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Curing Title Defects: Liens, Judgments, Rights of Third Parties, and Breaks in Chain of Title Identifying and Resolving Common Title Defects to Ensure Closing of the Deal
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THURSDAY, FEBRUARY 20, 2014
Presenting a live 90-minute webinar with interactive Q&A
Suzanne C. Odom, Shareholder, Montgomery & Andrews, Santa Fe, N.M.
Jeff Weisman, Principal, Weisman Law Firm, St. Louis
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Curing Title Defects: Liens, Judgments, Rights of Third Parties,
and Breaks in Chain of Title
Presented by Suzanne C. Odom Montgomery & Andrews, P.A.
I Liens and Judgments II Rights of Third Parties: Off Record Third Parties
I. Liens and Judgments (and Other Notices That Cloud Title)
• Unsatisfied Judgments/Judgment Liens • Mechanics Liens • Springing Liens • Tax Liens • Notice of Lis Pendens
6
Unpaid Judgments – Judgment Liens
• May arise from any federal, state, district or other
(metropolitan/county) court proceeding. • Check state statute for specific state provisions. • State law determines when a judgment lien is
perfected and what it encumbers. – E.g. - In New Mexico, the priority of a judgment lien is
determined from the date of filing and the judgment encumbers all of the judgment debtor’s real property located in the county where evidence of the lien (a Transcript of Judgment) is recorded.
7
Unpaid Judgments – Judgment Liens Title Clearing Strategies
• STRATEGY NO. 1: INVESTIGATE
8
Judgment Liens Title Clearing Strategy No. 1:
Investigate • Verify that the judgment debtor and the seller
(borrower) are, in fact, the same. • If the judgment lien arises from a foreign
judgment, verify that it was properly domesticated.
• Verify whether the judgment is time barred. – Applicable statutes of limitations vary. In New
Mexico, judgment liens last for 14 years. In Pennsylvania, a shorter, five-year statute of limitations applies.
9
Judgment Liens Title Clearing Strategies
• STRATEGY NO. 2 – REMOVAL
10
Judgment Liens Title Clearing Strategy No 2: Removal
• If a judgment lien is invalid, a judgment lienholder who refuses to release the lien may face liability for slander of title and so should be receptive to a request for a release.
• If not, consider trying to obtain an insuring around endorsement (if available in your jurisdiction) (caveat: expect resistance – title insurance companies may be unwilling to issue the endorsement).
• Last recourse may be legal action to remove the lien (which may not be practical in a transactional context).
11
Mechanics and Materialmen Liens
• Mechanics and materialmen liens are created and governed by statute.
• Issues of priority vary by jurisdiction. – Example: In New Mexico, mechanics liens are
statutory (NMSA 1978, Secs. 48-2-1 et seq.). Issues of priority turn on when any construction work, including site preparation, first commences.
• If construction commenced prior to the recording of a mortgage, the (properly filed) liens of all unpaid contractors will have priority over a mortgage filed before any mechanics lien, but after commencement of construction.
12
Mechanics and Materialmen Liens Title Clearing Strategies
• STRATEGY NO. 1: PREVENTION
13
Mechanics and Materialmen Liens Title Clearing Strategy No 1:
Prevention • Owner Strategies
– For big budget projects – consider requiring a payment bond.
– Use a carefully drafted construction contract requiring, among other things:
• that the prime (general/direct) contractor identify all subcontractors and material suppliers; and
• interim and final lien waivers from all subcontractors and material suppliers as a condition precedent to the owner’s obligation to pay the prime contractor.
– For smaller projects, payment by joint checks may be an option.
14
Mechanics and Materialmen Liens Title Clearing Strategy No 1:
Prevention • Lender Strategies
– Careful pre-closing site inspections are essential for purposes of ensuring that there has been no construction on the subject real property prior to the recordation of the lender’s mortgage or deed of trust.
– Follow the money – require interim and final lien releases and waivers.
– Carefully monitor the progress of construction.
15
Mechanics and Materialmen Liens Title Clearing Strategy No 1:
Prevention • Buyer Strategies
– Title insurance may offer some comfort. • E.g., In New Mexico buyers counsel will typically require the deletion of
Standard Exception No. 4 to the title policy. Standard Exception No. 4 reads: “Any lien, claim or right to a lien, for service, labor or material heretofore or hereafter furnished, imposed by law and not shown by the public records.”
• E.g., In New Mexico, counsel must always be cognizant of Standard Exception No. 10 to the title commitment:
Standard Exception No. 10: Defects, liens, encumbrances, adverse claims or other matters, if any, first created, first appearing, or attaching subsequent to the effective date hereof but before the proposed insured acquires for value of record the estate or interest or mortgage thereon covered by this Commitment. – Reserve the right to make objections or add further requirements if the title company
adds exceptions to coverage pursuant to this exception.
– If seller is obligated to make repairs as a condition of closing, either escrow money to ensure payment or require proof of payment and lien releases as a condition to closing.
16
Mechanics and Materialmen Liens Title Clearing Strategies
• STRATEGY NO 2: INVESTIGATE
17
Mechanics and Materialmen Liens Title Clearing Strategy No 2:
Investigate • Verify that all statutory requirements have been
satisfied. – Was the lien timely filed? – Is the lien time barred? – Have all required notices been given? – Is the real property properly described? – Are there any other requirements that would
invalidate the lien? • E.g., in New Mexico, verify whether each contractor claiming
a lien is duly licensed (if not, the contractor may not claim a lien).
18
Mechanics and Materialmen Liens Title Clearing Strategies
• STRATEGY NO. 3: REMOVAL
19
Mechanics and Materialmen Liens Title Clearing Strategy No 3: Removal
• In some states, it may be possible to bond over mechanics liens.
• Judicial action (typically not practical in a transactional context).
• In some states a title insurance endorsement may be available.
• If all else fails, the lien will need to be paid.
20
Springing Liens
21
Springing Liens
• A legal claim against assets that arises upon the occurrence of a future event
• Lien + Springing Interest = Springing Lien
22
Springing Lien Example • Item 1.01. Entry into a Material Definitive Agreement. • • On November 29, 2007, E*TRADE Financial Corporation, a Delaware corporation (the “Company”),
entered into a Master Investment and Securities Purchase Agreement (the “Citadel Investment Agreement”), by and between the Company and Wingate Capital Ltd., a Cayman Islands company and affiliate of Citadel Limited Partnership (“Citadel”). In addition, on November 29, 2007, the Company entered into a Securities Purchase Agreement (the “BlackRock Purchase Agreement”) with certain affiliates of BlackRock, Inc. (the “BlackRock Investors”). The Citadel Investment Agreement and the BlackRock Purchase Agreement provide for, among other things, (i) the issuance to Citadel of $1,650,000,000 in aggregate principal amount of 12.5% Springing Lien Notes due November 30, 2017 (the “Springing Lien Notes”), (ii) the exchange of approximately $186,000,000 of the Company’s senior unsecured notes held by affiliates of Citadel for $186,000,000 in aggregate principal amount of Springing Lien Notes, (iii) the issuance to the BlackRock Investors of $100,000,000 in aggregate principal amount of Springing Lien Notes, (iv) the issuance to Citadel or its affiliates and the BlackRock Investors of an aggregate of 19.99 % of the Company’s outstanding common stock, par value $0.01 per share (the “Common Stock”), measured as of immediately prior to entry into the Citadel Investment Agreement and the BlackRock Purchase Agreement, and (v) the sale (the “ABS Sale”) by E*TRADE Bank and E*TRADE Global Asset Management, Inc. of their respective asset backed securities portfolios to an affiliate of Citadel for approximately $800,000,000, subject to certain adjustments. Aggregate proceeds to the Company from the transactions contemplated by the Citadel Investment Agreement, the BlackRock Purchase Agreement and the ABS Sale will be approximately $2,550,000,000 in cash.
23
Springing Liens – Solutions • So long as the future event has not occurred and there is no
lien of record, a springing lien should not impede closing. • BUT – you may need to “Mind the Gap” in some jurisdictions
(i.e., intervening adverse matters affecting tile recorded between the date of the commitment and the recording of documents). – ATLA’s 2006 forms added gap coverage for those markets
or transactions in which the “settlement” or “funding” occurs prior to the recording of the transfer or security instruments (Covered Risk 10 for the Owner’s Policy and Covered Risk 14 of the Loan Policy).
– Nonetheless, in New Mexico, counsel must still remember to reserve the right to make an objection if any new exclusion is added pursuant to Standard Exception No. 10.
24
Tax Liens - Federal
• Liens for non-payment of taxes: – Federal tax liens are perfected by recorded notice,
except as follows: • If perfected by Notice of Federal Tax Lien on or after November 5,
1990, a federal tax lien remains enforceable for 10 years following the date of the tax assessment.
• Re-filing of the Notice within either the 10th year or 30 days following the expiration of 10 years will maintain unbroken priority from the date that the original Notice was filed.
• If the federal tax debt remains unpaid, a new Notice of Federal Tax Lien after final expiration (10 years plus 30 days) of an earlier Notice, but such a newly perfected federal tax lien has priority only from its date of filing.
25
Federal Tax Liens – Title Clearing Strategy
STRATEGY NO. 1: INVESTIGATE
26
Federal Tax Liens (Non-Payment of Taxes)Title Clearing Strategy No. 1
Investigate • Instances when federal tax liens may be disregarded:
– A federal tax lien that was filed on or after November 5, 1990, may be disregarded if more than 10 years and 30 days have elapsed since the earlier of the “date of assessment” shown of record or the recording date, unless the lien has been refiled.
– A federal tax lien may also be disregarded when the “Last Day for Re-filing” has passed, unless the lien has been re-filed.
– To determine whether a particular recorded Notice of Federal Tax Lien is still a viable lien:
• Refer to Column E, entitled “Last Day for Refiling” in the body of the Notice. • If each date listed in this column has passed, the Notice has expired as a lien
against real property. • Any new filing of a Notice, either prior to or after expiration of the earlier
one, will appear in the County Clerk’s records as a separate federal tax lien.
27
Federal Tax Liens – Title Clearing Strategy
• STRATEGY NO. 1: REMOVE
28
Federal Tax Liens (Non-Payment of Taxes)Title Clearing Strategy No. 2:
Remove • Federal tax liens are typically filed against the
name of the individual. • An individual may file an Application for
Certificate of Discharge with the District Director of the IRS, which will frequently grant a discharge of the real property from a federal tax lien if it determines that it has no equity in the real property.
29
Tax Liens - Federal
• Estate Tax Liens: – The federal lien for collection of estate tax is an
inchoate lien (enforceable without any filing in the real estate records).
– Everyone dealing with a decedent’s real property is considered to be on notice of this automatic lien.
– The lien expires 10 years from the decedent’s date of death.
– Since this lien need not be recorded, it has the potential to take priority on recorded liens depending on when it arises.
30
Federal Tax Liens (Estate Tax Liens) – Title Clearing Strategy
• Obtain IRS Disclaimer
31
Notice of Lis Pendens
• Latin for a “suit pending”
32
Notice of Lis Pendens
• Common-law doctrine now codified in most states.
• Notice filed in public records for purpose of warning all persons that the title to a certain property is subject to litigation and that they are in danger of being bound by an adverse judgment.
33
Notice of Lis Pendens – Title Clearing Solutions
• Action to Quash (typically not practical in the context of a transaction). – In order for a Notice of Lis Pendens to be properly filed (under New Mexico
law) the following elements must be met:
• The filing of a notice of lis pendens is appropriate under New Mexico law only when the underlying action “affect[s] the title to real estate in this state.” NMSA 1978, § 38-1-14 (emphasis added).
• To be eligible to record a lis pendens notice on a parcel of real property under New Mexico law, the person filing the notice must either “assert a present claim to the property’s title or have some other present interest in the subject property.” United States v. Jarvis, 499 F.3d 1196, 1203 (10th Cir. 2007) (emphasis added); see also Ruiz v. Varan, 110 N.M. 478, 479, 797 P.2d 267, 268 (1990) (noting that a notice of lis pendens was wrongfully filed because, among other factors, “a claim of title was never involved in the [underlying] litigation”).
• Demand Removal - Slander of Title.
– May be viewed as an empty threat – in New Mexico, the filing of a Notice of Lis Pendens is typically privileged unless the filing is clearly baseless.
34
II. Rights of Third Parties
1. Off Record Third Parties
35
What is a BFP?
• Bona Fide Purchaser – (1) good faith; (2) paid value; (3) without notice of competing claim(s) to property.
36
So, the key issue for off record third party rights is:
whether a reasonably prudent person would have constructive notice of the
off record third party’s rights.
37
Constructive Notice
– Constructive (Inquiry) Notice • “[I]nformation or knowledge of a fact imputed
by law to a person (although he may not actually have it), because he could have discovered the fact by proper diligence, and his situation was such as to cast upon him the duty of inquiring into it.”
– Black’s Law Dictionary, Sixth Ed. (1990), p. 1062.
38
Common Off Record Third Party Situations
• Prescriptive Easements • Adverse Possession • Inchoate Liens • Unrecorded Leases
39
Off Record Third Party Rights Best Practices
• Proper due diligence: – Obtain a survey. – Physically inspect the property. – If the seller is an executor (personal representative,
etc.) or trust, verify the absence of federal estate tax issues/obtain IRS disclaimer.
• Check for a Title Insurance “Fix.” – E.g. In New Mexico, buyer’s counsel would require the
removal of Standard Exceptions 1-4 from the Title Policy.
– Consider endorsements (e.g., Same as Survey - ATLA® Endorsement 25-06).
40
Santa Fe Office 325 Paseo de Peralta 87501 P.O. Box 2307 Santa Fe, New Mexico 87504-2307 505.982.3873
Albuquerque Office 6301 Indian School Road NE, Suite 400 87110 P.O. Box 36210 Albuquerque, New Mexico 87176-6210 505.884.4200
www.montand.com 41
II. Rights of Third Parties: Right of first refusal; Unrecorded leases III. Breaks in chain of title
Presented by Jeff Weisman Weisman Law Firm, St. Louis
B. Right of first refusal Definition: Right of first refusal (RFR) is a contractual
right giving its holder the option to enter a business transaction with the owner of the property, according to specified terms, before the owner is entitled to sell the property to a third party. If the entity with the right of first refusal declines to purchase, the owner of the property is free to open the bidding up to other interested parties.
Because a RFR is a contract right, the remedies for breach are typically limited to recovery of damages. So, if the owner sells the property to a third party without offering the holder the opportunity to purchase it first, the holder can then sue the owner for damages but may have a difficult time obtaining a court order to stop or reverse the sale. However, in some cases the option becomes a property right that may be used to invalidate an improper sale.
43
Option to purchase: This type affords the RFR the option to buy the property before it is sold to any other buyer. There may or may not be a predetermined sale price and other terms. If not, the seller will be free to impose any terms upon the RFR.
Option Price: This is a variation on the first type
where there is an agreement as to the price based on appraisals or as a percentage of the current value as previously agreed upon.
Option to Match Offer: The RFR has the right to
match any offer the Seller has received but the RFR is not obligated to purchase.
44
To exercise a right of first refusal properly, must its holder accept every term of the third party’s offer, even if it contains terms that the property owner knows will be repugnant to the holder and will discourage the holder from exercising the right of first refusal?
According to a decision by Maryland’s highest court, the answer is “no.” David A. Bramble, Inc. v. Thomas, No. 32, Sept. Term. 2006, Jan. 8, 2007 (Md. Ct. App.).
Example: at the time of the first refusal was created, the property was zoned for commercial use. Later, the seller, as part of the terms of sale, desires to impose commercially reasonable restrictive covenants on the property (architectural controls or customary use restrictions). Does the holder have to abide by these terms where the holder disagrees with the scope of one or more of the proposed covenants?
45
Right of First Refusal should specify whether the holder of that right must match the precise terms and conditions with no deviations or amendments or just match the material terms such as closing date, warranties, liability etc.
If the offer only stated that the Offeror must match
the “terms and conditions set forth in the offer, the parties would not know whether that means “material non-price” terms or the “exact” terms.
Parties should not be allowed, by acting in bad faith,
to defeat a right of first refusal. If the offer contained terms to dissuade the other party from exercising the right then it may be a bad faith Offer.
46
Must show “reasonable justification” for modifying the non-price term in the triggering the offer to the disadvantage of the holder of the right.
Transferable. Not every Right is transferable; some are personal
to the original holder. Duration. The Right may be limited in time.
Exceptions. Certain transactions may be exempt such as a
transfer to a holding company, a trust, family members, etc., without first making the offer.
Offer and acceptance terms. Specific deadlines, procedures, and
forms may be required. For example, Joe must give Dave a "notice of sale." Dave has thirty days to accept or reject, with failure to respond counting as rejection. Dave must then close the transaction within thirty days or else that counts as a failed attempt to exercise
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Limited time period to close transaction. Joe offers the property to Dave under the Right and Dave declines. Joe now has 60 days to close the transaction with Bo. If it cannot close within 60 days Joe must offer it again to Dave before proceeding further with Bo.
Substitute purchaser allowed. Joe offers the property to
Dave, who declines. Joe is then free to sell it to Bo but that transaction fails. Joe may sell the property under the same terms to Erin instead without re-offering it to Dave.
Slight variations allowed in sale. Joe offers the house for $1 million to Dave. Dave declines. Joe then enters a transaction with Bo but during the escrow Bo discovers a flaw in title and several defects. Joe is entitled to discount the price by $20,000 to close the sale with Bo without having to re-offer the house to Dave at $980,000.
48
Many states do not require short-term leases to be recorded. However, some states do require some long-term leases of three or more years to be recorded at a register of deeds office to provide notice to all subsequent good-faith purchasers. If the state does not have any laws requiring the record of land leases, property owners or tenants may utilize their options to record the lease agreements to avoid potential consequences of unrecorded lease agreements. If a buyer later purchases the property from the landlord during the lease term, the subsequent owner may terminate an unrecorded lease contract.
49
A land lease or ground lease, whereby the tenant utilizes the property for residential purposes, such as a primary or secondary residence or to develop or make improvements on the land. The parties to the contract may enter into a ground lease agreement for the purposes of developing commercial property. During the term of a commercial land lease, the property is usually vacant while the tenant makes improvements to the land. The landlord retains the ownership interest in the property during the lease term and following the termination of the lease. Many ground leases are long-term leases and may be subject to state recording statutes.
50
Long-term lease agreements related to land or buildings often have recording provisions within them. This is especially true in the commercial leasing context. The recording provision allows either party to record the lease agreement, or a notice of the lease agreement, with the county. The general purpose for allowing a lease to be recorded is to create a priority interest in the public records regarding the leased property
Foreclosure proceedings do not terminate the lease
until there has been an actual sale and conveyance of the premises to the purchaser. Until then the rights of the mortgagor and lessee as landlord and tenant are not affected.
51
This happens when there is not a continuous chain of deeds showing title transferring from Party A to Party B. Either a deed is missing or a deed is recorded but the recording was not done properly or contains wrong information such as the legal description, names of the parties or the form of deed used or when the deed of trust has not been satisfied or was satisfied but no release recorded.
52
Marketable title refers to holding ownership of property reasonably free of defects and liens that would subject the property to a lawsuit. It allows the owner to sell the property at fair market value without objection from the buyer.
Unmarketable title as “title affected by an alleged or apparent
matter that would permit a prospective purchaser or lessee of the title or lender on the title or a prospective purchaser of the Insured Mortgage to be released from the obligation to purchase, lease or lend if there is a contractual condition requiring the delivery of marketable title.
Important that owner convey to buyer title that includes rights of
possession, use, occupancy, enjoyment, inheritance. Important that buyer know of all encumbrances such as
easements, mortgages, judgment liens, IRS liens, mechanic liens, covenants and restrictions, etc.
53
Unrecorded Deed of Trust: A security interest is valid and enforceable between the parties to the Deed of Trust when the document is executed and delivered, regardless of whether it is ever recorded. However, third parties with no actual notice of the Deed of Trust are not bound by the document. A Deed of Trust is not valid and enforceable against third parties until it is perfected through recording in the county where the collateral is located.
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When the original Deed of Trust has been lost and cannot be found for recording, REV. STAT. Section 442.410 provides for recording of an Affidavit of Instrument to provide notice to third parties of the intended lien.
However, if the borrower under the lost Deed of
Trust granted another Deed of Trust against the property and that subsequent Deed of Trust was properly perfected, the priority of the unrecorded deed of trust even once it is properly perfected, will remain in an inferior lien position unless it can be shown that the subsequent lienholder had actual knowledge of the unrecorded lien.
55
Missing or Incorrect or Inaccurate legal description. Legal descriptions are susceptible to a number of defects. Deed or Deed of Trust might be recorded with:
No legal description, No metes and bounds, legal description may fail to close due to an
omitted call, Legal may contain an incorrect call, Legal overlap upon an adjacent tract or visa
versa. Legal description might be vague as to render
it impossible to locate the property or simply contain typographical errors.
56
Although a Scrivener’s Error Affidavit is not a true remedy, it is often used to give notice to the error and allow the title agent to insure over the mistake.
If a proper street address is shown in the Deed of Trust or other legal instrument, the instrument is probably sufficient on its face. The courts have followed the rule that "in general, any description in a deed is sufficient if it affords the means of identification of the property." Hamburg Realty Co. v. Woods, 327 S.W.2d 138, 150 (Mo. 1959). In First National Bank of Cape Girardeau v. Socony Mobil Oil Co., 495 S.W.2d 424, 434 (Mo. 1973), the court said:
"The description was not well drawn but the court properly could find from the evidence that the property in question could be located. This would satisfy the rule that: 'Although the description need not be technically accurate in order to make an instrument operative as a conveyance, it must identify the property sufficiently to enable a surveyor to locate it. The description must be sufficiently certain to distinguish the land intended to be conveyed from all other land."
57
Assignments for MERS: On February 27, 2012, MERSCORP, Inc. changed its name to MERSCORP Holdings, Inc. MERSCORP Holdings is the operating company that owns and operates the MERS System and all other products. It is also the parent company of MERS, a wholly-owned subsidiary whose sole purpose is to be the mortgagee of record and nominee for the beneficial owner of the mortgage loan.
58
Recording versus Registration. The deed of trust is RECORDED. The deed of trust information is REGISTERED on the MERS System. The deed of trust or assignment to Mortgage Electronic Registration Systems, Inc. must be recorded in order to perfect the mortgage lien. Registering the deed of trust information on the MERS System is separate and apart from the function that the county recorders perform.
Transfers of deed of trust Interests vs. Tracking the Changes in
Mortgage Interests: Deed of trust rights are NOT transferred on the MERS System. MERS System only tracks the changes in servicing rights and beneficial ownership interests. Beneficial ownership interests are sold via endorsement and delivery of the promissory note. This is also a non-recordable event. MERS remains the mortgage lien holder in the public land records when these non-recordable events take place. Therefore, because MERS remains the lien holder, there is no need for any assignments. Transactions on the MERS System are not electronic assignments. MERS holds lien interests on behalf of its Members. When a Member is no longer involved with a registered mortgage loan, an assignment of the deed of trust is required to transfer the lien from MERS to the non-MERS member. Such an assignment is subsequently recorded providing notice as to the termination of MERS’s role as mortgagee.
59
All vested parties must sign: One of the most common vesting defects arises in the case of a married person who is vested in title alone where the spouse must join in execution of the Deed of Trust in order to secure the marital rights in the property or the spouse must execute a separate Waiver of Marital Rights to be recorded concurrently with the Deed of Trust.
In a situation where two vested owners are husband and wife,
owning property as tenants by the entirety, neither spouse can convey any interest in the real estate without the joinder of the other spouse. Ethridge v. Tierone Bank, 226 S.W.3d 127 (Mo. Banc 2007). The court invalidated the deed of trust and refused to apply the doctrines of reformation, equitable lien, or equitable subrogation.
60
It is very important that all conveyances/encumbrances of interests in real property include a release/waiver by the spouse if the grantor is married. This is so even if the property is only in the name of the grantor.
In 2010 the Supreme Court of Missouri held that a
spouse’s contribution to otherwise separate property creates a marital interest that can be divided by the Court. In Missouri, property that was owned prior to the marriage is generally considered to be separate, non-marital property. So you may think a waiver is not required. However, the court found that contributions created a marital interest in the property under the rationale that marital labor, effort, or services result in a marital interest in the increased value of a spouse’s separate property if there is proof of: (1) a contribution of substantial services; (2) a direct correlation between those services and the increase in value; (3) the amount of the increase in value; (4) performance of the services during the marriage; and (5) the value of the services, the lack of compensation, or inadequate compensation. 61
Marital status must be stated on recorded documents. If no marital status on documents, then Title Company will require proof of the parties’ marital status. Example: when husband and wife came into title, the marital status on the deed of trust was not listed. Check court records to determine if a divorce occurred.
Name may sound similar. For instance,
Mohammed and Muhammed are pronounced the same, but Mahmoud is not nor des Joe/Jose or Jon/John count as Jon is usually short for Jonathan. I think the winner is Kristin/Kristen/Christin/Christen.
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Resolutions: A “marital status” issue can be resolved if the
loan is a Purchase Money Security Interest (PMSI) which takes priority over the marital status. You can easily identify a PMSI as most often the deed of trust and the warranty deed are dated the same. Also you can tell if the HUD-1 statement includes a seller and buyer, then it is most likely purchase money.
Scriveners’ Error Affidavit.
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Many issues can be resolved by re-recording a document. However, many breaks in title happen years ago and the parties needed to correct the title are unavailable, unreachable or deceased. If lost vesting deed can be found, record it.
If the original or replacement deed is unavailable, notice should
be given to third parties by recording an affidavit of lost instrument (See Mo. Rev. Stat. Section 442.410).
Quiet Title Action may be necessary to have the court rule on the issue.
Sample issue: Sale of condo owned by one person but another
set of owners turned up on the title search as owning the unit. Reason was that another property owner in the same complex had the unit number of the condo being sold typed on the deed. In this situation, the additional parties have to be tracked down in order to sign release documentation. This may not be easy as the owners have to be located and contacted.
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When land is transferred between multiple parties, such as during probate or a business with multiple partners, ownership interests can become convoluted. It can also become confusing when dealing with married individuals.
There are only two types of spouses:
Titled spouses and non-titled spouses.
All spouses (title and non-titled) must sign
something in real estate transactions.
Titled spouses cannot waive their ownership interests, but instead must sign all instruments affecting the title.
65
As an “owner” title spouses must convey their ownership interest or mortgage it or grant an easement over it or lease it to someone else, etc. They cannot consent to the other spouse doing it alone.
They cannot “waive” their ownership rights. Such an option is NEVER acceptable under Missouri’s
marital rights laws. While it may not be necessary for the non-borrowing,
titled spouse to execute the loan application or the note or any other loan documents (this is a lender decision, not at title decision), the non-borrowing spouse who is in title must execute the deed of trust/mortgage before it is insurable.
Non- titled spouses may waive marital rights and/or consent to transactions by the other spouse alone or can join on the instruments affecting the title.
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Purchase Money Deeds of Trust The status of a purchase money mortgage is
unique in that without the funds to pay for the title the borrower would never own the title to begin with. If the borrower did not own the title, other “secured” creditors, whose liens might pre-date the purchase money lien, would have no asset at all from which to collect.
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Purchase Money Deeds of Trust Where title is to be taken by one spouse alone under
a purchase contract that identifies that spouse as the only purchaser may be executed by the purchasing spouse alone and the non-buying spouse need not sign anything.
This is provided, however, that the instrument does not call for Future Advances as these amounts would not be treated as “purchase money” resulting in the non-buying spouse having to either sign a waiver or sign on the deed of trust.
Only that part of the loan being used to acquire the property (or pay closing costs) qualifies as “purchase money.
The deed of trust is not a “purchase money” security instrument where the loan is being made to pay off a pre-existing installment contract or contract for deed. 68
Missouri is not a community property state “Community property” does not exist in Missouri,
and the requirement that a spouse sign neither creates community property nor acknowledges in any way that the property is community property. Nor do community property issues affect the necessity of requiring a spouse’s signature. The fact that the property would not be community property under the law of California or New Mexico or Nevada or Texas or any other state has nothing to do with whether a spouse in Missouri must sign a document.
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Pre-Nuptial Agreements Ante-Nuptial or Pre-Nuptial or Post-Nuptial
Agreements authorizing either spouse to deal with real property without the consent or joinder of the other spouse are not accepted by most major underwriters for purposes of overcoming a requirement that a spouse join on a deed or mortgage or deed of trust or other document.
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Interest in Real Property. Any interest in real property is subject to the
guidelines regarding spouses’ signatures. Deeds or deeds of trust are all generally recognized as creating an issue as to marital status and the potential need for a spouse’s signature, but so too do easements, leases, installment contracts/contracts for deed and any other conveyance or grant of an interest in real property.
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Non Consensual Liens
Spouses who are not also owners of an interest in the real property cannot subject that property to non-consensual liens. Therefore judgment liens or state and federal tax liens against the non-titled spouse alone do not attach to property (or any interest therein) owned by the other spouse in his or her name alone.
This should not be confused with the Missouri
situation where federal tax liens against one spouse alone now attach to property titled in both spouse’s names. That change in federal law does not create a lien where the spouse against whom the lien is filed is NOT in title. 72
Homestead Missouri is a “homestead” states and has a
homestead statute which is not generally well known. The concept exists in Missouri nonetheless. As a general rule, when the inquiry is made as to whether Missouri is a homestead state, the real question being asked is: “Does a spouse need to sign?” The answer is invariably “yes,” although what the spouse has to sign may vary.
“Either spouse separately shall be debarred from and incapable of selling, mortgaging or alienating the homestead…and every such sale, mortgage or alienation is hereby declared null and void….” Section 513.475.2 73
Determine who must execute documents: ◦ Corporation ◦ Partnership ◦ Individual ◦ Trust ◦ Spouse
Is the spouse married or been remarried? (same name as ex-spouse) The person present must have power or authority
to sign. Will person need a Power of Attorney? Will person need to show proof of authority to
sign?
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Tenants in Common: Every interest in real estate granted or devised to two or more persons, other than executors and trustees and husband and wife, shall be a tenancy in common, unless expressly declared, in such grant or devise, to be in joint tenancy. Section 442.450 RSMO.
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Tenancy By the Entirety In Missouri, if a husband and wife hold title
as tenants by the entireties, neither alone may validly convey or mortgage the property.
The signature of one alone on a document is totally ineffective to transfer or mortgage the title or create an insurable easement or grant a lease. Do not confuse this with issues concerning a valid power of attorney or court-ordered sales or probate or incompetency proceedings.
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The common law principle of Tenancy by the Entirety is reflected in the case of Nelson v. Hotchkiss, 601 S.W. 2d 14, 16-19 (Mo 1980) (en banc). The Nelson Court defined a tenancy in the entirety in the following fashion: “Husband and wife, at common law, to whom a grant or devise was made [sic] took per tout et non per, my, and the survivor took the whole” (Id.). Further, citing Bright on “Husbands and Wives,” 27, the Court stated that in a tenancy by the entirety, the husband and wife are a “legal identity… both being regarded as one person …, [and] the husband and wife always [represent] a single unit or integer” (Id).
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Federal tax lien against one T-by-E attaches to T-by-E property under the United States v. Craft, 535 U.S. 274 (2002) decision. The IRS treats each spouse as having a half interest (more or less) although that concept is foreign to state law in Missouri.
Issue: What if there is a Federal tax lien against
the husband alone on T-by-E property. There was a deed of trust on the same T-by-E property. The Husband passed away. The lender foreclosed. The issue is the status of the federal tax lien.
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After the Craft decision issues remained unanswered as to the effect of the IRS on the T-by- E estate. An Internal Revenue Bulletin/Notice was issued on T-by- E property. In the Notice the IRS stated its position as follows:
As is the case with joint tenancy with the right of survivorship, if a taxpayer's interest in entireties property is extinguished by operation of law at the death of the taxpayer (which is what happens in Missouri), then there is no longer an interest of the taxpayer to which the federal tax lien attached. When a taxpayer dies, the surviving non-liable spouse takes the property unencumbered by the federal tax lien.
When a non-liable spouse predeceases the taxpayer, the property ceases to be held in a tenancy by the entirety, the taxpayer takes the entire property in fee simple, and the federal tax lien attaches to the entire property.
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