Does Utah's after-acquired title statute determine priority among competing property interests? FDIC v. McDonald Explained

In FDIC v. McDonald, the Utah Court of Appeals addressed a fundamental question about the interaction between Utah’s after-acquired title statute and the state’s recording statutes in determining priority among competing property interests. The case arose from a complex dispute over trust deeds securing loans for a failed subdivision development in Riverton.

Background and Facts

In June 2006, both Taylor and Centennial Bank (later acquired by FDIC) made substantial loans to developers McDonald and Andersen for acquiring and developing property owned by G&L Mac, Inc. Taylor loaned $335,000 on June 1, while the Bank provided a $1.7 million construction loan on June 2. However, both lenders’ trust deeds were executed by McDonald individually rather than by G&L Mac, the actual record owner. When the development failed and borrowers defaulted, both lenders claimed first position priority for foreclosure.

Key Legal Issues

The central issue was whether Utah’s after-acquired title statute (Utah Code Ann. § 57-1-10) trumps the recording statute in determining priority. The trial court had ruled that the Bank’s trust deed gained priority through the after-acquired title statute when McDonald eventually received a warranty deed from G&L Mac in December 2006. Taylor argued that his September 2006 trust deed, properly executed by the record owner G&L Mac, should take priority.

Court’s Analysis and Holding

The Court of Appeals reversed, holding that the after-acquired title statute operates to convey title but does not displace race-notice principles for determining priority. The court emphasized that under basic property law principles, G&L Mac could only convey what it owned—title already encumbered by Taylor’s validly recorded September 2006 trust deed. The court distinguished this case from situations where the after-acquired title statute might apply, noting that Taylor obtained his interest from the actual record owner, not through a “wild deed.”

Importantly, the court found that both parties’ June 2006 trust deeds, while ineffective to transfer legal title, created equitable liens on the property. The priority between these equitable interests depends on when they accrued and whether the parties agreed to a different arrangement—factual issues requiring remand.

Practice Implications

This decision provides crucial guidance for practitioners handling real estate transactions and security interests. It confirms that Utah’s recording statutes remain the primary mechanism for determining priority among competing interests, even when the after-acquired title statute is involved. The case also demonstrates the importance of ensuring trust deeds are executed by the proper parties and highlights how equitable liens can arise even from defective conveyances when parties advance funds with security expectations. Practitioners should carefully investigate the chain of title and ensure proper execution of security documents to avoid complex priority disputes.