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Warranties of : by vs. the Connor Act by W. A. Foley, III, VP-Title Attorney Click here for Drew’s Bio [email protected] The general warranty of title. This prevent a grantor, who commonly used to transfer title of warranty indemnifies the warranted good title, from in residential real grantee that the grantor has title asserting an across his transactions contains covenants to the real conveyed, previous conveyance, even when and warranties of title that that there are no outstanding the title came from a third party. protect the purchaser. These interests existing at the time of The courts have gone a step covenants and warranties the conveyance, and that the further and expanded the preceded the enactment of grantor will defend the title of application of estoppel in North statutes and were the the grantee against all valid Carolina. The doctrine was used first form of claims in the future. to prevent a grantor under a protection or “The doctrine of Thus, the covenant is a non-warranty deed from warranty of title. estoppel by deed promise, an assurance, asserting a better title against a The advent of originates in the and an indemnification. grantee when the deed on its recording covenant of The covenant of warranty, face intended to convey the statutes, like the however, will also cause an entire estate or fee. The court Connor Act, warranty of title.” estoppel if the grantor found that the effect of the deed gave a purchaser ever asserts superior title was legally binding upon the the ability to rely on the public over his grantee. For instance: grantor and those claiming record for an additional the grantor conveys by under him, not a mere release of assurance of title. The warranty deed, without benefit interest, and thus logic dictated warranties of title and the of title, the grantor later receives estoppel. Where a conveyance recording act usually work title, the grantor is prevented or is made by a quit claim deed, together to protect the estopped from asserting a better (Continued on page 2) purchaser — sometimes, title against the grantee. In This Issue: however, their synergy creates a The covenant by estoppel is Warranties of Title... 1-3 conflict. The common deemed to vest the after NC Fun Facts doctrine of estoppel by deed and acquired title received by the 2 the dictates of the Connor Act, grantor in the previous grantee: The Importance of Choosing a 3 which is deemed to create a “His after acquired title is said Qualified Intermediary Carefully “pure race” to the courthouse, to ‘feed the estoppel’ and by Claims Corner: But My Lender 4 can give rise to such a conflict. Said I Didn’t Need a Survey! operation of law the title vest eo The doctrine of estoppel by deed instante in the grantee…” Meet Our Title Attorneys 5 originates in the covenant of The doctrine has been used to Investors Trust Company: 5 Mitchell v. Brewer 1

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Warranties of Title... (cont. from page 1)

when it is a mere release of registration. The policy set forth recording documents so that a interest, the estoppel will not by these decisions is that hasty run to get documents on operate; however, an prospective purchasers and record does not inadvertently expectation of title by the creditors must be able to rely on defeat the intent of the parties grantee might give rise to such a the public records. Simply put, when documents are recorded conclusion. allowing the doctrine of estoppel out of order, exposing the lender The doctrine of to operate as against the to intervening . estoppel in “This necessary… North Carolina interest of third The North Carolina Legislature, is effective conclusion is the result party in 1969, made after acquired between the of application of the purchasers for property clauses in of grantor and value would trusts and mortgages ineffective require all grantee, but recording statute…” as to lien creditors and does not prospective purchasers to search outside the purchasers, unless the operate to estop third parties instrument is re-registered, or who are bona-fide purchasers chain of title, and, as a registered after the for value. This necessary, and result, change the sometimes unfortunate, nature and intent of “...prospective additional property conclusion is the result of the the Conner Act. purchasers and lien is acquired by the application of the recording purchaser. statute, the Conner Act, in Although estoppel creditors must be is effective between The legislature’s conjunction with statutory able to rely on the intent to uphold the the grantor and recording and indexing public records.” race requirement requirements. grantee in a even in situations The North Carolina Supreme warranty deed, or where the intent of the Court has held on numerous between the mortgagor and document was to secure all occasions that prospective mortgagee, it will not operate to property and all property purchasers must be able to rely defeat lien creditors, judgment acquired thereafter, is on the public records. The courts holders, deeds of trust, or bona- dispositive and important to have reasonably limited the duty fide purchasers for value who keep in mind. The courts have to search only to the chain of have properly recorded their yet to hold that a deed of trust title of the subject property, and conveyance or lien. Practitioners intending to convey presently registration outside the chain of should be careful when (Continued on page 3) title has the same effect as no

Marine Corps Air Station Cherry Point or MCAS Cherry Point is a United States Marine Corps airfield located in Havelock, North Carolina, USA, in the eastern part of the state and is the largest air base in the Marine Corps. It was built in 1941, was commissioned in 1942, and is currently home to the 2nd Marine Aircraft Wing. Congress authorized Marine Corps Air Station Cherry Point on July 9, 1941, with an initial appropriation of $14,990,000 for construction and clearing of an 8,000 acre (32 km²) tract of swamps, farms, and timberland. Actual clearing of the site began on August 6, 1941, with extensive drainage and malaria control work. Construction began in November just 17 days before the attack on Pearl Harbor.

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The Importance of Choosing a Qualified Intermediary Carefully by Anna Gregory Wagoner, Title and Regulatory Attorney/Exchange Counsel [email protected] The recent federal indictment of a North Carolina man who provided qualified intermediary services is yet another reminder of the importance of choosing a qualified intermediary carefully. This individual was indicted for fraud, for a Ponzi scheme involving both his asset management company and his 1031 exchange services. Unfortunately, this type of dishonest dealings with 1031 funds is not new. When one person owns the qualified intermediary company, and has all the control over the money being held, a disaster is waiting to happen. This indictment is another illustration of the imprudence of having a sole practitioner CPA or attorney serve as qualified intermediary. An institutional qualified intermediary can provide safeguards that an individual qualified intermediary cannot; such as a carefully constructed disbursement control system, with multiple parties necessary to approve any disbursement; external and internal audits; daily and monthly reconciliations; segregation of client funds from operating funds; and the option to use a qualified trust as an additional safeguard, among others. Investors Title Exchange Corporation has implemented all of the safeguards listed above and is available to assist you with your 1031 exchange transaction.

Warranties of Title... (cont. from page 2)

held property will operate to third party purchase money race over warranty makes the secure after acquired title deed of trust was recorded practitioner’s burden much easier against third party before the owner/grantor when this mandate for due purchasers or lien creditors became vested with title. A recordation in the chain of title is when the instrument is not construction loan was placed on understood. Modern and easily re-recorded in the chain of record after the deed with accessible records allow for an title prior to the third party knowledge that third party effective search of title to real purchaser or lien creditor purchase money loan was on property, making promises easier to acquiring an interest. record, but not in the chain of keep and lessening the need for title. The court refused to apply estoppel. The doctrine of estoppel Recording errors can become estoppel in favor of the third will continue to protect purchasers major problems. Even though estoppel is an party purchase money deed of from the grantor, but will not protect trust. The court held that “ . . . purchasers who do not make equitable doctrine, the courts due recordation in the chain of judicious use of North Carolina’s sparingly apply it, even when title must remain the only recording statute. the party recording his deed or deed of trust has actual effective means of protecting title.” notice of the previous conveyance. In one case, a The legislative preference for

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worth more than the outstanding policy survey exception, in the indebtedness and policy following instances when an coverage, so there was no accurate survey would have resulting loss to the lender. In shown the defect: today’s economy, with property values declining and high  The land does not contain as But My Lender Said I Didn’t foreclosure rates, title insurance many acres as purported Need a Survey! companies are frequently  Deed overlaps and resulting boundary disputes By Carol Hayden, Claims Counsel covering lenders’ losses they  Rights of others to use roads or Why have lenders been afforded might not have expected to cover visit cemeteries on the subject survey coverage without a survey in the past. Let’s say that today property while owners typically need a the same property’s value has  Encroachments of improvements located on the insured property new or recent survey to obtain declined from $200,000 to $170,000, the homeowner has onto neighboring property or onto survey coverage? Most title insurers will give survey coverage walked away from an  Encroachments of improvements to lenders, without a current upside-down loan, and the lender located on neighboring property survey, as long as there is forecloses. The same deed onto the insured property that the property had overlap has now been discovered,  Setback violations  Visible unrecorded easements, been surveyed by a Registered reducing the property value to $160,000. The current loan such as utility lines crossing the Land Surveyor at any time in the property chain of title. This practice indebtedness is $178,000, so the  Title to filled in land, being developed due to practical and $10,000 diminution in value may claimed back by the State business risk considerations, as be covered under the lender’s well as lenders’ widespread policy. Although the title insurance requests for waiver of the survey Owners, on the other hand, have policy would have taken requirement. When this industry not been offered survey coverage exception to these specific practice developed about a without a survey. Typically, a title matters disclosed on a survey, decade ago, a lender’s interest in defect that would have been the purchaser would clearly the collateral might have typically shown on an accurate survey have had the advantage of been 80-90% of the value of the would cause a loss to an owner knowing exactly what they property, and property prices where it might not cause a loss on were buying. The purchaser were expected to rise. From an a lender’s policy. Many owners might have required the seller insurance risk perspective, it was are very surprised when their to resolve these matters, either less likely that a resulting matter claim is denied due to a survey monetarily, or curatively, prior affecting title would cause a loss exception in their title insurance to purchase, had the purchaser under the lender’s policy. The policy. Their typical response is, been aware of the defects. On lender’s claim would be ripe only “But, my lender said I didn’t need the other hand, if the surveyor when they suffered a loss upon a survey!”, which actually made an error and one of these acquiring the property in translates that the lender did not matters is later discovered, by foreclosure, a less common require the owners to get a virtue of having survey occurrence previously than it is survey in order to close the loan. coverage, an owner may be today. For example, if a deed More troubling is the response, covered. The age-old saying, overlap is present that would “But, my attorney said I “Caveat emptor” still applies have been shown on an accurate didn’t need a survey!” If an today. Make sure your client survey, it might reduce the value owner chooses not to purchase a knows the risks and of a property from $200,000 to survey, they should always be understands the policy $190,000. If the loan coverage apprised of the risk they are exception, if they choose not to was $180,000, the lender will not taking. get a survey. suffer a loss due to the title Owners’ title insurance claims defect, resulting in no claim have been denied, due to the payment. The collateral was still 4

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David A. Bennington Senior Vice President—Senior Title Attorney [email protected] David was born in Salem, Ohio and is a graduate of Culver Military Academy. He attended the University of North Carolina at Chapel Hill as a Morehead Scholar where he received a Bachelor of Arts in English with honors and was a member of Phi Beta Kappa. After a tour of duty as an officer in the U.S. Navy, David returned to UNC and earned his Juris Doctor in 1978. As a partner in a Hendersonville, North Carolina law firm, David focused on and probate matters. He joined Investors Title Insurance Company in 1986. David is the author of supplements to North Carolina Real Estate Title Searches by Lilona and Gregory Schiro, and has been a seminar speaker on matters for Wake Forest University, The Mortgage Bankers Association of the Carolinas, and the North Carolina Paralegal Association. He is a past president of the North Carolina Land Title Association and a board-certified specialist in Real (residential transactions).

dissolution or withdrawal.” As provided by state law, the Chief Justice Personal service and of the North Carolina Supreme Court individual attention certified the litigation as a complex delivered the old fashioned business case, and assigned it to the way. business court. The many issues were even more complicated because, even though the firm was organized as a Customized portfolios professional limited liability company (PLLC), it had no operating agreement constructed with individually and, at different times, “seem[ed] to managed stocks and bonds, treat their business as a partnership for agency accounts, IRAs, and at other times as a PLLC….” The and trusts. Mitchell v. Brewer business court issued its opinion in March 2009, when it both granted and In a case that even the court describes denied a number of partial summary Over 200 years of combined as representing the principal of a judgments to each party, and then experience from trusted “‘cobbler’s children [having] no certified the case for appeal under Rule shoes,’” the North Carolina Court of 54(b). In a 38-page decision that investment and trust Appeals has ruled that a law firm that addressed matters ranging from which professionals who will work is dissolving may still file suit against party had standing to whether the with you and your clients. other members of the firm. The case failure to verify a complaint was a developed when a dispute arose at a jurisdictional issue, the appellate court partnership meeting in June 2005 both affirmed and reversed a number about how to divide firm profits. The of the business court’s decisions. It meeting concluded when a member of then ordered the case remanded to the firm, Glenn Adams, announced, that court for additional proceedings For more information, “‘I’m out of here…out of the firm.’” on allegations of, inter alia, breaching contact Ben Foreman Several of the other attorneys in the fiduciary duties, conversion, unjust at 877.327.9110 or firm followed Adams, and extensive enrichment and derivative claims. [email protected] litigation addressing various legal --Mitchell v. Brewer, No. COA09-1020, N.C. Ct. issues ensued, all of which, the App. 2/1/11 appellate court observed, “stand or fall The above article is for information purposes based [on]….whether this is a case of only and does not constitute legal advice. 5

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