Raub v. Gen. Income Sponsors, Inc.

176 N.W.2d 216 (Iowa 1970)



One who asserts he is a bona fide purchaser must prove his good faith; and good faith is lacking if he knew or, as a reasonably prudent person, should have known others made claims hostile to his grantor's title. It is a well settled general rule, in determining whether a purchaser had notice of outstanding equities or unrecorded interests so as to preclude him from being entitled to protection as a bona fide purchaser, that if he has knowledge of circumstances which, in the exercise of common reason and prudence, ought to put a man upon particular inquiry, he will be presumed to have made inquiry, and will be charged with notice of every fact which such suggested investigation would in all probability have disclosed had it been properly pursued. The purchaser may not act in contravention to the dictates of reasonable prudence, or refuse to inquire when the propriety of the inquiry is naturally suggested by circumstances known to him.


A company officer convinced the investor to execute and deliver to the company a warranty deed to her homestead in return for which she was to receive company stock. The warranty deed was recorded and the investor remained in possession of the property as a tenant. The mortgagees lent money secured by the property. The investor later discovered that the investment was a sham. On appeal, the court held that, notwithstanding the company's fraud, the mortgagees were entitled to enforce their mortgage liens because they were bona fide purchasers. Here, both mortgages were taken from the legal title holder, and each mortgagee paid valuable consideration for its mortgage. 


Are mortgagees entitled to enforce their mortgage liens due to the existence of bona fide purchasers?




There was nothing about the mortgage transactions to arouse defendants' suspicions as to the conditions under which the mortgagor's title had been obtained. They were dealing with the holder of legal title, whose deed had been recorded. The record showed payment of adequate consideration. Plaintiff herself testifies she had been paid $14,000.00 for property reasonably worth $12,500.00. True it now appears payment was made in worthless stock, but there was nothing then to cause defendants to suspect this. Nor can it be said that an owner's application to borrow money on the security of his property is a suspicious circumstance. The court here was concerned with circumstances which would impute to defendants "knowledge of such facts as would put a reasonably prudent man upon inquiry " to determine if the title  had been obtained by fraud. However, There is no such evidence in this record.

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