The purpose of recording documents is to put the world on notice of changes in real estate title. If real property were sold privately, other people would have no reliable way of knowing about the sale. A dishonest seller might sell the same property twice, take his money and go far away, leaving the two buyers with a messy dispute about which owned the property.
The recording system seeks to avoid this type of problem. It seeks to create a comprehensive and reliable public record of real estate transactions. When a real estate document is properly recorded, the law presumes that the entire world is on notice of its contents. In technical legal terms, everyone has “constructive notice” of recorded documents, meaning that they are presumed to know about the documents, whether they actually do or not. Civil Code Section 1213.
The timing of recordation of a document can be critical. Other things being equal, California follows a first-in-time, first-in-right rule. If there is more than one lien against a particular property, the first-created lien is senior to the later-created liens. Civil Code Section 2897. This rule only applies, however, to parties who have actual or constructive knowledge of the creation of the senior lien. Powell v. Goldsmith (1984) 152 Cal. App. 3rd 746. Thus, if a lien is not recorded, then it is junior to all recorded liens, unless the holder of the lien happens to have actual knowledge of the unrecorded line.
The seniority of liens can be of critical importance. If a property is foreclosed upon, the general rule is that the senior lien is paid, first, in full, before the junior lien is paid anything.