Memorandum for prof.linda-harris

One of the main responsibilities of a real estate attorney or paralegal is to make certain that a client has good title of ownership to real property. A real estate attorney representing a purchaser will insist that the seller produce satisfactory evidence of good title before the purchase. A real estate attorney representing a lender will insist that the borrower produce satisfactory evidence of good title before the loan is made. Typically, this evidence of good title of ownership is provided by a title examination of the public real property records and the issuance of title insurance.

The role of the paralegal in title examinations varies from state to state and even among law firms within a given state. In some law firms, a paralegal conducts the title examination. A real estate closing paralegal usually does not conduct the examination but is responsible for ordering the title examination, reviewing it, and converting it into a title insurance commitment, as discussed in Chapter 13. Regardless of whether the paralegal is performing, ordering, or reviewing the title examination, an understanding of the process and procedures involved is essential so that the paralegal can carry out his or her responsibilities.

BONA FIDE PURCHASER FOR VALUE RULE

Why examine the public records of real property to obtain proof of ownership of property? Why record real estate documents? Warranty deeds, contracts, leases, mortgages, and easements are all enforceable without recording. Real estate attorneys and paralegals, however, spend substantial time preparing these documents and having them executed with the formality required to place the documents on public record. Why? The answer is the common law bona fide purchaser for value rule. This rule states that anyone who purchases property in good faith for valuable consideration and without notice of any claim to or interest in the property by any other party is a bona fide purchaser for value and takes the property free and clear of any claims to or interest in the property by other parties.

For example, Sam Owner has pledged his farm to secure a debt owed to Aunt Owner. Sam Owner has executed and delivered to Aunt Owner a mortgage on the farm, but the mortgage was not recorded. Sam Owner sells the farm to Catherine Purchaser. At the time of the sale, Catherine Purchaser is unaware of the unrecorded mortgage to Aunt Owner. Catherine Purchaser is a bona fide purchaser for value and purchases the farm free and clear of Aunt Owner’s mortgage. Aunt Owner’s mortgage is unenforceable against the farm after the sale to Catherine Purchaser.

A bona fide purchaser must pay something of value for the property, although the consideration paid need not be equal to the market value of the property. A person who takes title to property by inheritance or as a recipient of a gift has not given valuable consideration and therefore is not protected as a bona fide purchaser. This means that a person who has inherited real property takes the real property subject to all valid claims against the real property, regardless of whether the person had notice of the claims or whether the claims were recorded.

The bona fide purchaser status provides special protection not only to the bona fide purchaser, but also to anyone purchasing from the bona fide purchaser. The protection is extended to the subsequent purchaser whether or not the subsequent purchaser has notice of any prior adverse claim or interest to the property. The rationale for the extended protection is to permit the bona fide purchaser to sell the property for full value.

A bona fide purchaser for value receives ownership to real property subject to any and all claims of which the bona fide purchaser has actual or constructive notice at the time the property is acquired. Actual notice occurs when the purchaser has direct knowledge or information about title matters. Actual notice includes any facts that the purchaser can see with his or her own eyes, any facts that the purchaser learns about the property, and any information the circumstances of which should give rise to a duty of the purchaser to conduct an investigation that would lead to the finding of certain facts in regard to the property.

Constructive notice is a presumption of law that charges a purchaser with the responsibility of learning about all title matters that would result from an inspection of the property or an examination of the public real property records. Possession of land is notice to the world of the possessor’s rights therein. For possession to constitute notice, it must be open, notorious, and exclusive. For example, a purchaser of a supposedly vacant lot of real property visits the lot and finds an inhabited mobile home on the lot. The purchaser is placed on notice to inquire about the mobile home inhabitant’s rights to the property. If the mobile home inhabitants have a 50-year unrecorded lease of the property, the prospective purchaser would purchase the property subject to the 50-year lease, and the inhabitants of the mobile home would be permitted to remain on the property until the lease terminated. A purchaser of real property has a duty to inquire as to a party in possession’s rights to the property. If no inquiries are made, the purchaser takes the property subject to any rights the possessor may have. A prudent purchaser will satisfy the constructive notice requirements of inspection by either inspecting the property or obtaining a full survey of the property by a registered land surveyor, or both.

The second form of constructive notice is in regard to matters that an inspection of the public real property records would reveal. All states maintain public real property records for the purpose of recording real estate documents and establishing ownership to real property. A prudent purchaser will satisfy the constructive notice requirements by examining the public records in which the documents are recorded.

Constructive notice is imparted to the purchaser only to the extent that recorded instruments are in the chain of title. A chain of title is the sequence of subsequent owners of a particular parcel of property, beginning with the original owner and moving through all successive grantors and grantees to the current owner. The chain of title concept limits the number of records imparting constructive notice and the number of records that must be examined. Courts in the states of Massachusetts and New York have pronounced views on the definition of chain of title. The laws in other states follow either the Massachusetts or the New York definition. Under the Massachusetts definition of chain of title, a purchaser need only examine conveyances from the point at which each owner received the property and until that owner conveyed the property to another owner. All other transactions are considered to be outside the chain of title and are held not to provide constructive notice to a purchaser. Under the New York definition of chain of title, the purchaser must examine all instruments made by successive owners and not merely the instruments made during the ownership.

Constructive notice also is imparted to unrecorded instruments that are referred to in a recorded instrument. For example, a recorded deed may make reference to an unrecorded mortgage. The purchaser must exercise reasonable diligence and prudence to ascertain the contents of the unrecorded mortgage because he or she may be responsible to pay the debt secured by the mortgage.

In summary, if a person obtains an interest in property by way of being a purchaser, a lender under a security deed or mortgage, the holder of an easement, and so on, then the only way to protect this property interest against subsequent purchasers is to record the deed, easement, mortgage, or instrument in the proper records. The act of recording the instrument in its proper place will place future purchasers on constructive notice. These future purchasers will purchase the property subject to the rights of the holder of the recorded instrument.

Recording an instrument is essential to impart constructive notice. The time and location for such recording normally are expressed in what is known as a state’s recording statute. It is not always clear when an instrument is deemed recorded so as to impart constructive notice. Some courts have held that merely depositing the instrument in the office of the recorder is sufficient to impart constructive notice. Other courts have held that to impart constructive notice, the instrument must actually be transcribed in a permanent record book.

There also is a split of authority as to notice when an error has occurred in transcribing the instrument into the permanent record book. Some courts have imposed a duty on the person recording the instrument to make sure that it is correctly recorded, and such person bears full risk of the failure of the registrar of deeds to correctly record the instrument. An examination of the title records after the instrument has been recorded is necessary to discharge the duty. The examination is for the purpose of confirming that the recorded document has been correctly recorded and is in the chain of title. Under this view, the registrar of deeds is deemed to be the agent of the recording party. According to this view, an incorrectly recorded instrument does not impart constructive notice.

Other courts have held that when an instrument is filed, constructive notice is given, regardless of whether the instrument was correctly indexed or recorded, provided that the party recording the instrument has complied with the state’s recording statute and that the mistake was made by the clerk’s or registrar’s office.

RECORDING STATUTES

The common law bona fide purchaser for value rule has been modified in many states by recording statutes. Recording statutes (a) give the community notice of the changes in ownership of the property; (b) protect subsequent purchasers and encumbrancers of property from the same common grantor by giving them notice of information contained in the recorded documents; and (c) determine priority among conflicting claims to real property.

There are three types of recording statutes: race, notice, and race-notice. The first type is used in the smallest number of states. Under a race statute, priority between successive grantees of the same land from a common grantor is determined by who wins the race to the recording office. No notice is imparted to a subsequent purchaser or encumbrancers until the instrument is recorded in the prescribed manner. The first to record an instrument has priority of title, irrespective of whether he or she was a prior or subsequent purchaser. Moreover, a purchaser with actual knowledge of a prior but unrecorded instrument from a common grantor of the same property will have priority if such subsequent purchaser is the first to record his or her instrument. For example, Alice Owner conveys her home to Aaron Purchaser by deed dated March 1. Aaron Purchaser does not record the deed until March 4. Alice Owner on March 2 conveys the same home to Bob Purchaser. Bob receives the deed to the home on March 2 with full knowledge that a deed had been given by Alice Owner on the previous day to Aaron Purchaser. Bob Purchaser records the deed to the home on March 3. Under a race recording statute, Bob Purchaser would be the owner of the property because Bob Purchaser recorded the deed to the property before the recording of the deed by Aaron Purchaser.

The notice type of recording statute relies on the notice given by the recording of the instrument or on the notice obtained through means other than recording. Under the notice statute, the grantee of a deed is not required to record the deed to obtain the priority in title over some subsequent purchaser of the same property. The notice statute provides that an unrecorded instrument is valid to a subsequent purchaser if the purchaser paid value with notice of the unrecorded instrument and is invalid if the subsequent purchaser paid value without notice of the unrecorded instrument. Therefore, actual knowledge by a subsequent purchaser of the existence of a prior unrecorded document serves as notice in the same manner as the proper recording of the document. For example, Aaron Owner conveys his property to Robert Purchaser by deed dated January 1. Robert Purchaser neglects to record the deed promptly. On February 1, Aaron conveys the same property to Cindy Buyer, who has full knowledge of the deed to Robert. Cindy’s deed is recorded on February 2. Thereafter, Robert on March 1 records the deed from Aaron dated January 1. Robert has priority of title even though Robert has the later recorded deed. This is so because Cindy had actual knowledge of the conveyance from Aaron to Robert at the time Cindy received Aaron’s deed from Aaron.

The race-notice recording statute is the most common type. It combines the theory and recording requirements of both the race recording statute and the notice recording statute. Specifically, the race-notice statute combines the notice principle that knowledge of a prior unrecorded instrument serves as notice in the same manner as the proper recording of the instrument with the recording principle that the first party to record an instrument has priority of title, regardless of whether that person was a prior or subsequent purchaser. Thus, under a race-notice statute, a subsequent purchaser has priority over the holder of a prior but unrecorded instrument if such subsequent purchaser makes the purchase without notice of the prior unrecorded instrument and records the instrument before the recording of the prior instrument. This type of recording statute operates as a pure notice statute until a subsequent purchaser takes title from the common grantor as a bona fide purchaser without notice of the prior recorded instrument. On that occurrence, the race-notice statute operates as a pure race statute in determining priority solely on the basis of which party records first. (Maxwell and Summers, 1978)

The following is an example of the effect of the various recording statutes on the same factual course of events. Alice Owner conveys her home to Ajax Purchaser on March 1. Ajax Purchaser does not record the deed until March 3. On March 2, Alice Owner conveys the same home to Beth Purchaser, who purchases the home on March 2 with no knowledge of the March 1 deed from Alice Owner to Ajax Purchaser. Beth Purchaser does not record her deed until March 4. Under a race-notice statute, Ajax would have priority of title and would be the owner of the home because Ajax purchased the home without notice of any other claims and was the first to record the deed to the home. Under a notice statute, Beth would have priority of title and would be the owner of the home because Beth was a purchaser without notice of the prior unrecorded deed to Ajax, and the subsequent recording by Ajax does not divest the title and ownership existing in Beth. Under a race statute, Ajax would have priority and be the owner of the home because Ajax was the first to record a deed. City of Richland Hills v. Bertelsen discusses both the concept of bona fide purchaser for value and the policy issues behind recording statutes.

PRACTICE TIPS FOR ORDERING A TITLE EXAMINATION

The primary purposes of a title examination, as discussed previously, are to ensure that a seller has the ability to convey good title to the purchaser at the time of the closing or that a borrower has good title to the property being pledged as security for a loan. The purchaser’s or lender’s attorney or paralegal usually orders or conducts the title examination. It is best to have the examination performed as early as possible to allow time for dealing with unexpected complications. In addition, a title “check down” or update usually is done immediately before the closing of the sale or loan. This update ensures that no adverse interest was recorded against the property between the date of the preliminary title examination and the closing of the transaction for which the examination was made.

Information Needed to Do an Examination

A title examiner should have as much accurate information as possible to perform the examination. The minimum information required is (a) a legal description of the property to be examined, (b) the name of the current owner, and (c) copies of all deeds and surveys, or any prior title examinations or title insurance policies that affect the property. If the examination is being prepared in connection with a sale, the sales contract will have a description of the property to be purchased. The seller of the property should be the current owner. If the examination is being prepared in connection with a mortgage loan, the loan application usually contains a description of the property, and the loan applicant, it is hoped, is the current owner of the property or the purchaser under a contract to purchase the property. The property owner should be contacted to see if he or she has information, such as prior title examinations, surveys, or deeds, concerning the property. It is a good idea to use a title order form on which pertinent information may be written. An example of a title order form is shown in Exhibit 12–1.

EXAMINING TITLE TO REAL PROPERTY

Where to Search

Title examinations usually are conducted in the courthouse of the county in which the property is located. If the property is located in more than one county, it may be necessary to conduct the examination in each county to have a full title examination. The public official who is responsible for keeping real property records varies from state to state, but he or she usually is the clerk of the court or a registrar of deeds. The real property records typically are kept in a record room located within the county courthouse.

Period of Examination

A title examination searches the owner’s chain of title by starting at the present time and working backward to some predetermined point. The examination establishes a source of title for each owner in the chain. Title examinations are classified as either full or limited searches. The length of time for a full search differs from state to state but usually requires that an owner’s chain of title be established for 50 or 60 years. Most potential defects in title, both recorded and unrecorded, will have no effect on the current ownership of the property after 50 or 60 years.

A limited search title examination is for a period less than that required for a full search. Limited searches often are performed for loan assumptions and second mortgage closings. The theory supporting a limited search in these situations is an assumption that a full search was performed for the first security mortgage holder and that all defects and objections were cured at that time. A title examination beginning from the recording date of the first mortgage should be sufficient to protect the interest of the parties. A limited search may be possible when the property is covered by a title insurance policy for which the full search was performed or when the examiner can obtain a copy of a previous full title examination. Most title insurance companies issue title insurance based on a limited search from the date of an earlier title insurance policy. The client must be informed of the extent of the title examination in the title examiner’s title opinion letter. The client also should be made aware that a limited search does not qualify as a full legal search and does not protect against title matters created before the starting date of the limited search.

What to Search

A title examination involves searching through a grantee index of the owner’s chain of title backward in time to some predetermined point to establish a source of title for each owner in the chain. Then, for each grantor in the chain of title, the examiner searches the grantor’s index from the date the grantor acquired title to the next grantor in the chain. Finally, the examiner searches other indices to determine whether there are any other recorded claims against the property, such as judgment liens, mechanic’s liens, and tax liens.

Grantee and Grantor Indices

Most real property record rooms are indexed by the names of the grantees and the grantors of real property and the interests recorded therein. Each entry referenced in the grantee or grantor index usually provides the following information:

●Name of grantor

●Name of grantee

●Date of instrument

●Date of recording of instrument

●Nature of instrument (e.g., deed, mortgage, easement)

●Brief description of the property covered

●Place where the instrument can be found so that it can be examined and read (record book and page reference)

Grantee Index.

The grantee index is an alphabetical index by the last name of all people who are grantees of any property interest during a given year within the county. The index is maintained on a year-by-year basis from the beginning of time that the county maintained records. The grantee’s property interest consists of purchasers, holders of mortgages and security deeds, easement holders, tenants, holders of liens, and so on.

The grantee index enables an examiner to build a chain of title from the present to the past. The first link in the chain of title is the conveyance to the current owner of the property. To find this first link, the examiner begins in the current year’s grantee index and looks for the name of the current owner of the property. The examiner continues to search in each year’s grantee index until the examiner finds the name of the current owner. Once this name is located, it is matched to the property in question. The examiner then looks to see who gave the property to the current owner (i.e., who was the grantor of the deed to the current owner); this person then becomes the next link in the chain of the title. The examiner searches the grantee index until this person’s name is found. This process continues for 50 or 60 years in the grantee index, at which time the examiner should have a list of successive owners of the property, the dates they acquired ownership, and the dates they transferred ownership away for the 50- or 60-year history. Once this is done, the examiner uses the grantor index.

Grantor Index.

A grantor index is an annual alphabetical index by last name of all people who are grantors of a real property interest within the county. Grantors of property are sellers, borrowers, mortgagors, grantors of easements, and so on. The examiner begins with the grantor index from the past and follows it to the present. The examiner starts with the last grantee that was found in the grantee index and then examines the grantor index until this person’s name is found and there is a transfer of the property from them. For example, if the examiner, at the conclusion of the grantee index search, finds that in 1963 (50-year search beginning in 2013) Mary T. Sneed was the owner of the property, the examiner begins the grantor index searching for the name of Mary T. Sneed. He or she will begin in the 1963 index. The examiner continues the search in 1963, 1964, 1965, and so on until Mary T. Sneed’s name is located as the grantor of a deed transferring ownership of the property. At this juncture, the examiner searches for the name of the grantee of the deed from Mary T. Sneed, and this person becomes the next grantor to be located. The examiner follows this person’s records until the point where he or she conveyed away the property by deed. By reviewing the grantor index, the examiner can discover any easements, mortgages, or other title exceptions to the property.

Plat Index

Most counties maintain a plat or tract index and copies of all plats that have been recorded within the county. The index to the plats usually is based on one of the following criteria: (a) land lot and district (location designation), (b) name of owner designation, or (c) subdivision designation. For example, title is being examined to property in the Pine Tree Subdivision, which was developed by the Acme Realty Company and is located in Land Lot 100 of the 17th District of Salem County, Virginia. An index to a plat reference (a book and a page where a plat is recorded) for the subdivision can be found in one of three ways. First, there may be an entry under Land Lot 100 of the 17th District for Pine Tree. Second, in the owner index there may be a listing for Acme Realty Company and a list of all plats filed by Acme Realty Company, with a book and a page where the plats are located. Third, there may be a listing in the subdivision index for Pine Tree Subdivision. Once the plat has been found, it should be carefully examined. The plat contains a legal description of the property, and it should match the description being used for the examination. Any discrepancies in the description should be noted. Plats often have restrictive covenants printed on them that are binding on an owner of the property. Plats also show building setback lines, easements, and other details. Most courthouses have photocopy equipment to enable the examiner to make a copy of the plat. It is advisable to request that a copy be made for the paralegal and the client.

Reviewing the Various Instruments in the Chain of Title

A title examiner carefully examines each instrument’s property description to make certain that it is the same as the property that is being examined. Title examiners should note any errors or discrepancies in the legal description. The legal description may change over the course of time because a current parcel of property may have been included within larger tracts in the past history of the property. For example, a title examiner is examining record title to a residential subdivision lot. The lot is described by a plat book and page reference. The residential subdivision lot in its past history was part of a farm that was described by a metes and bounds legal description.

The examiner maps out each property conveyance, including the property conveyed and the property excluded from the conveyance, to determine that the property in question is being transferred each time and that the current legal description is a true description of the property vested in the current record owner. Subtle differences in property description that go undetected early can impair the validity of the title examination. When reviewing deeds, easements, or mortgages, an examiner usually does the following:

●Notes the identity of the parties to the instrument, the date the instrument was signed, and the date it was filed

●Examines the signature and witnessing requirements

●Makes a notation of what estate was being conveyed (e.g., fee simple, life estate)

●Pays particular attention to any covenants or other requirements that may be set out in the instruments

Most title examiners make copies of all instruments in the chain of title that currently affect the property and attach the copies as exhibits to the title examination report.

Other Things to Examine

In addition to searching the grantee and grantor indices and reviewing various documents contained therein, an examiner must look for other potential title problems. These items may change slightly from state to state but usually include the following.

Judgments

A money debt resulting from a lawsuit is called a judgment. A judgment may have been entered against an owner in the chain of title. Once a judgment has been recorded in the public records, it becomes a lien on all property of the judgment debtor. A docket or index for judgments can be found in the real property record room. The docket lists in alphabetical order the names of all people within the county within a given year against whom a judgment has been recorded. The index also refers to a book and page of a judgment book in which a copy of the judgment can be found. The index does not indicate the amount of the judgment or whether the judgment has been paid and satisfied. An examination of a copy of the judgment in the judgment book reveals the amount and whether the judgment has been satisfied. Most clerks print the word “Paid” or “Satisfied” on a judgment when it has been paid. Judgments in most states have only a 5- to 7-year lifetime, but they can be renewed for an additional 5 to 7 years. Because judgments attach at the time of recordation to all property then owned by the judgment debtor or to any property thereafter acquired by the judgment debtor, it is necessary for the examiner to examine the judgment index for the names of all people who have owned the property during the lifetime of a judgment (5 to 7 years). For example, Bryan Thompson, Martha Farris, and the Winston Company, Inc., have by the grantee-grantor search been found to be owners at one time or another of the property during the past seven years. All these names should be searched in the judgment index.

Federal and State Tax Liens

The federal and state governments have the right to file a lien against the property of any delinquent taxpayer. A federal tax lien, once filed, becomes a lien on all property owned by the taxpayer at the time of filing as well as all future property acquired by the taxpayer until the lien has been paid in full. Most record rooms maintain a separate index for federal tax liens and a separate book in which the federal tax liens can be examined. The same considerations and procedures for examining judgments apply to federal tax liens, except that a federal tax lien has a 10-year lifetime unless renewed. A state tax lien has its own statute of limitations for enforcement.

Delinquent Taxes

All property is taxed by county or city governments and may be separately assessed for sanitary, sewer, or other services. These tax liabilities and other assessments are liens on the property. Liens for assessments may be found in a tax assessor’s or tax collector’s office, which may be separate and apart from the real property record room. In many localities, there are specialized tax services that examine tax and assessment records for a reasonable price. Most title examiners and law firms use these services where they are available to determine the tax obligations of a particular piece of property.

Uniform Commercial Code

Many real estate transactions involve both real and personal property. When personal property is involved, it is necessary for the examiner to search the Uniform Commercial Code (UCC) financing statement index to determine if any of the personal property has been pledged as security for a loan. This index is an alphabetical listing of the last names of all debtors who have pledged personal property as security for a loan. In states that have central filing of UCC financing statements with the secretary of state’s office, a state search must be conducted as well as a local search.

Lis Pendens

A lawsuit affecting title to real estate that has not been resolved and is still pending is not a cloud on the title to the property unless a lis pendens is filed in the real property records. Lis pendens is a combination of two Latin words: “lis,” which means an action, suit, or controversy, and “pendens,” which means something that is continuing or pending. A lis pendens notice is a notice of a pending lawsuit. A lis pendens puts third parties on notice that an action is pending against certain property and that if they purchase the property or acquire a loan on the property, they will be bound by the subsequent judgment in the lawsuit. Both real and personal property are subject to a lis pendens. A lis pendens is inapplicable in a suit for a personal or money judgment. Lis pendens is applicable only in an action that directly affects title to property. For example, a lis pendens would be applicable to any suit that challenges the current ownership of the property. In addition, a lis pendens would be applicable in a suit for breach of contract against a current owner if the suit were asking for specific performance of the contract. An action for divorce does not ordinarily invoke a lis pendens, except when specific property is sought for either an alimony purpose or a property settlement.

A lis pendens usually is a simple document that gives notice that a lawsuit has been filed as well as information concerning the lawsuit, such as the court in which the lawsuit was filed, the parties involved, a civil action file number, and a brief description of the nature of the lawsuit. If a lis pendens is filed, the property in the lis pendens is subject to the outcome of the lawsuit, and the lis pendens is considered to be a cloud on the title. Most counties maintain a separate record for the lis pendens. The record index is maintained alphabetically in the name of the property owner.

Civil Suits

Technically, a pending civil suit, regardless of its nature, does not have any effect on title to real property unless a lis pendens notice has been recorded. Many title examiners, however, examine the civil dockets for informational purposes. For example, if a client is in the process of purchasing property from a seller and the examiner finds on the civil docket a number of lawsuits against the seller for breach of contract, the client should be advised to be cautious.

Probate Court Records

Property may pass through probate and estate proceedings because of the death of one of the owners. It may be necessary for the examiner to examine the probate court records to make sure that the will was properly probated and that the property has been distributed to the devisees under the will or the heirs at law, in the case of intestate succession. In addition, if the property has been sold by the executor of an estate, the title examiner needs to search the probate or estate records to ascertain if the proper authority for the sale had been obtained by the executor.

Mechanic’s Liens

A mechanic’s lien or lien given to a contractor, laborer, or material supplier who has contributed to the construction of improvements on real property may be found in the grantor index or in a separate index.

Preliminary Title Report

Once a title examination is completed, the examiner reports in writing the conclusion of the examination. If title insurance is being obtained, the examiner certifies title to the title insurance company, and an insurance commitment or binder is issued before the closing.

At a minimum, the title report should reveal the following: (a) the name of the current record title holder; (b) legal description of captioned property; (c) existing unpaid loans or mortgages; (d) other lien holders; (e) status of taxes; (f) listing of all easements, covenants, and other restrictions; (g) any objections to marketability; (h) other matters that affect title; and (i) requirements for vesting marketable title in the purchaser. The title examination should be reviewed as soon as it is received. Defects that may take time to cure should be addressed promptly to avoid a delay in closing.

Explanation of Title Notes

To prepare the title notes in Example 12–1, the title examination would have proceeded as follows:

1. The examiner goes to the Fulton County Courthouse with a description of the property and the current owner’s name, John Samson.

2. The examiner first examines the subdivision plat of Pines Subdivision. It is not necessary to use a plat index to locate the plat because a plat book and page number for the plat are part of the legal description. If the plat book or page number for the plat were not provided, it could have been obtained by looking in the subdivision name index under the Pines Subdivision.

3. The plat shows the dimensions of Lot 3. The examiner notes any restrictive covenants, easements, or setback lines that affect Lot 3. The examiner makes a copy of the plat and attaches it to the title report.

4. The examiner is now ready to start searching in the grantee index. The examiner looks in the current year’s index under the S’s for Samson. Because John Samson may be a common name in the county, the examiner may find many entries for John Samson, but the examiner is only interested in the entry for John Samson that affects Lot 3, Block A, Pines Subdivision. According to the title notes, the examiner does not find any entries in the current year or any year until 2010. In the 2010 book, the examiner finds an entry dated March 1, 2010, to John Samson from Sarah T. Davis, a warranty deed affecting the property and recorded at Deed Book 604, Page 91. The examiner at this stage stops indexing and goes to Deed Book 604, Page 91, and looks at the deed to make sure that it is in fact the same parcel of property being examined. Once assured that it is the same parcel of property, the examiner returns to the grantee index for further indexing.

5. The next person the examiner looks for in the grantee index is Sarah T. Davis. The examiner looks in the 2010 book for Davis because she may have acquired the property the day before she sold it to Samson. The examiner does not find Davis in the 2010 book and looks in the 2009, 2008, 2007, 2006, 2005, and 2004 books. In the 2004 book, the examiner finds an entry to Sarah T. Davis from George Farris, a warranty deed for the same property. Once this deed has been discovered, George Farris becomes the next person to look for in the grantee index. The examiner stays in the same period, 2004, and searches the F’s for George Farris. The examiner then looks in the indices for 2003, 2002, 2001, 2000, 1999, 1998, and 1997. In the 1997 grantee index, the examiner finds an entry to George Farris from the ABC Co. for this property. ABC Co. then becomes the next grantee, and the examiner searches the indices for ABC Co. all the way back to 1993, where the examiner finds an entry to ABC Co. from Fred Smith.

6. Because the search is limited, this is the end of the grantee indexing. The grantee search gives the following information: ABC Co. owned the property from 11-4-1993 to 2-7-1997; George Farris owned the property from 2-7-1997 to 6-9-2004; Sarah T. Davis owned the property from 6-9-2004 to 3-1-2010; and John Samson bought the property on 3-1-2010 from Sarah T. Davis. The examiner does not know if John Samson is still the owner of the property. This information cannot be determined from the grantee index except by performing a needle-in-the-haystack type of search. This information is more readily available in the grantor index.

7. The examiner starts searching in the grantor index from the past to present. The examiner starts in the grantor index for 1993 with the name Fred Smith and finds an entry from Fred Smith to ABC Co. on 11-4-1993. The next grantor, then, is ABC Co., and the examiner stays with the name in the 1993 book. The examiner finds an entry on the same day to the First Bank. It is a DSD, which is an abbreviation for deed to secure debt. The examiner stays with ABC Co. They have not transferred property but have only pledged the property as security for a loan to First Bank. The examiner runs the 1993, 1994, and 1995 books for ABC Co. In the 1995 grantor index, the examiner finds an entry from ABC Co. to Georgia Power, something called an EASE, which is an abbreviation for easement. (Many counties abbreviate all the identification of the instruments, and it may take a few days to learn all the abbreviations.) This entry to Georgia Power still does not divest ABC Co. of title of the property, and ABC Co. remains grantor. The examiner searches the 1995, 1996, and 1997 books and finds in the 1997 index for ABC Co. an entry of a warranty deed to George Farris. This entry does divest ABC Co. of title, and George Farris then becomes the next grantor. The examiner then switches in the 1997 index to look under the F’s and finds an entry from George Farris to the Savings & Loan of Tucker. It is another deed to secure debt, which means that George Farris has pledged the property as security for a loan. The examiner stays with George Farris and looks in the 1997, 1998, 1999, 2000, 2001, 2002, 2003, and 2004 grantor index books for George Farris. In the 2004 grantor index, the examiner finds an entry from George Farris to Sarah T. Davis. It is a warranty deed entry, and Sarah T. Davis now becomes the next grantor. The examiner searches Davis in the 2004, 2005, 2006, 2007, 2008, 2009, and 2010 books. In the 2010 book, there is an entry from Davis to John Samson, a warranty deed. John Samson becomes the next grantor. The examiner searches for John Samson in the 2010, 2011, 2012, and 2013 books. In the 2011 book, there is an entry from John Samson to Acme Finance, another deed to secure debt. The property has been pledged another time as security for a loan. The examiner continues to search John Samson forward to the most current date of the examination. Every attempt should be made to examine up to the date of the examination. However, some record rooms may be behind in indexing, and the search can only go as far as the record day. Most clerks post each day the “record date” of the system.

8. Once both the grantee and the grantor search are finished, the examiner can determine from the title notes the following: (a) John Samson owns the property and (b) the property is subject to (i) a deed to secure debt from ABC Co. to First Bank, (ii) an easement from ABC Co. to Georgia Power, (iii) a deed to secure debt from George Farris to Savings & Loan of Tucker, and (iv) a deed to secure debt from John Samson to Acme Finance.

9. It is now necessary for the examiner to review each and every document, including every deed in the chain of title. These documents are found by going to the deed book and pages that were discovered during the indexing. Satisfactions of deeds to secure debts or mortgages often are stamped in the book and are difficult to find through the indexing process.

10. Once all the deeds, security deeds, easements, and so on have been examined, the examiner does the other searches regarding judgments, tax liens, lis pendens, and so on.

TITLE DEFECTS AND PROBLEMS

A real estate paralegal should be familiar with common title defects and basic procedures for curing them. Space does not permit more than a short summary of title objections that can arise from a title examination. The exact procedure to be followed in resolving these objections varies from state to state. The course of corrective action also depends on the nature and severity of the defect and the purpose for which the property is being purchased.

A sale or loan closing cannot be completed until title defects and objections have been removed.

Record Title Holder

The owner of the real property as shown in the deed records is known as the record title holder. In most cases, the seller named in the sales contract or the borrower who is applying for the loan is the holder of the record title. If the title examination reveals that someone else is the record title holder, there is a problem. Sometimes the problem is simple, as when a husband signs the sales contract but record title is in the wife’s name. The closing paralegal can easily verify with the real estate agent if the wife is the real seller. At other times, the problem is not so simple, as when an heir signs the sales contract but the record title holder is the deceased. In this case, a probate proceeding may be necessary.

Another situation arises when the seller is not the record title holder but has been in possession of the captioned property for more than the statutory adverse possession period. The closing should not take place until a judicial proceeding, known as a suit to quiet title, is brought to establish the seller as the record title holder. Another solution is to obtain quitclaim deeds from all parties with a possible interest in the property.

Breaks in the Chain of Title

A chain of title is composed of consecutive links of the grantors and grantees of the captioned property: A to b, b to c, c to d, with d holding current record title. Occasionally, there is a missing link: a to b, d to e. The record title does not reveal how b was divested of title or how d acquired title. A break in the chain of title can be caused by any number of factors, such as an unrecorded deed, a name change, an unadministered estate, or a foreign divorce decree. Unless the missing link can be reconstructed by verifiable sources outside the record, the defect is a serious cloud on the title.

The link must be established before it can be determined what is necessary to protect the record. Often all that can be done is to advise the parties of the problem and require them to establish the missing link. If the current owner and the predecessors in title have satisfied the statutory requirements for adverse possession, a quiet title action brought by d against b and his heirs would resolve the problem, assuming that b or his heirs do not have a valid defense.

Under a contract to purchase, the purchaser cannot force the current owner to prosecute a suit to quiet title. Legally, the purchaser can only reject title until the defect is corrected or seek damages in a suit for breach of contract.

Errors in Prior Recorded Deeds

Errors in a prior recorded deed in the chain of title, such as an erroneous legal description, misspelled name, or improper execution, must be cured before the title is acceptable. When possible, such errors may be cured by a corrective deed from the grantor to the grantee of the defective deed. A corrective deed has the same format as the original deed, with the error corrected and a clause inserted:

This deed is given to correct [describe error] contained in a prior deed between the parties dated ___, 20___, recorded ___, 20 ___, in the Clerk’s Office, Circuit Court of __ County, Virginia, at deed book ___, page ___.

No consideration is required for a corrective deed.

The corrective deed must be recorded. A corrective deed may not be used to change a greater estate to a lesser estate (i.e., fee simple to life estate), nor can it be used to change the identity of a grantor altogether, although it may correct misspellings. It is the responsibility of the current owner to locate the parties and obtain the corrective deed.

An error in a prior recorded mortgage or deed of trust is of no consequence so long as the mortgage or deed of trust is paid and released before closing.

Name Variances

A name variance, as distinguished from a simple misspelling, is a variation between the name by which a record title holder acquired title to the property and a name by which the holder conveyed the title. If variances in the name of a previous record title holder exist, the current owner should be asked to provide an affidavit from the prior owner that the person whose name appears in the two documents are one and the same person. If the variances are in the name of the current owner, a clause in the deed explaining the variance is sufficient. For example:

Grantor named herein is one and the same person as John D. Adams, the grantee named in a prior deed dated ___ day, 20___, and recorded ___ day, 20___, in the Clerk’s Office, Circuit Court of ___ County, Colorado, in deed book ___, page ___.

Corporations, limited liability companies, and partnerships can present a similar problem. In the case of the corporation or limited liability company, a certified copy of an amendment changing the name should be obtained from the clerk of the State Corporation Commission. In the case of a general partnership, affidavits from each partner may be required to verify a name change, merger, or death of a partner. When one general partner has power of attorney to act on behalf of the others, a single affidavit may be sufficient. Similarly, in the case of a limited partnership, a single affidavit from the general partner normally is sufficient.

Improper or Missing Power of Attorney

When a deed in the owner’s chain of title was signed for the owner by an attorney-in-fact, a properly executed power of attorney should have been recorded with the deed. If it was not, the effect is the same as if the deed itself was not signed. The defect may be cured by having the current owner obtain and record a corrective deed or quitclaim deed signed by the prior owner.

Sales Contracts, Options, and Leases

If the title examination reveals that the property is subject to a contract or an option to sell or lease, the owner should provide proof by affidavit or other means that the contract or option has expired. If the contract or option has not expired, the seller should be required to obtain a quitclaim deed from the purchaser or optionee named in the contract. The quitclaim deed should be recorded if the contract or option was recorded.

If the property is subject to a lease or if a lease is discovered during the title examination, all parties should be advised to make inquiry as to possession. Depending on the purchaser’s purpose in acquiring the property, the lease may or may not constitute a defect. A lender also should be advised of the outstanding possessory rights of any person other than a purchaser or borrower.

Because leases often are unrecorded or not in writing, the purchaser or lender should always be advised to physically inspect the property well in advance of closing. A discovery that the premises are occupied by someone other than or in addition to the current owner indicates a possible possessory interest in a third party.

Unsatisfied or Unreleased Mortgages

If an existing mortgage or deed of trust is to be assumed by the purchaser, it will be necessary to obtain an assumption package from the lender. If the debt is to be satisfied at closing, it is necessary to obtain a payoff amount from the lender and make certain that the debt is in fact satisfied from the sale proceeds. Sometimes a mortgage or deed of trust in the owner’s chain of title will have been satisfied but never released of record. In this situation, the owner should obtain a release from the lender or an affidavit of repayment.

Mortgages and deeds of trust commonly are satisfied by one of two forms of release: (a) a marginal release entered in the margin of the deed book in which the mortgage or deed of trust is recorded or (b) a certificate of satisfaction from the lender to the record title holder recorded in the office in which the mortgage or deed of trust is recorded. Mortgages also may be partially released when more than one parcel of property is secured by a single mortgage or deed of trust. When dealing with a series of parcel releases, it is important to make sure that they constitute a complete release of record of the property in question.

Notice of Lis Pendens

As discussed above, a notice of lis pendens is a recorded notice that there is a pending suit or lien of attachment that may affect the title to the property. Such a notice must be released of record before the property can be sold or pledged as security for a loan. This usually requires that the suit itself for which the lis pendens serves as notice be settled or dismissed with prejudice.

Easements

An easement may be created in property by grant, prescription, implication, or necessity. A full discussion of easements is set forth in Chapter 5. Many title examiners routinely object to all recorded easements as defects in the title. As a practical matter, only those easements that in some way restrict the use of the property by the owner are of any consequence. It is important to note that not all easements that may restrict the owner’s use may be recorded. Easements that are not recorded include prescriptive easements, easements of necessity, and implied easements. Nonrestrictive easements, such as those routinely granted to utility companies to allow a reasonable ingress and egress for the purpose of maintaining utility service, usually do not require further action. When a utility easement has been granted a general description (blanket easement), it is wise to ascertain the manner in which the easement has been exercised in the past to make sure that the exercise will not interfere with the owner’s use. It is possible to obtain from many utility companies a containment agreement in which the utility company agrees that its easement rights are limited to the actual location of its lines and an area reasonably surrounding such location to provide for maintenance access to the lines. Easements that do restrict the owner’s use in a serious manner or that would prevent certain additions or improvements from being made on the property are serious title defects that do need to be resolved before the closing of the sale or loan.

Restrictive Covenants and Conditions

All unexpired restrictive covenants and conditions should be reported to the parties. These normally are of little significance unless restrictions interfere with the owner’s use of the property or unless the covenant contains a reversion or forfeiture clause. A reversion or forfeiture clause provides that on violation of the condition, title reverts to the grantor or is otherwise forfeited by the violation. If such a clause is found, the seller should provide proof by affidavit or other means that there has been no violation. Minor violations of covenants or conditions not subject to reversion or forfeiture may be released or waived by the owners of the property benefited by the restrictions. For example, if the house on the property is shown as violating a private building line, it is possible to obtain a waiver from all other owners in the subdivision that such building line violation is acceptable.

Recorded restrictions may be found in the individual deeds of conveyance, noted on the recorded subdivision plat, or both. Subdivision restrictions or regulations may not be recorded on every deed; however, restrictions may attach by implication to each parcel conveyed from a common developer if there is evidence of a general plan or scheme of development. This general plan or scheme operates as constructive notice of the possible existence of restrictions on use.

Restrictive covenants and conditions often are limited in duration by their terms. Subdivision regulations also may be limited in duration but may be renewed by the action or lack of action of a majority of the affected landowners. When restrictions are not limited in duration, changing conditions over the years may make them unreasonable and therefore unenforceable. It also is possible to have restrictions on use waived by the owners of the benefited property before any violation, thereby removing an objection that might otherwise be a serious title defect.

Mechanic’s and Materialmen’s Liens

Recorded mechanic’s and materialmen’s liens must be treated as adverse claims against the property. A full discussion of mechanic’s and materialmen’s liens is set forth in Chapter 4. The owner of the property should be required to pay the liens and satisfy them of record or discharge them by filing a proper bond before or at the sale or loan of the property. If the liens are to be satisfied at the closing of a sale, contact must be made with the holders of the lien to obtain the amount of the lien and to arrange for payment. If the owner objects to paying the lien, the owner should be required to post a bond that, in most states, will release the property from the lien. Unperfected liens also are of concern to the purchaser because the purchaser will take property subject to all mechanic’s and materialmen’s liens for work or material furnished within the past 60 to 100 days, regardless of whether a claim of lien has been filed. For this reason, a seller should be required to provide an affidavit that no improvements have been made or materials supplied within the necessary statutory period before the date of the sale or loan on the property.

UCC Financing Statements

If an examination of the UCC index reveals a financing statement describing personal property or fixtures that are considered part of the realty being transferred or pledged as security for the loan, the owner should be required to terminate the security interest.

Judgment Liens

Final judgments for money damages constitute liens against all real property that the defendant owns or subsequently acquires. A title examiner will report such judgments as objections when there is a possibility that the current owner is the named defendant.

When the judgment is known to be or is admitted to be against the current owner, the owner must be required to satisfy the lien before or at closing. The judgment lien holder should be contacted to obtain the amount of balance due, and care should be taken to make sure the judgment is in fact satisfied from the sale or loan proceeds.

If it is not certain that the judgment is against the owner and the owner denies that he or she is the defendant named in the judgment, an affidavit to this effect may be sufficient to protect the title to the property. An example of the language used in the affidavit is as follows.

Affiant does state under oath that he is not one and the same person as John D. Adams named as defendant in the judgment dated ___, 20___, recorded ___, 20___ in the Clerk’s Office, Circuit Court of ___ County, Indiana, in judgment docket ___, page ___ for ___ dollars in favor of Acme Loan Company, Plaintiff.

A judgment against prior owners of the captioned property may remain as a valid lien against the property despite the fact that the property has been subsequently conveyed. If judgments are found against the prior owners that do affect the property, the current seller is required to satisfy these judgments of record.

Tax Liens

Unpaid county or city property taxes should be paid before or at closing, except for the current year’s taxes that are not yet due and payable. It is necessary to obtain payoff figures from the appropriate tax officials and to supervise that the taxes are in fact paid from the sale or loan proceeds. Federal tax liens and state income tax liens of many states, when recorded, are liens against all the real property owned or subsequently acquired by the delinquent taxpayer. Tax liens should be handled in the same manner as judgments, except that payoff figures are obtained from the Internal Revenue Service or the state’s Revenue Commission. The Internal Revenue Service will provide a certificate of release or discharge when the lien has been satisfied or may, in certain circumstances, provide a partial release as to the parcel of property being sold or pledged for a loan. In situations when the owner of the property has a name similar to that of a delinquent taxpayer and it can be verified that the owner is not the same person as the delinquent taxpayer, the Internal Revenue Service will issue certificates of nonattachment that release the owner’s property from the effect of the tax lien.

Title through Estates

The title examination may reveal that the property has been conveyed by the heirs or representatives of a deceased record title holder. In this situation, the fee title may now be unified in a single record title holder, or it may be fragmented into separate shares owned by the grantees of the various heirs or representatives. To be certain that the current owners in fact hold title in fee simple to the property in question, it may be necessary to account for all possible fragments of interest. In most cases, a list of heirs recorded in the county clerk’s office or a probate office allows the title examiner to follow and document these conveyances. If, for some reason, no list of heirs has been filed, it may be necessary to obtain an affidavit of descent from a person with personal knowledge of the decedent and his or her family.

Hinkel, Daniel F.. Practical Real Estate Law (Page 393). Delmar Cengage Learning. Kindle Edition.