B is corrent because the recordation of a mortgage serves to protect the rights of the mortgagee against third parties who do not have actual knowledge of a prior mortgage. Under a notice-type recordation statute, if a subsequent mortgagee acquires a mortgage in a parcel of property, without the knowledge of a prior mortgage, then the subsequent mortgagee obtains a superior security interest over the prior mortgagee’s interest, whether the second mortgagee records the mortgage or not. Under the race-notice-type statute, a subsequent mortgagee who acquires the security interest in good faith only defeats a prior mortgagee if the second mortgagee records his mortgage first (i.e., a "race" to file first).
A is incorrect because a subsequent purchaser for value who had knowledge of the mortgage takes the property subject to the mortgagee’s security interest.
C is incorrect because the recordation of a mortgage has no effect between the mortgagor and the mortgagee. Therefore, failure to record a mortgage does not release the mortgagor from the underlying obligation to pay.
D is incorrect because a subsequent mortgagee who had knowledge of the mortgage takes the property subject to the mortgagee’s security interest regardless of whether the mortgage has been recorded.
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