California Civil Code Section 1107
Civil Code Section 1107 deals with the conclusiveness of grants of estates in real property.
It states: "Every grant of an estate in real property is conclusive against the grantor, also against every one subsequently claiming under him, except a purchaser or encumbrancer who in good faith and for a valuable consideration acquires a title or lien by an instrument that is first duly recorded."
Section 1214 states the same rule in a different context. It provides, in pertinent part, that:
"Every conveyance of real property . . . is void as against any subsequent purchaser or mortgagee of the same property, or any part thereof, in good faith and for a valuable consideration, whose conveyance is first duly recorded, and as against any judgment affecting the title, unless the conveyance shall have been duly recorded prior to the record of notice of action."
In effect, sections 1107 and 1214 require that the real property interest of a bona fide purchaser or encumbrancer for value or "BFP"--that is, a party who acquires its interest in good faith, for valuable consideration, and with neither actual knowledge nor constructive notice of a previously-created interest in the same real property--takes priority over the previously-created but unknown interest, provided the interest of the BFP is "first duly recorded." (5 Miller & Starr, Cal. Real Estate (3d ed. 2000) 11.50, pp. 11-171 - 11-172.)
"Actual notice means that which a person actually knows or could discover by making a reasonable investigation." (Perry v. O'Donnell (9th Cir. 1984) 749 F.2d 1346, 1351.) Constructive notice of an interest in real property is imparted by the recordation and proper indexing of an instrument in the public records. ( 1213; Dyer v. Martinez (2007) 147 Cal.App.4th 1240, 1242-1245.)
Simply put, a party must satisfy two requirements in order to obtain priority for its real property interest pursuant to sections 1107 and 1214: (1) it must acquire its interest as a BFP, that is, for valuable consideration and with neither actual knowledge nor constructive notice of the previously-created interest; and (2) its interest must be "first duly recorded" before the previously-created interest is recorded.