LTAC Amicus Brief Update
SHAW v. 17 WEST MILL, LLC: Only Actual Fraud Will Void a Release of Deed of Trust
By Daniel A. Sweetser, Esq., The Sweetser Law Firm, P. C.
Last winter we reported about this case which was then pending before the Colorado Supreme Court. The trial court had found that a request for release of deed of trust that was executed, negligently, by an unauthorized individual was not void. The trial court ruled that the negligently unauthorized request for release was not a “fraudulent request” as set forth in section 38-39-102(8), C.R.S. and, so, the request was not void. The Court of Appeals, however, determined that requestor’s negligent actions constituted “constructive fraud” and found that the release of deed of trust was void pursuant to section 38-39-102(8), C.R.S. The Supreme Court, in a decision issued on June 24, 2013, has now overturned the Court of Appeals’ decision and established that for a release of a deed of trust by a public trustee to be void under section 38-39-102, C.R.S. due to a fraudulent request, the requestor must have acted with actual intent to defraud.
The Supreme Court supported its position, in part, based upon the proposition that the fraudulent request statute could not be interpreted in such a manner that it would defeat the purposes of Colorado’s recording statute, section 38-34-101, C.R.S. those purposes being to create “certainty and predictability to bona fide purchasers” of real property. The Supreme Court’s decision corrects the lower decision which would have caused real estate titles to become far less certain. As there is virtually no chain of title to any property in Colorado without a deed of trust showing up somewhere in the chain, any additional uncertainty concerning whether a recorded release was effective would have been devastating to title underwriters’ ability to rely upon the state of the record title. Title insurance has long covered risks associated with forgery and fraud. Having to assess risks associated simple negligence, however, is a far more difficult underwriting issue. People often make mistakes. Far less frequently do people act with an intent to defraud.The Supreme Court’s decision supports the certainty and predictability of titles sought to be established and maintained by Colorado’s recording act. The ability of Colorado’s title underwriters to rely upon such laws is a significant factor in the title industry’s ability to provide affordable tile insurance to property owners and lenders.