unit 5 contd

The price for title insurance is paid every month. True False

F

The record of a property's ownership is called priority. TF

F its called title

marketable title act

North Carolina's Marketable Title Act provides that if a chain of title can be traced back for 30 years and no other claim has been recorded during that time, the title becomes a marketable title. Any conflicting claims predating the 30-year chain of title may be extinguished. The practical effect of this act is to eliminate obsolete defects in the chain of title.

Recording acts provide that any written document that affects any estate, right, title of interest in land must be recorded in the municipality where the land is located. TF

T

deed transfer taxes

additional taxes on real estate sales.... added by some North Carolina counties.

marketable title

under the terms of a typical real estate sales contract, the seller is required to deliver marketable title to the buyer at the closing

marketable title must meet five criteria

(1) be free from any significant liens and encumbrances; (2) disclose no serious defects; (3) be free of doubtful questions of law or fact to prove its validity; (4) protect a purchaser from the hazard of litigation or any threat to quiet enjoyment of the property; and (5) convince a reasonably well-informed and prudent person, acting on business principles and willful knowledge of the facts and their legal significance, that the property could in turn be sold or mortgaged at a fair market value.

ALTA

A standard coverage policy usually insures against defects that may be found in the public records plus many defects not found there. The extended coverage provided by an American Land Title Association (ALTA) policy includes all the protection of a standard policy plus additional protection to cover risks that may be discovered only through inspection of the property (including rights of persons in actual possession of the land, even if unrecorded) or revealed by examination of an accurate survey. The company does not insure against any defects in or liens against the title that are found by the title examination and listed in the standard policy. The ALTA owner's title insurance policy protects the owner against title defects not found in the public records, such as falsification of the records; misrepresentation of the true owner(s) of the land; old unsettled estates; forged deeds, releases, or wills; instruments executed under a fabricated or expired power of attorney; errors in copying and indexing; deeds delivered after the death of a grantor or grantee or without consent of the grantor; mistakes in recording legal documents; undisclosed or missing heirs; birth or adoption of children after the date of the will; deeds by persons of unsound mind; deeds by persons supposedly single but secretly married; and deeds by minors.

title insurance

A title insurance policy is a contract by which a title insurance company agrees, subject to the terms of its policy, to indemnify (to compensate or reimburse) the insured (the owner, the lender, or another interest holder) against any losses sustained as a result of defects in a title that existed at the time the policy was issued, other than those exceptions listed in the policy. Title companies issue various forms of title insurance policies; the most common are the owner's title insurance policy and the lender's title insurance policy. As the names indicate, each type of policy is issued to insure specific interests. An owner's policy insures an owner's interest in property; a lender's policy insures a lender's interest in property. The owner's coverage is usually the face amount of the purchase price, and the owner is permanently protected. The lender's coverage is limited to the loan amount and is of a diminishing liability. Lender's coverage ends with the payoff of the mortgage loan.

actual notice

Actual notice means not only that the information is available but also that someone has been given the information and actually knows it. An individual who has searched the public records and inspected the property has actual notice, also known as direct knowledge. If it can be proved that an individual has had actual notice of information, that person cannot use a lack of constructive notice (such as an unrecorded deed) to justify a claim.

excise tax

All sellers of real property in North Carolina must pay an excise tax that is based on the sales price of the property. The statute states, "There is levied an excise tax on each deed, instrument, or writing by which any interest in real property is conveyed to another person." Prior to year 2000, actual revenue stamps were affixed to each deed as proof that this excise tax had been paid. Now, because the Registrar of Deeds must mark the document to show the tax amount paid prior to recording the document, the term revenue stamps has been discontinued. The amount of the tax is $1 for every $500 of consideration or fraction thereof and always is expressed as a whole dollar amount. The type of financing used, if any, has no effect on the calculation of excise tax. The statute establishing the payment of excise tax exempts certain types of conveyances, such as transfer by a government entity, transfer by will or intestate succession because of death, transfer by deed of gift when no consideration is paid, transfer by merger or consolidation, transfer by lease for a term of years, and transfer by instruments securing a debt, such as a mortgage and/or deed of trust.

notice

Anyone with an interest in a parcel of real estate can take certain steps, called giving notice, to ensure that the interest is available to the public. The two basic types of notice are constructive notice and actual notice.

Constructive Notice

Both title insurance and title examinations depend on the fact that all conveyances of real property, as well as most other interests in real property, must be recorded to be enforceable. All owners or parties interested in real estate need to record, or file, all documents affecting their interests in the real estate to give public notice to the world of those interests. This public notice is called constructive notice or legal notice. Physically taking possession of the property is actual notice.

unrecorded documents

Certain types of liens are not recorded. Real estate taxes and special assessments are liens on specific parcels of real estate and are not usually recorded until sometime after the taxes or assessments are past due. Inheritance taxes and franchise taxes are statutory liens and are placed against all real estate owned by a decedent at the time of death or by a corporation at the time the franchise taxes became a lien. Like real estate taxes, they are not recorded. Notice of these liens must be gained from sources other than the recorder's office. Evidence of the payment of real estate taxes, special assessments, municipal utilities, an

chain of title

Chain of title is the record of a property's ownership. Beginning with the earliest owner, a title may pass to many individuals. Each owner is linked to the next so that a chain is formed. An unbroken chain of title can be traced through linking conveyances from the present owner back to the earliest recorded owner. Chain of title does not include liens and encumbrances or any other document not directly related to ownership. If ownership cannot be traced through an unbroken chain, a gap in or cloud on the chain of title is said to exist. In these cases, the cloud on the title makes it necessary to establish ownership by a court action called a suit to quiet title. For instance, a suit might be required when a grantor acquired title under one name and conveyed it under another name. There may be a forged deed in the chain, after which no subsequent grantee acquired legal title.

suit to quiet title

If there is a period for which ownership is unaccounted, there is a gap in the chain. In such cases, it is usually necessary to establish ownership by a court action called a suit to quiet title. The court's judgment, following a proceeding in which all possible claimants are allowed to present evidence, can be filed. A suit to quiet title may be required when, for instance, a grantor has acquired title under one name and conveyed title under a different name. Title acquired by adverse possession also can be established of record by a quiet title action. When a title examination is conducted, the title examiner lists each instrument in chronological order along with information relative to taxes, judgments, special assessments, surveys, easements, and the like. The title examiner concludes with an opinion of title indicating which records were examined and when, and stating the examiner's opinion of the quality of the title. The grantor and grantee index system is used in North Carolina to examine the title. Any defect of title will appear in the grantor index.

Constructive Notice

Notice given to the world by recorded documents. All people are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property. Constructive notice is the legal presumption that information may be obtained by an individual through due diligence. Properly recording documents in the public record serves as constructive notice to the world of an individual's rights or interest, as does the physical possession of a property. Because the information or evidence is readily available to the world, a prospective purchaser or lender is responsible for discovering the interest.

priority

Priority refers to the order of when documents or liens were recorded. Many complicated situations can affect the priority of rights in a parcel of real estate—who recorded first, which party was in possession first, or who had actual or constructive notice. How the courts rule in any situation depends, of course, on the specific facts of the case. These are strictly legal questions that should be referred to the parties' attorneys. For example, buyer A purchased a property from seller B and received a deed. Buyer A did not record the deed but took possession of the property in June. In November, seller B sold the same property to buyer C who received a deed, which buyer C promptly recorded. Buyer C never inspected the property to determine whether someone was in possession of it. By taking possession of the property, buyer A may have a superior claim to the property even though buyer A did not record. However, in some states, such as North Carolina, Buyer C may have a superior claim since he recorded the deed. (See later discussion on the Connor Act.)

public records are maintained by

Public records are maintained by recorders of deeds, county clerks, county treasurers, city clerks, collectors, and clerks of court. For example, prospective buyers rarely search public records for evidence of title or encumbrances themselves. Instead, title companies, attorneys, and lenders conduct the searches.

Public Records

Public records contain detailed information about each parcel of real estate in a city or a county. These records are crucial in establishing ownership, giving notice of encumbrances, and establishing priority of liens. They protect the interests of real estate owners, taxing bodies, creditors, and the general public. The real estate recording system includes written documents that affect title, such as deeds and mortgages. Public records regarding taxes, judgments, probate, and marriage also may offer important information about the title to a particular property.

recording

Recording is the act of placing documents in the public record. The specific rules for recording documents are a matter of state law. Although the details may vary, all recording acts essentially provide that any written document that affects any estate, right, title, or interest in land must be recorded in the county (or, in some states, the town) where the land is located to serve as public notice. This way, anyone interested in the title to a parcel of property will know where to look to discover the various interests of all other parties. Recording acts also generally give legal priority to those interests recorded first—the first in time, first in right, or first come, first served principle. To be eligible for recording, a document must be drawn and executed according to the recording acts of the state in which the real estate is located. For instance, a state may require that the parties' names be typed below their signatures or that the document be acknowledged before a notary public. In some states, the document must be witnessed. Others require that the name of the person who prepared the document appear on it. States may have specific rules about the size of documents and the color and quality of paper they are printed on. Electronic recording—using computers or fax machines, for instance—is permitted in a growing number of localities. Some states require a certificate of real estate value and the payment of current property taxes due for recording.

connor act

Suppose Zackermann sells her property to Sands. Sands fails to record his deed. Two weeks later, Zackermann sells the same property (even though it is no longer hers) to Hanson. Hanson suspects that Zackermann no longer owns the property but accepts the deed and quickly records it. Because Hanson recorded his deed, he now has marketable title to the property, and Sands is out of luck. Sands' recourse may be to sue Zackermann but Sands is not the owner of the property.

north carolina connor act

The Connor Act is a state law that provides that many types of real estate documents are not valid as to third parties unless they are recorded. The documents covered include deeds, mortgages, installment land contracts, assignments, options, leases of more than three years, easements, and restrictive covenants. Contracts to convey real estate as well as memoranda of contract are also covered by this statute. Under the Connor Act, if a purchaser fails to record a deed but a subsequent purchaser does, the subsequent purchaser's title takes precedence over the first purchaser's title. This kind of recording statute is called a pure race statute: whoever records first prevails, even if that purchaser had personal knowledge of a previous interest that was unrecorded.

Torrens system of land registration

The Torrens title system is a legal registration system used to verify ownership and encumbrances similar to the registration of ship titles. Registration in the Torrens System provides evidence of title without the need for an additional search of the public records; the registering government basically guarantees that the named person is the owner of the registered title. Under the Torrens System, an owner of real property submits a written application to register a title. The application is submitted to the court clerk of the county in which the real estate is located. If the applicant proves ownership, the court enters an order to register the real estate. The registrar of titles is directed to issue a certificate of title. The original Torrens certificate of title in the registrar's office reveals the owner of the land and all mortgages, judgments, and similar liens. It does not, however, reveal federal or state taxes and some other items. The Torrens title system of registration relies on the physical title document itself; a person acquires title only when it is registered. The Torrens System is governed by Chapter 43 of the North Carolina General Statutes and is rarely used in North Carolina. As noted in the 2011-2012 Edition of the North Carolina Real Estate Manual: Every owner of land registered under the Torrens System holds the land free from any and all adverse claims, rights, or encumbrances not noted in the certificate of title. In addition, no title to nor right or interest in Torrens registered land contrary to the rights of the registered owner can be acquired by prescription or adverse possession.

abstract of title

Through the chain of title, the ownership of the property can be traced backward from its present owner to its source; this thorough, condensed history of the title is called an abstract of title. Frequently, the title examination is conducted for a shorter period of time based on local custom or practical considerations. Most title defects are revealed in a search that traces back 30 to 60 years, especially if title insurance has been in place. Ownership is traced by means of searching the grantee and grantor indices that are kept in the Register of Deeds' offices. Under this system, all documents relating to a parcel of property are indexed under the names of the grantors and the grantees, not under the property itself.

calculate NC excise tax

To calculate the amount of the excise tax, if the sales price is not an even $500 amount, round the sales price up to the nearest $500, divide by 500, and multiply by $1. For example, suppose the purchase price is $89,250. Round up the price to $89,500, and divide by 500, which equals 179. Multiply 179 by $1 and you have determined that the seller will need to pay $179 in excise tax. As another example, suppose the purchase price is $94,750. Round up the price to $95,000, and divide by 500 which equals 190. Multiply 190 by $1. The seller will need to pay $190 in excise tax.

The excise tax is based on the buyer's mortgage amount and is paid by the buyer. True False

f

title search

is the examination of all public records that might affect a title. The title examiner tries to establish a chain of title, which shows the record of ownership of the property over a period of time, depending on the length of the title search. In the United States, chains of title in colonial states frequently date back to a grant from the king of England. In those states admitted to the Union after the formation of the United States, the deeds of conveyance in the chain of title generally stem from the patent issued by the U.S. government. A lawyer, a trained paralegal, or title company staff in some states can perform a title search, or title examination, but only attorneys may give an opinion of title. Real estate brokers are prohibited from giving an opinion on the condition of a title.