, who presumably did not use a credit report) prevailed. Metropolitan National Bank v. Jemal, et al., (N. J. Super., App. Div. #A-0003-12T4, Sept. 23, 2013).
The analysis begins with the principle that “the integrity of the recording system is paramount.” To that end, the Appellate Court agreed with the trial court judge who “recognized the potential chaos that a contrary ruling could visit upon the title insurance industry.” (Although Constructive Notice agrees with this assessment, we question the underlying rationale proffered by the Court). The opinion also gives great weight to equitable principles, holding that Bank A was in the best position to protect its interest, yet failed to do so. The Court, however, stopped short of laying down a bright line rule that the contents of a credit report could never afford actual or inquiry notice of claimed interests.