An unrecorded mortgage is enforceable against the borrower’s home, but not if another creditor gets a lien on the property before the mortgage is recorded. Since bankruptcy trustees have the powers of a lien holder on all a debtor’s property, the unrecorded mortgage is not enforceable against the trustee.
It gets worse. The trustee can step into the shoes of the unrecorded mortgage holder, and then make that claim against the debtor’s property for the benefit of all the creditors. Ouch! This was the ruling on appeal in Riley v. Sullivan (In re Sullivan), 2008 Bankr. LEXIS 1365 (B.A.P. 1st Cir. 2008).
Well, it’s really not so terrible for the debtor. The debtor ends up owing the trustee instead of the mortgage holder, but the same repayment terms of the morgage remain. The end result is that the debtor does not benefit from the mortgage holder’s failure to record, and the debtor would not have benefitted anyway without a bankruptcy filing.
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