Location, Location, Location - Investors Title · PDF filemoved the small stack of rocks;...

1 | NC Connection | September 2014 We Know North Carolina invtitle.com

The first three rules of real

estate for any buyer, seller,

realtor, searcher, title agent,

and/or attorney is “Location,

Location, Location.” Where the

property is located is the primary

factor in determining the value

of the real estate. Often, the

difference between Lot 6 and

Lot 7 can be the difference

between “ocean front” and “you

can only see the ocean if you

stand on the roof on a clear

day.” Clearly, the difference

between “ocean front” and

“ocean view” is of great

importance to the buyer of the

real property; therefore, as real

estate practitioners, we are very

concerned with the location of

the property, how it is defined,

and where it can be found on

the ground. In short, we are

also concerned with its

“location.”

Sometimes, the location is

rather easy to determine when

looking at a plat or map and

seeing that the property is

actually Lot 6. Other times,

determining the location can be

a bit more complicated by

having to read, interpret, and

prepare metes and bounds legal

descriptions from a complex

survey. In either case, the

buyer merely wants to acquire

the one piece and the only piece

of property that they have seen

and agreed to purchase.

All Real Property Is Unique

In 1939, Judy Garland, in her

iconic role of Dorothy on her

quest to return to one unique

piece of real estate,

emphatically stated that “There

is NO place like home.” In the

recitation of her famous line

from the Wizard of Oz, we are

reminded that all property is

unique – whether it is your home

or not. There is a finite supply

of real estate and like all unique

items, there is a supply of one.

When items are limited to a

quantity of one, demand rises,

and more people are likely to go

to battle over it.

Large Volume of Title Claims

Based Upon Legal Descriptions

It is because of the unique

qualities of real property and the

affinity that we develop for a

piece of property, that the

Location... 1, 3-4

A.M. Best Rating 2

Claims Corner 5-6

NC Fun Facts 5

Fall Gathering 6

Branch Profile 7

Investors Trust: First Bank v. S&R Grandview

7

THE NC CONNECTION

largest number of claims filed on

title insurance policies is based

upon a discrepancy in the legal

description – its defined

location.

(Continued on page 3)

“...the largest

number of claims

filed on title

insurance is based

upon a discrepancy

in the legal

description...”

Location, Location, Location Jonathan W. Biggs, Esq. VP—Director of Risk Management and Education [email protected]

http://www.invtitle.com/

mailto:[email protected]


THE NC CONNECTION



As a quick refresher:

Do you remember learning all of

those terms and measurements

in law school? Neither do I.

The fact of the matter is that law

school does not teach you how

to read a survey, a metes and

bounds legal description, or a “I

need a translator to understand

this and I hope nobody moved

the stack of rocks” legal

description. There are some

things that we cannot control:

the level of the ocean or river,

whether the old oak stump has

rotted, or whether someone

moved the small stack of rocks;

however, there are things that

we can control. If we focus on

the things that we can control,

we will collectively provide better

service to our customers and

clients, protect our customers

and clients from the perils of

litigation, and, most importantly,

protect ourselves from liability.

Most Prevalent Type of

Preventable Title Claims

All Claims of Ownership Based

Upon Valid Legal Description

In order to be a valid and

enforceable claim to ownership,

the claim must be based upon a

solid and independently

verifiable legal description of the

real estate claimed. Such

descriptions can be as simple as

Lot 6 on a certain recorded plat.

In many instances, the legal

description may reference a

natural boundary that is prone to

move, such as: mean high-water

marks of the ocean, center lines

of winding rivers, banks of flood

affected streams, the crests of

eroding ridges, lakeshores, and

other natural landmarks. (If you

are unlucky, you could have an

old description where the point

of beginning is the old oak

stump.) Other times, the

boundaries are marked with

manmade landmarks, such as:

highways, roads, and railroad

tracks that were placed on the

ground by third parties. Finally,

when none of the above is

available for a point or call on

the survey, the surveyor places

a marker for reference, such as:

cairns, pins, nails, monuments,

surveyor's posts, fences, official

government surveying marks.

What is a cairn you ask? It is a

small stack of rocks. Not an

immovable boulder, but a small

stack of rocks put there by the

surveyor. Old surveyor

descriptions even refer to

measurements in archaic terms

such as: links, chains, rods,

poles, furlongs, acres and

leagues.

THE NC CONNECTION

In 2013, the biggest source of

claims, based upon our claims

experience, originated from

some type of “Error in the Legal

Description.” In fact, these

errors accounted for 29.9% of all

claims filed with Investors Title

Insurance Company during that

time period. The majority of the

errors in legal descriptions are

inherently avoidable by

reviewing the vesting and

security documents. Mistakes

happen even to the best

practitioner, but this mistake

really happens a lot. This

29.9% of all title claims

attributed to errors in legal

description is divided into three

primary categories of

preventable errors:

Incorrect Legal Description

Lot 6 is Lot 6 is Lot 6. If you

look at the keyboard on any

typewriter or computer, you will

see that the 6 and the 7 are very

close together. They are actually

closer together than Texas and

Mexico. Anyone can

accidentally hit the wrong key on

the keyboard and create a title

claim. Some call this the “Big

Fingers and Small Keyboards”

title claim.


Location, Location, Location cont. from page 1

In 2013, legal

description errors

accounted for

29.9% of all claims

filed.

Link Unit of length equal to 1/100

of a Chain (e.g. 7.92 inch-

es)

Rod

or

Pole

Unit of Length that equals

16.5 feet

Chain Unit of length that equals 66

feet (e.g. 100 Links, and 4

poles)

Fur-

long

Unit of Length that

measures 40 Poles or 10

Chains or 1000 Links (e.g.

660 feet or 220 yards or )

Acres Unit of Area equal to 43,560

Square Feet or 10 Square

Chains or 160 Square Poles



Location, Location, Location cont. from page 3 conversation to have with a

client when it is time for them to

sell and they are unable to

because the practitioner got a

98% instead of a 100%.

Did that course and distance run

North by West or was it South

by East? In this case, the two

calls could be exactly the same

when referring to one line;

however, when you are running

a course and distance around a

survey to create a legal

description, the direction from

one point to another point has to

be in the same direction as all of

the other lines/calls in your legal

description.

This type of error is called the

incomplete legal description or

an error within the legal

description. Many just call a

variation of this error to be a

failure to close. Here, we could

be referring to the legal

description itself or the pending

transaction.

This type of error can be largely

avoided by having multiple

people review the legal

description. The error is harder

to catch then whether it is

supposed to be Lot 6 and it is

Lot 7; however, it is no less

critical to providing good

marketable title. Much like

missing one step in a series of

driving directions, when missed,

you wind up in the wrong

location. Remember, the most

important thing is “Location,

Location, Location!”

Missing Legal Description

As hard has it may be to

believe, 18.43% of claims

involving a legal description

Ironically, it is not the typo that

allows the mistake to develop

into a failure of title, it is the

failure to review the legal

description. 41% of claims

involving an error with the legal

description are because the

legal description is wrong. The

legal description is full,

complete, and accurate – but for

the incorrect lot. When

reviewing the legal description it

is necessary to make sure it is in

fact the correct lot (in this case

Lot 6). With the incorrect legal

description, the location is

incorrect. Remember, the most

important thing is “Location,

Location, Location!”

Error Within Legal Description

39.67% of the errors in legal

descriptions are because there

is an error within the description

itself. The legal description is

present, relates to the proper

property, has 49 of the 50 lines

correct. In high school you

would get a 98% or an A+ for

this type of accuracy; however,

with that one line on this metes

and bounds description, it

misses a call, a point, a

direction, a distance or even the

call altogether. In the title world,

your 98% just fell to a zero. Is

this fair? To give a failing grade

for a near perfect legal

description? Probably not. The

hard cold truth, however, is that

a failing grade is given the

practitioner by his or her client

when the client finds out that

they did not get the real property

they thought they bought.

Certainly, the client can wait for

the statutory period to run for

one of the theories of adverse

possession. This is a hard

THE NC CONNECTION

originate from the total lack of a

legal description. That is

correct, 5.52% OF ALL CLAIMS

are because there is NO legal

description. Some might call

this the “The Dog Ate My Legal

Description” excuse. This

excuse is just about as

acceptable as it was in grade

school. One first and

incontrovertible truth is that no

one reviewed the legal

description when there is no

legal description. Please make

sure that the correct legal

description is included or

attached. Without a legal

description included, it is difficult

to know what property was

supposed to be involved.

Remember, the most important

thing is “Location, Location,

Location!”

When preparing a procedure to

protect yourself and your firm

from the liability of a legal

description error, - because

location is the most important

element - it is imperative to

review and check the most

important element. It really

sounds like a middle school

admonition – check your work.

Nearly 30% of all title problems,

however, can be fixed by simply

reviewing the legal description.

First, is the legal description

included? Location! Second, is

the legal description complete?

Location! Finally, is the legal

description correct? Location!

By simply adapting and adopting

the oldest adage in real estate,

we can better serve our

customers and clients, protect

our customers and clients from

the perils of litigation, and,

protect ourselves from liability.

Location! Location! Location!



Claims Corner: Present Use Value

disqualifying event occurs, the

current year’s taxes will be

based upon the market value

and the deferred taxes for the

past three years become due

and payable, plus interest and

any penalties and costs.

There are three main categories

of land that may qualify for PUV

– agricultural, horticultural, and

forestry. Each classification

has requirements that need to

be met in order to qualify.

Generally speaking, the

requirements fall under the

categories of ownership, size,

and income (there is no income

requirement for forestry land).

All land must be soundly

managed to qualify for PUV.

For example, an owner seeking

PUV status for agricultural land

must show that the land is

owned by an individual, a

qualifying business entity, a

qualifying trust, or by tenants in

common who meet certain

requirements. The owner must

There are some classifications

of land use that may allow an

owner to qualify to have the land

assessed based upon its

present use value (PUV) as

opposed to its market value.

PUV is usually substantially

lower than the market value as it

is evaluated solely on current

use and does not take into

account what another party

might be willing to pay for the

land. A developer may be

dreaming of turning the land into

the next Mall of America, but if it

qualifies as agricultural, then a

farm it is. The PUV is then used

as the basis for the tax amount

on the land. The tax assessor,

however, will also calculate the

market value of the land and

determine what the tax amount

would be under that

assessment. The difference

between full market value and

PUV is the amount that is then

classified as deferred taxes. As

long as the land qualifies, the

taxes remain deferred. If some

THE NC CONNECTION

also demonstrate that at least

10 acres of the land is being

used for the commercial

production of crops, plants, or

animals and that the 10-acre

tract has produced an average

gross income of at least

$1,000.00 over the past three

years.

Once a parcel has qualified for

PUV, the land retains PUV

status unless a disqualifying

event occurs. One potentially

disqualifying event is a change

in ownership of the property.

This is not an automatic

disqualification, but the new

owner must meet the ownership

requirements for PUV status,

must submit an application for

PUV, and must agree to pay

deferred taxes should a

disqualifying event occur.

Interestingly, even in the event

of a transfer from husband and

wife to wife, wife must file a new


by Kellie Army, Esq., Claims Counsel

NC FUN FACTS

Wizard of Oz enthusiasts will be pleased to learn that there is a place in North Carolina where the story, iconic images, and char-acters are celebrated during a special annual event. Located in the resort town of Beech Mountain, North Carolina, USA, the Land of OZ was opened in 1970 by Grover Robbins and was fully operational until 1980. In the late nineties, former employees started the Autumn at Oz event as a reunion. Later, this gathering became an annual event in which thousands of visitors are given access to the park. For more information visit www.autumnatoz.com.


http://www.autumnatoz.com


Claims Corner cont. from page 5

property has been removed, that

cannot be undone, and the

buyer will have to file a new ini-

tial application for PUV.

If the buyer wants to use the

land for a different purpose, they

will need to be made aware that

the tax rate will be higher be-

cause it will now be based upon

market value. In addition, the

current year will be taxed at

market value and three past

years of deferred taxes with

interest will become due when

the assessor becomes aware of

the transfer. Payment of these

taxes should be the seller’s

responsibility at closing.

Of course, this brings to mind

the question – how do you know

if a parcel has PUV status? You

may get disclosure from the

application to retain the PUV

classification.

What does this mean for your

buyer? If the buyer wants to

continue the current use of the

land and meets the ownership

requirements, they must file an

application within 60 days of the

date of the transfer of the

property. As noted above, the

buyer must also agree to pay

the deferred taxes, should a

disqualifying event occur. If the

buyer fails to file an application

within the 60-day period, they

may still file an untimely

application, but they will have to

show good cause as to why they

did not file a timely application.

You will also want to be sure

that the seller has not removed

the property from PUV. If the

THE NC CONNECTION

seller, there may be certain

clues in the property itself (for

example, if your client is buying

all or a piece of land currently

used for forestry) and, in some

cases, the status may show up

on the tax assessor’s website.

The PUV status may not,

however, show up on every

assessor’s website, not all land

with trees is forestry and not all

sellers are that forthcoming. In

order to protect your client and

be sure the deferred taxes are

taken care of before or at

closing, you will likely need to

call the assessor to confirm PUV

status. Your client will thank

you, or at least not call you in six

months when they receive a

surprise, and potentially large,

tax bill.

Fall Gathering

Click here for details

and to register or visit

invtitle.com/events/nc.


http://events.r20.constantcontact.com/register/event;jsessionid=A400BE1284AA28F3A213EC6DF53265B7.worker_registrant?llr=zv9l7veab&oeidk=a07e9kl3h3d3c004149

http://www.invtitle.com/events/nc


The Smithfield Branch opened in May of 1996 and is currently staffed by Summer Edwards as the Office Manager and Joan Santoro as an underwriter. Tracy Weekman and Angie Willis share the marketing responsibilities for the Smithfield Branch area. The Smithfield Branch is located on South Third Street in downtown Smithfield across the street from the courthouse.

Summer has been with the company since May of 2005 and started out as an underwriter before she was promoted to Office Manager in April, 2013.

Joan celebrated her first anniversary with Investors Title in April 2014.

THE NC CONNECTION

A charging order against a limited liability company (LLC) to collect on a member’s personal debt cannot be so restrictive that the order essentially terminates the member’s ownership. The North Carolina Court of Appeals made that ruling after trial court issued a broad charging order against S&R Grandview, LLC, when

Donald Rhine defaulted on various loans totaling

$3.5 million. The broadly worded order prevented Rhine from “exercising any of [his] rights” as a member and directed that his rights should “lie fallow” until the judgment was satisfied. That breadth, Rhine argued on appeal, was essentially an assignment of his membership

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Investors Trust Company: First Bank v. S&R Grandview interest, in violation of state law. The appellate court agreed, and reversed. In reaching that outcome, the Court of Appeals cited N.C. Gen. Stat. Section 57C-5-03, which provides that a charging order only gives creditors “the distributions and allocations to which the assignor would be entitled.” The Court also noted that the General Assembly had adopted a new statute (Section 57D) earlier this year (after this case was filed) that specifically gave creditors “a lien on the judgment debtor’s economic interest”—not membership in the LLC. Accordingly, the appellate court said, the trial court’s order was too broad—it essentially operated as an “assignment of [Rhine’s] membership interest,” which is prohibited under state law. The Court then remanded the case “for entry of a charging order consistent with this opinion.”

--First Bank v. S&R Grandview, LLC, No. COA13-838, N.C. Ct. App. 3/4/14

This article is provided for informational purposes only and does not constitute legal advice.

[email protected] 800.686.4842 / F 919.989.3134

Team members (left to right): Joan Santoro and Summer Edwards


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