Question

Earl is the registered fee simple owner of Blackacre. Duke forges and registers a transfer of Blackacre to himself in fee simple. Duke then borrows $50,000 from Royalty Trust Co. The loan is secured against Blackacre by way of a mortgage. Which of the following statements is TRUE?

(a) Royalty is secure in relying on Duke's title.
(b) Earl can recover Blackacre but the title to the property will remain encumbered by Royalty's mortgage.
(c) Because of the forgery, Earl can recover Blackacre free of Royalty's mortgage.
(d) Royalty may obtain its $50,000 back from the Assurance Fund.

Answer 1

The correct statement is that Earl can recover Blackacre, but the title to the property will remain encumbered by Royalty's mortgage.

Step-by-step explanation:

The correct statement in this scenario is (b) Earl can recover Blackacre, but the title to the property will remain encumbered by Royalty's mortgage.

In this situation, Duke forges and registers a transfer of Blackacre to himself, creating a fraudulent transaction. Despite the forgery, Earl still retains the original ownership of Blackacre as the registered fee simple owner. Therefore, Earl has the right to recover Blackacre from Duke.

However, even though Earl can regain ownership of the property, Royalty Trust Co. still holds a legitimate mortgage secured against Blackacre. Earl's recovery of Blackacre does not remove the encumbrance of the mortgage, meaning the property will remain subject to Royalty's mortgage.