Background
Patsy Barwick and her husband owned two Kent County parcels. In 2007, they executed a mortgage that was recorded with a legal description for Parcel 3.00, although U.S. Bank, as successor to the original lender, alleged the parties intended to encumber Parcel 3.01.
After Barwick became sole owner in 2024, Rocky Slaughter bought Parcel 3.01 and recorded his deed. The mortgage remained recorded against Parcel 3.00. U.S. Bank later sued to reform the mortgage so it would encumber Parcel 3.01. Slaughter moved to dismiss, asserting he was a bona fide purchaser without notice of the claimed mortgage interest.
The Court’s Holding
Magistrate in Chancery Danielle Gibbs concluded that the complaint itself established Slaughter’s bona fide-purchaser status: he acquired legal title to Parcel 3.01 for value, and the pleaded facts did not support actual or constructive notice of U.S. Bank’s claimed interest.
The court rejected U.S. Bank’s argument that Barwick’s 2014 bankruptcy filing gave Slaughter constructive notice. Under Delaware’s Lis Pendens Act, a lawsuit provides constructive notice only when a compliant notice of pendency is recorded. An ordinary federal bankruptcy filing is not indexed in land records and would not appear in a routine title search. Because a mortgage cannot be reformed against a subsequent bona fide purchaser without notice, the court recommended granting Slaughter’s Rule 12(b)(6) motion. The ruling was a nonfinal Rule 144 report.
Key Takeaways
- A mortgage reformation claim cannot bind a later bona fide purchaser who lacked notice of the alleged intended lien.
- A recorded mortgage describing a different parcel does not provide constructive notice as to the parcel allegedly intended to be encumbered.
- A bankruptcy filing alone does not create constructive notice under Delaware’s Lis Pendens Act.
Why It Matters
The decision underscores the importance of accurate legal descriptions in recorded mortgage instruments. A lender seeking equitable reformation may lose the ability to reach the intended property once it is sold to a purchaser who takes for value without notice.
It also confirms that Delaware’s statutory lis pendens requirements, rather than the former common-law doctrine, govern whether pending litigation gives purchasers constructive notice of real-property claims.