July, 2010 browsing by month


Last Wishes

Sunday, July 18th, 2010

A transfer on death deed:  What a difference a day makes.

UNIONTOWN, OH–Charles Morris was dying.

Diagnosed with colon cancer in 2004, his condition worsened until, in the summer of 2006, the end was near.

Charles' house: A dying wish would be tested in court

So Charles sat with a lawyer to draw up a will.  He wanted his house and two cats to go to his ex-wife, Michelle;

his computer and camera equipment to Thomas Hall; and the remainder of his possessions to his nephew, Joseph Mattia.

Because gifts made by a will must go through probate, which could tie up the real property for months, the lawyer suggested Charles sign a transfer on death deed, so that upon his death the house would immediately pass to Michelle outside of probate, without court supervision.

The transfer on death (“TOD”) deed is new.  It’s an alternative to the trust, or joint tenancy with right of survivorship, as a means to transfer a decedent’s real property without necessity of probate.  Ohio’s statute approving the TOD form became effective in 2002.

On August 25, 2006, Charles executed his Last Will and Testament, along with a TOD deed naming Michelle as the transfer on death beneficiary.  It appears the TOD was left with the lawyer for recording.

Days later, on August 30, Charles died.  The next day, August 31, the TOD was recorded with the Recorder Division of the Summit County Fiscal Office.

Soon Charles’ will was filed in court and admitted to probate.  Thomas Hall was appointed executor of the estate.

As instructed by the lawyer, Michelle recorded an affidavit of transfer on death, stating she was the sole surviving beneficiary under the TOD, along with a certified copy of Charles’ death certificate.

Then things got contentious.

Joseph Mattia, the nephew entitled to the remainder (“residue”) of the estate under Charles’ will, filed suit for a judgment that the TOD was invalid, because the deed was not recorded while Charles was living.  Such a judgment would cause the house to be included in the probate proceedings where, as part of the “residue” of the estate, it could be inherited by Joseph.  This leaves Michelle with just the two cats.

Joseph argued for a literal reading of the Ohio statute (Revised Code section 5302.22).  The statute says that a TOD deed must be executed and recorded for the beneficiary to have rights to the property.  So, the argument goes, a deed recorded after the grantor’s death is ineffective.

Michelle countered that the statute should not be so narrowly construed.  She pointed out a grantee can’t control when a deed, filed for record, will be officially “recorded.”  She also invoked the familiar rule that a deed is effective, as between the grantor and grantee, when it is executed and delivered (i.e., entrusted to a third party for recording).

The trial court ruled in favor of Joseph, and the decision was upheld by the Court of Appeals.

Summit County courthouse at Akron, Ohio

The courts relied on language of the statute, which states that a property owner “may create an interest in the real property transferable on death by executing and recording a deed as provided in this section….”  Citing an earlier Ohio case in which the literal interpretation was followed, the appeals court reasoned that a TOD deed may be later revoked by a grantor, so the recording requirement protects the grantor’s true “last wishes.”

Moral:  As of this writing, the TOD deed has been approved by legislatures in more than a dozen states and is under review in the rest.  It may become commonplace.  As with anything new, there may be pitfalls.  When relying on the TOD deed you should get legal advice, follow your state statute, and be mindful of local recording practices.

Such is the power of wishes.

The (unpublished) case is reported as Mattia v. Hall, 2008 WL 186650 (Ohio App. 9 Dist.)

You Be the Judge

Sunday, July 11th, 2010

The case of the misfit mortgage.

BESSEMER, AL–Davis & Associates, LLC,  was the owner of two lots in Jefferson County, Alabama.

Davis & Associates borrowed $43,000 from Frank Bynum, giving Bynum a mortgage against the lots.  The mortgage identified the borrower as “Davis Associates, LLC.”  The mortgage was recorded in the land records maintained by the Jefferson County Probate Office.

Later, Davis & Associates conveyed the lots to TMS Properties and, a few months after that, TMS Properties conveyed the lots to Angel Barker.  Ms. Barker purchased the lots with a loan secured by a mortgage held by GMAC Mortgage.

Meanwhile, Davis & Associates failed to repay the loan from Bynum, and Bynum threatened foreclosure.

But Barker and GMAC said they didn’t know about the Bynum mortgage.  So Barker and GMAC filed suit for a judicial declaration that they were bona fide purchasers of the lots, without notice of the Bynum mortgage, and not subject to it.

In court, Barker and GMAC said the incorrect name on the Bynum mortgage (“Davis Associates” rather than “Davis & Associates”) caused the mortgage to be mis-indexed in county land records.

As provided by Alabama statutes, the land records consist of a grantor-grantee index, containing names listed alphabetically, maintained by the county probate office.  In 1984, the Jefferson County Probate Office converted its paper index books to a computer database.  Expert witnesses testified that a search of the computer database for “Davis & Associates” does not turn out the Bynum mortgage, because of the missing ampersand.

Bynum argued that all duly recorded documents become part of the land records, and impart constructive notice whether or not they are properly indexed in the computer database.  It follows, said Bynum, that Barker and GMAC had constructive notice of the mortgage and are subject to its enforcement.

You’re the Judge:  How do you rule?

Jefferson County courthouse, Bessemer Division: Home to the land records and trial court

The Alabama Supreme Court ruled in favor of Barker and GMAC.

The Court reasoned that the county land records were set up and maintained in full compliance with state statutes.  Persons relying on this index should not be charged with notice of recordings that can’t be found by searching a correct name.

Since the missing ampersand caused the Bynum mortgage to go undetected, the Court held the mortgage was outside the chain of title for Davis & Associates.  So the mortgage did not impart constructive notice, and it cannot be enforced against Barker or GMAC.

The case is Bynum v. Barker, 39 So.3d 1013 (Ala. 2009).

Escrow School

Sunday, July 4th, 2010

A seller’s trick brings a teachable moment.

VICTORVILLE, CA–Wesley was the owner of this house in Victorville, between Los Angeles and Las Vegas.

The property in question, sold by Wesley to Maria

When he contracted to sell the house to Maria, an escrow was opened to handle the transaction.

The escrow company asked Wesley to fill out an “Information Request” form, giving contact information for Wesley’s mortgage lender.  Wesley completed the form, reporting two deeds of trust against the property.  The first deed of trust was held by EMC Mortgage Corporation, for which Wesley provided an address, phone number, and loan number.

Escrow contacted EMC and, within a week, got a payoff demand for $176,317 good through the end of the month.

Escrow paid the demand and the transaction closed.

Ten months later Maria and her mortgage lender got notices of default, saying an unknown deed of trust was delinquent and had entered foreclosure.  Someone called the title insurer.

It turned out Wesley had pulled a fast one.  The information he provided about the EMC deed of trust pertained to different property, also owned by Wesley, across town.  So escrow’s payment to EMC made the ‘other’ property free and clear.  One month after close of escrow, Wesley and his wife refinanced the other property giving a new deed of trust for $150,000.

Wesley's other property, made free and clear

Having pocketed sale proceeds of $122,000, plus new loan proceeds of $150,000, Wesley netted about $270,000.

The deed of trust that Wesley left behind, the one that should have been paid off, had a principal amount of $264,000.

The title insurer demanded that Wesley straighten things out, but he wouldn’t, so the insurer paid $293,647 to clear Maria’s title.

And here’s the teachable moment:  The deed of trust that was “left behind” identified “MERS,” Mortgage Electronic Registration Systems, as “nominee” for the lender during the life of the loan.  MERS is a corporation formed by mortgage lenders to track ownership of promissory notes secured by mortgages and deeds of trust.  Once a mortgage has been recorded in county land records, and registered with MERS, anyone wanting payoff information need only contact MERS for referral to the current loan servicer.  The information is free, easy to get, and guaranteed accurate.

If escrow had asked MERS, rather than Wesley, they would have gotten true information instead of a nasty loss.

The deed of trust that was "left behind." Note MERS mortgage identification number (MIN), upper arrow, and MERS contact information, lower arrow. (Click to enlarge.)