Chapter 4: Title assurance

Generally, any legal document that affects title to real property should be recorded to provide adequate protection to the lienholder, and almost all should be, including:

Deeds Easements Restrictive covenants Court orders Long-term leases

Recording Before a Deed is Transferred. The normal and customary procedure in a residential purchase transaction is for the residential purchase contract (offer to purchase) to be negotiated and signed by all parties, then an sale escrow is opened.

During the escrow period the provisions in the contract such as property inspection, financing arrangements, appraisal, surveys, etc. are completed. When these items are completed, the buyer delivers the required funds and the seller delivers the signed and notarized deed to closing. On the day of closing the deed and mortgage documents are recorded. When the deed is recorded, "constructive notice" is given to the public of the transfer of title. At that point the buyer's title to the property is protected because it is "of record."

A couple of years later, Chris decides to put the property on the market. Prospective buyer Susan goes to the courthouse and reviews all documents pertaining to the property she might buy. Susan is said to have inquiry notice.

False

Which situation do you think is LEAST LIKELY to go through probate?

Kay dies and the house she shared with her husband goes to him. NOT Kay dies and the house she shared with her husband goes to him. Probate is both the court of jurisdiction over estates and the process of proving the validity of a will. Of these, the only situation that does not require probate is when property passes to a surviving spouse.

Lessees typically obtain this type of insurance when a substantial amount of money is invested in a property, such as for an owned building that sits on leased land.

Leasehold Policies

A type of title insurance that the lender may have drawn in its name to protect its interests in the property.

Mortgagee's Policy

A type of title insurance issued in the name of the property owner.

Owner's policy

_________, such as a mortgage payoff, is needed to clear a title from being encumbered by the lien.

Recordation of lien satisfaction

A certificate of title or opinion of title is a document prepared by an attorney stating the attorney's opinion of the status of the title to a piece of property as of the date it is issued.

True

Brokers are not permitted to offer an opinion about titles because offering a title opinion requires a law license. For a broker to offer such an opinion would be the unlicensed practice of law and could result in disciplinary action by the North Carolina Real Estate Commission. Therefore, brokers should recommend that a buyer have a title search performed by an attorney.

True

Buyers should be made aware that they are not required to use a specific title insurance company and that the title insurance company used is their choice, although the closing attorney may recommend a title company to the buyer as long as the buyer knows it is her choice.

True

Deeds are NOT required to be recorded to be valid; an unrecorded deed may, in fact, be valid, but it does not protect the grantee against challenges. Similarly, recording an invalid deed does not make it valid. Nevertheless, to protect a grantee against claims, recordation is required.

True

If financing is involved in the transaction, the lender will require title insurance. If both an owner's and lender's policies are being purchased together, the title company will usually only charge one premium, which is based on the owner's policy cost. Typically, the buyer pays the total premium in North Carolina.

True

In either situation, if a marketable title cannot be produced, a closing may have to be postponed.

True

Recall that the Statute of Frauds requires that documents must be in writing to be valid. These must also be recorded for that interest to be protected

True

Recorded documents maintained by the county recorder's office are the official, legal documents. Original documents are usually returned to the owner.

True

The title insurance policy specifies all possible clouds on or problems with the title

True

Like most states in the US, North Carolina is what is referred to as a pure race state, which refers to

a legal document recording system that encourages grantees to promptly record their real estate documents; the one who records the document first wins the "race." In most cases, the order in which a deed was recorded determines the party who has title to the real property. Any following conveyances are void.

re·course

a source of help in a difficult situation

a summary giving details of the title deeds and documents that prove an owner's right to dispose of land, together with any encumbrances that relate to the property.

abstract of title

Between the time the residential purchase contract is signed by the parties and the deed is recorded, the buyer has what is called __________ but not yet _____________

"equitable title" / "legal title."

Most problems with a title can be discovered going back no less than _____ years.

60

How many acres are in each section of a township?

640 - Each one-mile by one-mile section has 640 acres.

Who does the public believe owns the property that Chris just bought from Lori?

According to the public records, Lori still owns the property.

Although any document that affects title should be recorded, the following documents must be recorded for a conveyance to be valid and protected under the Conner Act:

Assignments of interest in real property Deeds Easements Leases with terms over three years Mortgage instruments such as mortgages and deeds of trust Purchase and option contracts, including installment land contracts and contracts to convey Restrictive covenants Rights of first refusal

Each of these is an example of involuntary alienation EXCEPT

Calvin dedicates property to the city for a park. Dedication is an example of voluntary alienation. The other choices are involuntary.

Chris is buying Lori's house. At settlement, Chris brings his money, and Lori signs the deed and hands it to Chris. Who now owns the property?

Chris

cloud on the title examples

Example #1: Sue Jones buys a house; she gets married and is now Sue Smith. When she sells the house, the grantor name on the deed is Sue Smith. This creates an ambiguity in the title. Example #2: A married couple purchases a home together; when one spouse passes away, a death certificate might be needed to clear any clouds on the title.

A mortgagee's title insurance policy refers to an owner's policy.

False

Arthur sold his property to Linda, but Linda did not record the deed. Shortly thereafter, Arthur gave a deed of gift to Susan, which Susan promptly recorded. Because Linda did not record the deed, Susan's recorded deed takes precedence.

False

Chris records his deed. He has now provided actual notice.

False

North Carolina's Marketable Title Act eliminated all defects in title and all claims that are 30 years old or more.

False

All defects to title must be removed before a title insurance policy can be issued.

False - Some clouds on the title that are discovered in the title search could be included as exceptions to a title insurance policy.

Lois wants to record the deed to a rental property she just bought. The deed must include a certificate of the address of the property before the deed can be recorded.

False - The deed must include a certificate of grantee and owner Lois's address, which may or may not be the same address as the property.

Title insurance covers the policyholder against a future event.

False - Unlike most other types of insurance, title insurance covers the policyholder for something that happened in the past before the policy was issued. Specifically, it insures against a defect in the title before the owner took title to the property.

The basic steps required in a title examination include:

Gathering necessary information, such as:Property owner's nameDate title was acquiredCopy of the last title opinion or title insurance policy Verifying the legal description Verifying the parcel identifier number (PIN), if applicable Running the chain of title Checking for title defects Preparing a title opinion (also known as a certificate of title)

________ contracts where possession is given before a deed is recorded, or option agreements giving the right to the option holder to buy the property, as well as rights of first refusal must be recorded for the party's rights to be protected.

Installment land

The intent of the Act is to eliminate defects in title that are 30 years or more old along with old claims; however, the act has numerous exceptions and is very complicated. Keep in mind, the mere passage of 30 years or more does not guarantee that a defect has been cured. Which act is this

Marketable Title Act falls under G.S. Chapter 47B.

Unlike other forms of insurance that are paid through period premiums, title insurance is paid through a one-time premium. In North Carolina, these premiums are based on rates that are filed with the Department of Insurance. Factors that affect the rates include:

Property purchase price Any applicable title insurance company discounts Type of coverage

What is the purpose of title insurance?

Protects lenders (and sometimes property owners) against loss due to disputes over ownership of a property and defects in the title not found in the search of the public record. Protects lenders and property owners from claimants not listed in the insurance policy, defects in the public record, and other mistakes. Provides the best protection against unknown future claims. Insures against losses (up to the coverage amount specified in the policy) due to title defects other than those specifically excluded in the policy, although it does not generally cure defects.

The Marketable Title Act is not the only law in North Carolina that affects the marketability of title. Others include:

Statutes of limitation (time limit for initiation of a legal action) Statutes of repose (time limit for damage claims related to real property improvements) Curative statutes (cures certain defects in conveyances) Torrens System of Land Registration (land registration)

Rather than recording entire real estate sales contracts, option contracts, or lease contracts, North Carolina state law permits the recording of a memorandum of the contract, which must include

The parties' names Property description Expiration date of the contract Reference that identifies the parties' agreement

In general terms, title assurance refers to three concepts:

The process used to determine whether a property owner has title Whether the title is marketable Statutes created with the intent of protecting title and enhancing marketability

An action to quiet title, also known as a suit to quiet title, may be required to close any missing links and remove a cloud on the title. This is a

This is a lawsuit filed to determine and resolve problems of instruments conveying a particular piece of land. The purpose of this suit is to clear a particular known claim, title defect, or perceived defect, such as for an adverse possession claim or another conflict.

marketable title, also known as merchantable title.

This is a title that is free and clear from undisclosed encumbrances or other defects that would expose a purchaser to litigation or impede a purchaser's ability to enjoy the property or to later sell the property easily.

________covers past defects in title. By contrast, most other types of insurance cover the risk of a future event. For example, homeowner's insurance covers certain events that may happen in the future to someone's property, such as a house fire. Brokers need to be able to explain this difference to buyer clients.

Title insurance

one way to obtain assurance of good and marketable title: Deed warranties. Other methods are through:

Title insurance, which creates insurable title, the best evidence of marketable title. Title search (title examination) and legal opinion.

A superior court proceeding is required for land to be registered in the

Torrens system - An owner's certificate of title is issued to a successful claimant. For the landowner whose property is registered under the Torrens System, this means his land is considered free from any rights, claims, or encum

A person is considered to have constructive notice of something when it should be known, even if it is not. Since the public records are available for anyone's inspection, everyone is considered to have constructive notice of the contents of recorded documents. The burden of discovery rests with the general public.

True

A public official, such as a notary public, must serve as a legal witness to the grantor's acknowledging signature.

True

Actual notice includes what someone personally saw, heard, read, or observed.

True

Addressing the recording of documents, North Carolina has enacted the Conner Act, also referred to as the North Carolina recording act, which applies to many types of real estate documents, including all deeds.

True

Although there is no legal requirement to record a real estate document, such as a deed, an unrecorded document is likely to be unenforceable against a third party claiming a subsequent right or interest in the property.

True

Arthur gave a deed to his property to Linda, and Linda promptly recorded the deed. Shortly thereafter, Arthur entered into a purchase agreement with Susan for the same property. After the transaction closed, Susan promptly recorded the deed. Nevertheless, Susan does not own any interest in the property. Because the prior deed of gift to Linda was valid and was recorded first, Linda owns the property. This makes the sale to Susan invalid.

True

Seller Bill has driven down to the county register of deeds to record a deed for the property he just sold to Christine. For the deed to be recorded, Bill must pay the excise tax and applicable fees.

True

The purchaser's "interest" in the property is not protected prior to closing unless the residential purchase contract, or a notice of the pending contract, is recorded. Most of the time it is not recorded. However, this may put the purchaser at some risk of losing the "equitable" rights to the property. Because of this risk, a buyer may want to record the contract or record a notice of the pending contract. A real estate broker should never make a recommendation to a buyer about whether or not to record the purchase contract; rather, the buyer should consult with an experienced real estate attorney for advice on this matter.

True

To be clear, the fact that a deed was not recorded does not make the deed invalid. Where this is most commonly seen is in cash purchases when the buyer does not promptly record the instruments of conveyance.

True

Under North Carolina law, no one other than a licensed attorney or paralegal assistant under an attorney's close supervision may perform a title examination. In some other states, a title examination may be performed by title company staff.

True

Earl has just entered into a residential purchase contract to buy Danielle's house on Main Street. For Earl's "equitable interest" in this property to be protected during the purchase escrow period, the purchase contract, or a notice of a pending contract, must be recorded.

True - Most of the time it is not recorded. However, this may put the purchaser at some risk of losing the "equitable" rights to the property. Because of this risk, a buyer may want to record the contract or record a notice of the pending contract

``A title examination of the public records

also known as a title search, is necessary to determine ownership and the quality of the title prior to conveyance. A title searcher will examine both a direct index (also called grantor index), which lists all documents alphabetically by the grantor's last name, and a reverse index (also called grantee index), which lists all documents by grantee's last name, to look for any discrepancies.

inquiry notice

an indication of a claim or other situation that would alert a reasonable person to a possible problem, causing further inquiry about the title. For example, when someone is in possession of land, a buyer is held to have inquiry notice of the possessor's claim, even if the buyer never visited the land, which is why land should not be purchased sight unseen.

Which document indicates the status of the title as of the day it is issued?

certificate of title

abstract of title

chronological history of title to a property, listing all recorded documents that affect the title, as well as all public records searched, or not searched. An abstract of title does not ensure the validity of the title,

chain of title is a

clear and unbroken chronological record of the ownership of a specific piece of property.

A gap or flaw in the chain of title, such as an undisclosed ownership interest, creates uncertainty, which is referred to as a

cloud on the title.

A North Carolina law that addresses the recording of real estate documents, which protects against third-party claims regarding these documents.

conner act

he purpose of recording a deed is to protect property owners and lienholders. This is done through the concept of

constructive notice

many states have statutory provisions that extinguish older title defects, often referred to as

curative statutes and marketable title statutes.

Title is passed once the deed is

delivered and accepted. Title can transfer once a deed meets validation requirements and there has been delivery and acceptance.

The purpose of a title examination is to

determine the status of title for a property being sold or that is being used as security for a loan. This is important because: A buyer must have assurance before a transaction's closing that the property being conveyed by the seller has a marketable title. A lender requires evidence of marketable title when a property is being used as security for a mortgage loan or deed of trust.

Billy died without a will and he left no heirs. His property will revert to the state through the process of

escheat

You find out that the house you grew up in is for sale. The seller tells you that there's a $5,000 lien on the property that he has no interest in paying, but he'll sell you the house with the lien. The title insurance company will treat that lien as a/an

exception - A known defect will be treated as an exception to title insurance coverage.

adds protection for defects that can be known only by survey or visual inspection and unrecorded liens unknown to the buyer.

extended coverage

What system of legal description is a series of imaginary lines that create a grid in relationship to a baseline and principal meridian?

government survey - The rectangular survey system, also called the government survey system, divides an area into an imaginary grid of north-south lines and east-west lines.

The purpose of title insurance is to

guarantee that the title search was accurate; the policy does not, however, guarantee that there are no defects. Defects discovered during the title search and disclosed by the attorney in the title opinion are not included in the title insurance coverage.

Sally died testate. She has no spouse, no children, and no surviving siblings. Who would inherit Sally's estate?

her alma mater, to which she left everything in her will. Sally died testate, which means she left a will. If her will left her estate to her school, Grandma and Uncle Joe are out of luck.

Which type of description is inadequate for describing property in a deed?

house number and street - A street address is not a legal description. A legal description is one that would give a competent surveyor enough information to find the property and stake out its boundary lines.

Once a title insurance company has issued a title insurance policy, the property is considered to have

insurable title

covenant of title in deeds

is another method of title assurance

Owner's Policy. Owner's fee title insurance policies are

issued in the name of the property owner. Coverage runs from the time of purchase for as long as the policyholder owns the property. The coverage equals the property's purchase price and remains at that amount as long as the policyholder (or heirs) retains interest in the property. Coverage extends to title defects that existed before the owner (grantee) acquired title. Although there is no requirement for an owner to obtain title insurance where there is no mortgage loan involved, brokers should recommend that owners obtain this insurance.

affidavit of title

it's proof that the seller owns the property.

The ________ provides security for the lender's interest and protects against title defects and prior liens. There is little or no protection offered to the property owner under a lender's policy, as the property owner is not the party insured under this type of policy. Coverage provided by a lender's policy expires once the mortgage loan is paid in full.

lender's policy

preliminary title opinion

lists any defects that were found. These defects must be resolved either before or during the closing. The attorney's preliminary title opinion, however, does NOT: Provide any type of guarantee as to whether the title is good, as there could be defects that were not discovered from the public records. Examine the validity of the survey.

A title that is free and clear from undisclosed encumbrances or other defects that would expose a purchaser to litigation or impede a purchaser's ability to enjoy the property or to later sell the property.

marketable title

A lender typically requires title insurance to cover the

mortgagee.

Recordation, which takes place in North Carolina at the

office of the county register of deeds, is a simple process when the document to be recorded is properly prepared. When delivering the original instrument to be recorded, the person delivering the instrument must pay the excise tax and applicable fees.

Commonly recorded documents that relate to real estate title include deeds, easements, leases, and plats. Like all documents related to real property, these documents must be recorded at the

office of the register of deeds in the county of the property's location.

certificate of title (also known as an

opinion of title - is a document prepared by an attorney stating the attorney's opinion of the status of the title to a piece of property as of the date it is issued.

In the metes and bounds system, the description always ends at the

point of beginning.

A title insurance policy

protects the property owner against losses resulting from undiscovered title defects and encumbrances on the property.

Of these types of deeds, which would most likely be used to clear a cloud on a title, such as a misspelled name?

quitclaim deed - Quitclaim deeds can be used as deeds of correction or release. Quitclaim deeds convey any interest in real estate a grantor may have at the time the deed is executed

At closing, who signs the new deed?

seller only - The deed that grants property to the buyer is required to be signed only by the seller, also known as the grantor.

Mike bought a property at a foreclosure sale. Which deed is LEAST LIKELY to have been used in the transfer?

special warranty deed

lists all possible clouds or problems with title (e.g., liens, unpaid taxes) and excludes those items from coverage. Title insurance protects against claimants not listed in a policy, including defects in public records (e.g., forged documents, improper deeds, other mistakes).

standard coverage insurance policy

affidavit of title

statement, sworn in front of a notary public or other authorized official, by the seller or grantor of property that identifies the grantor, identifies the grantor's marital status, and certifies that the grantor has no new judgments, liens, divorces, unrecorded deeds, or other potential title defects

gap or flaw in the chain of title

such as an undisclosed ownership interest, creates uncertainty, which is referred to as a cloud on the title. A cloud on the title could be something simple.

Boris dies intestate. To dispose of his estate,

the estate must be probated. Because Boris died without a will, his estate must be probated.

A title search of public records to determine ownership and the quality of the title before conveyance.

title examination

can be standard or extended coverage and can be an owner's policy, mortgagee's policy, leasehold policy, or easement policy. It provides insurable title.

title insurance

Stephan buys a house from Joanne. Several documents show up before and during the settlement process. Which provides the best evidence that Joanne is passing marketable title to Stephan?

title insurance policy