Shelter Rule
What is the Shelter Rule?
A person who acquires property from a bona fide purchaser is 'sheltered' by the BFP's protected status and takes with the same priority, even if the subsequent taker had notice or did not pay value.
Definition
The shelter rule is a corollary to the bona fide purchaser doctrine that extends the protection of BFP status to persons who acquire property from a BFP, even if those subsequent takers would not independently qualify as BFPs. The rationale is that if a BFP could not freely transfer the property with all the protections they acquired, the BFP's own interest would be diminished in value, undermining the purpose of the recording acts.
Under the shelter rule, once property passes through the hands of a BFP, all subsequent takers are 'sheltered' and take with the same priority the BFP enjoyed. This means that a donee, an heir, or even a person with actual knowledge of the prior unrecorded claim can take free of that claim if they derive their title from a BFP. The shelter rule effectively makes the BFP's protection run with the land through any number of subsequent transfers.
There is one important exception to the shelter rule: a person who was a party to the original fraud or wrongdoing that created the competing claims cannot use the shelter rule to launder their title. For example, if O conveys to A, then conveys again to B (a BFP), and B reconveys back to O, O cannot claim shelter from B's BFP status because O was the one who created the conflicting interests. This prevents the original wrongdoer from using a circular transaction to cleanse a tainted title.
Key Elements
- 1The person from whom the current holder derives title was a bona fide purchaser
- 2The current holder's title traces back through the BFP's protected interest
- 3The current holder takes with the same priority as the BFP regardless of the current holder's own notice or consideration
- 4Exception: the shelter rule does not protect a person who was a party to the original fraud or who previously held the interest
Landmark Cases
Weyerhaeuser Co. v. Bucher
254 Or. 340 (1969)
Applied the shelter rule to protect a subsequent purchaser who derived title from a BFP, even though the subsequent purchaser had knowledge of a prior adverse claim.
Daniels v. Anderson
162 Ill. 2d 47 (1994)
Discussed the shelter rule in the context of successive conveyances and the protections extended to those who trace their title through a BFP.
Chergosky v. Crosstown Bell, Inc.
463 N.W.2d 522 (Minn. 1990)
Addressed the limits of the shelter rule, including the exception for parties who were involved in the original transaction that created the conflicting claims.
Exam Tips
- On exam questions, look for chain-of-title problems where the current holder has notice but derives title from a prior BFP. The shelter rule protects them.
- Remember the fraud exception: the shelter rule cannot be used to 'launder' title back to the person who created the problem in the first place.
- The shelter rule applies regardless of whether the subsequent taker paid value, had notice, or acquired by gift -- as long as they trace through a BFP.
Common Mistakes to Avoid
- Thinking that having notice or paying no consideration automatically defeats a claim -- the shelter rule overrides these disqualifying factors if the claimant traces title through a BFP.
- Forgetting the fraud exception and allowing the original wrongdoer to benefit from a round-trip conveyance through a BFP.
Memory Aid
Shelter = standing under the BFP's umbrella. Once a BFP cleans the title, everyone downstream is protected -- except the person who dirtied it.