SectionIII

Searchingfteal Estate Titfles and ReviewingT'ittre Records

RichardA. Bailey,Sr. STEWARTTITLE GTJARANITYCOMPANIY 1I 10Montlimar Drive, Suite 620 Mobile,Alabama 366A9 (334)342-0026 SEARCHING TTTLES AND REVIEWING RECORDS

I. the Search - Finding the proper court may be the initial step beginninga title search.

A. The ProbateJudge - is chargedby stafute, with "chain maintaining the recordsthat form the of title". Sec. 12-13-4I

1. Code of Alabama,1975 -Sub-paragraph (11) It shall be the duty of the ProbateJudge to keep large and well bound books for the registrationof deedsof conveyanceand other and separatebooks of like characterfor the registrationof mortgagesand other instruments to securethe paymentof debts. 2. Sub-paragraph(LZ)provides that the Probate Judgeis to keep a large and well boundbook for the registrationof of judgments and decrees,with direct and reverseindexes thereto.

B. Section12-13-43 Code of Alabama(1975) - mandates the maintenanceof generaldirect and reverseindexes of instrumentsfiled for record and the iiability of the ProbateJudge for failure to provide "The same: ProbateJudge of eachcounty in this stateshall keep in his office four well-boundbooks of suitablesize and grade of paper in which to make a generaldirect and a generalreverse index of each instrument filed for record in his office....and of saidbooks shallbe used for conveyanceof ... . Immediatelyon receiptof any instrument to be recorded...andafter recordingthe instrument,the books andpage in which the record is rnadeshall be notedopposite each name thus placed in such generaldirect and in suchgeneral reverse indexes.

c. Grantee- Grantor- The searchnow acfuallybegins by searchingthe name of the current owner in the reverseindex until that owners name is found, (as the granteein the instrument). The recorded document will reveal the grantorsname which is then searchedin the direct index to the current date. A method employedby some abstractors is to check the tax assessorsoffice for the current owners tax assessment which may give you the recording referenceto the current owners deed which provide a point of referencein the title search.

III-1 searching the various probatecourts records in different counties may prove to be an exercise in determiningthe organizationof a particular courthouse- This is due to the fact that some courthousesrnay index all documentsin either l the direct or reverseindices, while oth".* may maintain separateindices for deeds,rnortgages, judgments, tax liens or ]is pendens' If in doubt inquire as to the organizationof This may the records. be particurarrytrue if the ,ecordsur" automated.

D ' - sornemodern courthouseshave computerizedindexing. while the methodof searchingrernains basically the same the processis enhanced due to speedand accuracy. rn some courthouses,a small excerptof the legal descriptionmay be included in the entry whether manual or automated.

E. _ is that absolute accuracyis not required in spellingnarnes in a legal docurnentprovided that the name when pronounced soundsalmost identical with the name as commonly correct pronounced. Thus the name given is identificarion sufficientfor of the individual (examplesmith "rT;;rG: glaqks_lare . sophisticatedcornputer systems have compensated-forthis by incorporating"Souirdex" type systemswhich produce on the screenall naffieswhich soundor are similar to the individual that you are attemptingto identify.

F'. - Title'Plants can eitherbe rnanualor automated are ideally duplicates and of the recordsthat are rnaintainedin the probate court records' Title plants are usuallycreated by title companiesand/or their agentsfor in-houseuse of the records. Th; convenienceof using the records after regular businesshours and the geographicalconstruction of the plants index makesit a formidable tool in-u highly competitivetitle insurancemarket. The downside of title plantsis that they are expensive and' of cour::'- not properly 1f constructedand rnaintainedcan cause unnecessaryliabiliry to the title company,it's agentsand insureds. tl: _ _^ the goal of rhe tirle insurancecommirment, ]:'"",iy: :lt:r:} l*t: g*;;;;ffi;::ni;",1"'or tirre reporr. A tirle constructivenrttto*rrrr.*irto notice-^+'1 ^^ of-f theirrr contents,

II]-2 A. search Period - Finding the namesof all the past owners and holders of interestin title shouldbe for a sufficient period of time that the examinermay be reasonablycertain that no other interests exist. A period of sixty (60) years may be sufficient in some jurisdictions while in others it may be necessaryto go back to the patent from the government. The time of searchmay be dictatedby the transaction involved. A large or complex transactionmay *uriurrt going back to the patent. The compilationof the namesof "Chain the owners is known as the of Title",

B. _ In a few jurisdictions, most notably JeffersonCounty, there exists two separatedivisions of the sarnecourthouse - JeffersonDivision and the BessemerDivision. Filing a documentin the wrong division can be a trap for the unwary as the wrongfully recordeddocument does not impart "race-notice" constructivenotice under Alabamas type of stafute,Code of AlabamaSections 35- 4-51, to 35-4-63.

c. Title Abstract- is a compilationof a[ of the instrumentsaffecting the title to property that are locateclor recordedin the various records. The Abstractormay enumeratethe recordswhich have been searchedor there is a statementlimiting the abstractors certificatewith noticethat certainrecords have not been searched,Evans,

D. AttorneysTitle ooinion - is the opinion of a qualified trained and licensedattorney as to the stateof the title to a given property,Evans 15-10.

E. - The title insurancepolicy is a contract of indemnily between the lSSUmg rnsurer and the insured. Alabama Code (1975) Section Z1.-S-rcprovides:

Title insuranceis insuranceof owners of properry or othershaving an interesttherein or or encumbrancesthereon againstloss or encumbrance, defectivetitle, or invalidiry or adverseclaims to title.

Title insurers are not allowed to give opinions as to the stateof the title, and the examinationof the public recotdr. The preparationof a

II I_3 commitment to insure and the issuanceof the policy do not constitutethe practiceof law, Land Ti m AI 292 Ala. 691,2992d289 (.1974).

m. The Title Examination: - Reviewing Title Records

A- Title Examinationstandards - In somestates the Bar "Title .Associationshave drgfted ExaminationSfandards" which outline the standardrules and proceduresgoverning the examinationof real estate recordsand transactions,Stewart Virtual Underwriter Section19.8. However, in AlabamaI am unawareof any such standards.

B. Deeds - all deedsexcept quitclaim deedscontain warranty covenantsconcerning title to the property. If no covenantis expressedit is implied by statuteAla. Code Section25-4-27L.

1. WarrantyDeed - covenants against encumbrances, of seisin(legal title to property), right to convey, warranty, and quiet enjoyment.

2. statutorywarranty Deeds - the grantor makesa covenantagainst encumbrances, of seizenand a covenantof quiet enjoymentbut he does not warrant againstany defectsor encumbrances createdby predecessorsin title, Mackintoshv. Stewart61 So.956 (1e13) . 3. ouit claim Deed- operatesas a mere releaseof any interestthat the grantor has in the real estate,if any. A granteecan never be a bona fide purchaserwithout notice of defectsas the quit claim deedimparts notice i.e. a red flag in title examination. Unrecorded conveyances'encumbrances or other claims againsthis title are valid againsthis interestregardless of noticeor value paid, AlabamaHome Mortgageco., Inc. ,r. Ha.ris 582 so2d 1080(Ala.1991).

C. Deedsof Trust andMortgages - Securiryinterest in land as collateral. May be assigned,satisfied, or foreclosed.

E. caBasily - any personover the age of 19, not under a legal incapacifymay conveyhis or her lands,Ala. Code Section35-4-L.

I II-4 F- Marital Starus - No deed, contract or other conveyance of land or any interest therein...shall be acceptedfor record by the Probate Judge unless it contains a recitatioo of the marital status of an individual grantor, provided, that this section shall apply only to instruments executed subsequentto July 21, Igl2, Atibama bode Section 35-4-73 (1) I97 5. This requirement of the voluntary signature of the spouse who does not hold title to the homestead to prevent the other spouse from secretly disposing of the homestead. Evans pg. 56.

G. Mental Capacifv- where a grantors mental shte is so insufficient that he doesnot understandthe nature of the businessof which he is aboutto undertake,Hall v. grifton 216 (.1927). :S

- H- writing Alabamacode section 35-4-20 requiresthe conveyanceto be in writing to be valid. An instrumentmay bL signedby affixing a mark and witnessedby two witnessesexcept wheie acknowledgedthe witnessesmay be dispensed.

I. Legal DescriuLions- generallythe legal description must be sufficientto impart notice to third partiesthat the parcel of land is the subjectof the conveyance.

J. Delivery - a deedis operativeuntil it is deliveredeven though it is executedproperly. The partiesmust expressa clear intent to part with possessionof the documentand to acceptit on the grantees behalf.

K. Consideration- the requirernentto recite the considerationin a deedor otherconveyancewas eliminatedin Lg71by Alabama Code Section35-4-34.

L- Attestationand Acknowledgement- the acts necessary for an instrument to be valid include execution,delivery and attestation by witnesses(Ala Code Sec. 35-4-20)or an acknowledgmentbefore an authorizedofficer. AlabamaCode Section 35-4-29(Ig1, set our rhe forms of acknowledgementsrequired. Alabama Code Section 35-4-24 provides for the taking of acknowledgmentsbeyond the limits of any court of record, mayorsor chief magistrates,diplomats, chief counselors)- The acknowledgementoperates as proof of the executioners

III-5 e of execution,

fV. Duty to Searchand Dufy to Disclose speci n c a,,v'fi o*m,'{.!*l*tii title insurancepolicy. :Hi[,ff iifo"l-every j ud g m en r tha' he re ffi . held, on a motion for srrrarrllqr-.rro stafute, ffi n"iil .l l"i H: :i lff.;;ry' impart constructivevs uuLrc;onotice orof melrtheir contents,conferrfc andrnrr tor.. disclose,ri^^r^^^ exceptionto coverage,the results as an of the search. This caseinvolved recordedtimber deedthat a was missedin the title agentssearch.

rrerns. cJ'*offi;1 oZd L352, parker the "ur. i* ;il1,JH"1J"' ;s; p,luio*daporicy insurance;"1'ff1J1*rt:t:l):,,!:*T,onwearrh'tothe soitoltos. rhe p"ri'vT;ffi.5';J;:Hr: orrirre lack of access illTl-::fll:" to and from their iand.-It Soutollos was discoveredthat the lot was actuallyland locked ingress .undthey had no legal meansof and egresswith a fifty foot strip of taio lying betweentheir and the pubric road. withi" rot t"n ;;" of the notice of clairn cornmonwealthsecured an easementthat provided Soutollos soutollos brought access. an action in tort, seekingcompensatory damagesfor commonwealths and punitive failure to discloseirrut the property Iandlocke'd' They also alleged was that cornmonwealth,sactions prevented thatthe lot wassmauer rhan represenred ffnlil,T #::lering byrhe

The trial court entereda summaryjudgrnent for however' the Alabama commonwealth,. suprem" court reversedthe Alabamasupreme triar court. The court held that the curative precluded stepscommonwealth took a recovery from an actionon curative the contract,however, those mattersdid not preclude an action the in tort. The court noted that accessproblem was clearly known or shouldhave been k ro*o by examinationof the recordedpiat an *J that commonwearthspecificaty undertookto insure againstthe "lack of access,,.Thus, an actionin negligenceagainst a companywas affirmed. The court

I]I_6 discussedljnton v. Ti 46.9So2d548where the Alabama Supreme Court held that a title insurance company was liable for searching those records recorded in the office of the judge of probate which impart constructive notice of matters relating to land, (see also Code of Alabama Sections35-4-51 and 35-4- 63).

Thus, Alabamais now among thirteen other statesthat have recognizedthat a title insurancecompany can be held liable in tort for a negligentsearch. Negligence is an appropriatecause of action for any worlc resulting in the issuanceof a title insurancepolicy by an insurer undertakingto use the land title records and subsequentlydoing so incornpetently,"Burke Law of Title Insurance,Section 15.2.2.

The law on this issueis still cleveloping.The majority have taken the position that a title companywill conducta reasonabletitle examinationand that the relationshipbetween the title company and the insuredis contractual.Walker Rogge.562 A.2d, 220 N.J.

AIso In I{oustonTitle Co. v. Ozedade Toca.733 S.W. 2d 325G9Bl), the TexasSupreme Court held that a title insurancecornpany is not, (as an abstractcompany), ernployed to examinetitle; rather, the title companyis employedto guaranteethe statusof title and to insure zlgainstexisting defects. The relationshipbetween the insurer and insured is that of indemnitorand indemnitee.

V. SpecialIssues in ExaminingTitle

A. StateTax Liens - are governedby the Tax Enforcementand ComplianceAct, AlabarnaCode Section40-29-(L97 5) "TECA". known as Tax Enforcernentand Compliance- Any personwho fails to pay any (state)tax, other than properfy taxesis subject to a lien being filed in favor of the Stateof Alabamaagainst all real and personal properly. The lien rnustbe filed in the which any real property of the taxpayeris locatedsee Alabarna Code 40-29-II9 (1975)for stafuteof - limitations l0 years 30 days generally. I

B. FederalTax Liens - title 26, U.S.C.A. section 632I et. seg. contains the law governing federal tax liens. Any person who fails or refuses to pay the tax after demand together with all costs shall be

II I_7 subject to a lien in favor of the united states. Generally,-in federal tax liens attach to all properfy of the taxpayerand are unlimited scope. The most common liens arisedue to Anure to pay incometaxes, withholding taxes and social securily taxes. on November30, 1gg0, the onibus ReconciliationBudget Act of 19990fixed the durationof Federaltax liens at ten (10) years and thirty (30) days unlessrefiled for an additional ten years and thirty days.

c. Ad valorem Taxes- the abstractoror titre searcher will by necessityhave to searchthe records in the office of the tax collector and tax assessorto determinewhether property taxes have been properly assessed,paid, or sold to the state. The assessmentrecords be a good way may to commencea title searchsince they can provide evidenceof strangersto the title anddeed references to current owners. SeeAlabama Code 40-7-25.Land 40-7-25.2(Lgis) as to changes current use in which can createan unexpectedincrease in ad some valorem taxes. title companiesmake exceptionsas to thesechanges. D. - liens that arise due

Utv\Ir. r_inesenj.ov priorirv LIL/IJ III ln?.lr'oo*::^.":lll::! overue.ord-dinteresrs, Evans tsduJs r';;;ir.* *ffi;; recordation,hence, a searcher shouldconsult the proper district to determinewhether there are outstandingassessments.

E. - ns generally those who

n+nC^^/-^-t A 1 't a orl-J^"rilrr;; section35-1 L-215 (lgls) f""J]:t"^l' llubu.Ta lode declaresrhatr.rd.L ad tienIrgfl isls statementof l:llll*::::.:fied lien is filed by everyoriginat contracror

.^n+^^.^ ' ;;ffififi;"#H; F\/Fr\t nfLo- person^within*--trt a :^Tlf ,:th:. four months,after the lasll,"*^.r ffi; u"1'*uteriar turnished for buldins or improvement*t^":::::::il:lfor-ed---oton the properfy.

Thus the Alabama Code establishesa systemof constmctivenotice for mechanicslienors by "Verified filing a Staternent,,of lien in the Probatecourt' The lien may ,,perfect,, be enforcedby filing suit to the Iien, Alabama code Section gzsi. 35-11-210(1 However, the stafuteof limitations may not begin to run for an extendedperiod of time after

III_B completion of construction. An action to perfect the lien was considered timely filed approximatelyone year after the last contribution by the clairnant, (due to a verbal rnodificationof the constructioncontract to pay the supplier on the date of sale of the properly which occurred a year after the indebtednesswas due). The lessonhere is that M/M liens demandinquiry even if they appearto be stale on their face, Starekv. TKW, Inc., 410 So 2d.35(Ala1982).

Title companiesface an additionalburden as they routinely insure "unfiled" against mechanicsliens which can gain priority over other liens such as the lien of the insured mortgage. The M/M lien is said to attach and be createdat the initial time of contributionof labor or material (relationback theory). The prioriry problem is compoundedby modern constructionloan to permanentfinancing. Title Companiesrely on "insure lienwaiversand indemnibyagreements to over" the unfiled M/M liens. Evans, pU533.

F. UCC - 1 Financing Statements- Alabama Code Section 7-9-403 (.1975)sets out the UCC filing and priority requlrements summarizedbelow:

1. Effective for 5 years from the date of filing ) If a utility is the securedparty it is effective until a terminationstatement is filed. 3. Mobile homesthat are subjectto a financing statementare not terminateduntil a termination statementis filed unlessotherwise stated. 4. Mortgagesfiled as fixture filings are effective until the mortgageis releasedor satisfiedof record or it otherwiseterminated as to the real property.

The title examiner should be aware of the above exceptions to the five (5) year rule.

G. FederalJudgments Liens - Federallaw was amended May 29, L99Lunder the trederalDebt collectProcedures Act of 1990 to extend a judgment in favor of the U.S. for the longer of the period allowed by state law or 20 years whichever is longer. This rule applies to U.S. judgmentsrendered on or after May 29, 1981. The U.S.

TII_9 judgment may edoy prioriry over a purchasemoney rnortgageand should exceptedto !3 in loan policies insuringpurchase money rnortgages. Hence, a searchshould be run on the real property from Wuf 29,1981, on both purchasersand sellers.

H._ becameeffective January 1, 1990. AlabamaCode Section35-11- 43(L975)provides that any federallien including federaltax liens to be indexed in the Uniform CommercialCode ruCa) records in the Office of Judge of Frobateand to be cross-indexedin the real estatemortgage records. Environmentalliens (super-liens)fall under this act.

I. AlabamaJudicial Liens - the renderingof a judgment by a court of competentjurisdiction does not createa lien againstthe property of the debtor. A creditor must take the stepsof obtaining a certificateof judgment, in the prescribedforrn and have it recordedin the Office of the ProbateJudge, Alabama Code Section 6-9-2Il. The proper form of the certificateis recitedin Bull u, Vogrnr., 362 So.2d. 894(ALA (1978) which held that to createa blanketlien on all prop".ty of the debtor the strict requirementsof AlabarnaCode Sections 6-9--210and 2II must be observedby the judgment creditor.

J. Bankruptcy- a searchshould be made to determine whether any party has filed for relief under the bankruptcy code. There are five types of proceedingsthat can be fiIed under the tiankruptcy Reform Act of 1978which appliesto all caseson or after October 1, I9lB. It is importantto note that not all liens are dischargedon an order of dischargeeven if they are listedon the petition for relief. The lien may require a motion for avoidanceof the lien or sale free and clear before the lien ceasesto be a lien on the debtorsproperty.

K. Items to be Considered

- 1. Access Is there legal accessto and from the properfy? 2. Boundary Overlaps- encroachments-doabutting ownersrecord deed description overlap or does your deed descriptionencroach onto the abutters properfy?

III-10 3. Have boundariesbeen establishedby Boundary Line Agreements?Is one needed? 4. Are there cemeteriesor bodiesburied within the properry limits? 5. Are any areasdedicated as a parlc or marked for specialpurposes such as school, church, or resort area? 5. Is the legal descriptiondefective - does it close*makeany sense? 7 . trublic or private roads acrossthe property? B. Is there a railroad right of way acrossthe properfy? 9. Water Rights? 10. Vacatedstreets, roads or alleys? 11. Violationsof building set-backlines? L2. Fenceline encroachments? 13. Survey examinedfor encroachments,overhps, fences,possessory interests?

L. DecedentsEstates - searchersmay find gaps in the where a chain appearsto end beforepicking up with one who does not appearto be in the chain. The granteesrnay be the subject of a decedentsestate or administration. The decedentsprobate file should be examinedto deterrninewhether Letters of Administrationor Testamentaryhave beenissued, whether the PersonalRepresentative has the authoriry to act and if claims have been filed within the stafutory claims period. Of specialinterest is that it can not be assumedthat if no claims are filed from six rnonthsafter letters testamentaryare grantedthat they are not timely filed. AlabarnaCode Section43-2-350(1975) "any provides that creditorentitled to actualnotice as prescribedin 43-2- 6L must be allowed 30 days after notice within which to present the claim."

M. The StatutoryRight of Redemotion- foreclosuresales and executionsales invoke the right of redemption. The right to redeem is an absoluteright given to the debtor by the statutein order to allow the debtor-mortgagorand other time to refinanceand retain the property, AlabamaCode 5-5-248G975).

At least fwenty four stateshave statutesproviding for

III_11 redemption after a sale and nineteen have no stafutory redemption at all- The statutescreate a scheme or chain if you will of persons entitled to redeem, the first being borrower-debtor, (the term debtor includes a surefy and guarantors). Moreover, the list of those entitled to redeem include the respective spousesof all debtors, mortgagors' and transferees of any interests of the mortgagors, children, heirs or devises of any mortgagors can redeern. Junior L[rtgugees judgment and creditors are included in the list of redemptioners.

The sumsnecessary to redeerninclude permanent improvements, taxes, insurancepremiuffis, "lawful and other charges,Alabama code Section6-5-253(197$.

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