April 2002 2nd edition

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

The case of Columbo v. Stevenson, _____N.C. App. _____, _____S.E.2d _____(No. COA01-745, May 7, 2002), deals with the anti-lapse statute, G.S. 31-42, then in effect. The testator left certain legacies and devises to George M. Stevenson, Jr. ("George, Jr.").  Article V of the will stated:  

All of the residue of the property which I may own at the time of my death, real or personal, tangible and intangible, of whatsoever nature and wheresoever situated, including all property which I may acquire or become entitled to after the execution of this will, including all lapsed legacies and devises, or other gifts made by this will which fail for any reason, I bequeath and devise in fee to my son, GEORGE M. STEVENSON, JR., and to my daughter, HAZEL S. BRANCH, in equal shares. (Emphasis added.)  

George, Jr. died before the testator. His son, George III, contended that the anti-lapse statute applied and he took his father's legacies and devises in his father's place. Other family members contended that Article V precluded the application of the anti-lapse statue and that Article V, the residuary clause, controlled.  

The applicable provision of the anti-lapse statute then in effect and which constituted the basis of the dispute provided as follows:  

Unless the will indicates a contrary intent, if a devisee predeceases the testator, whether before or after the execution of the will, and if the devisee is a grandparent of or a descendant of a grandparent of the testator, then the issue of the predeceased devisee shall take in place of the deceased devisee.  

The Court of Appeals held that Article V of the will indicated the requisite intent, under the above quoted language of the anti-lapse statute, that the anti-lapse statute not apply. Accordingly, Article V of the will determined the testator's disposition of legacies and devises when George, Jr. predeceased the testator.  

The appellees contended that Article V's inclusion of the phrase "including all lapsed legacies and devises" was merely boiler plate language and should not be interpreted as an intent to avoid application of the anti- lapse statute. Apparently, discretionary review by the North Carolina Supreme Court will be sought.  

It should be noted that the best argument for the participation of an attorney in a client's transactions is that the attorney adds value. This should be reason enough to avoid over reliance on form books and to carefully consider the results of written documents prepared for the client. This is true not only for wills but also for real property transaction documents. There are those seeking to control not only who issues title insurance but also who handles the attorney's current role in the real estate transaction. It is breathtaking to read criticism of the attorney's role in the real estate transaction. The gist of the criticism seems to be that real estate is simple, and any marginally competent individual can handle it; after all, it's not brain surgery, the reasoning goes. One only has to look objectively at the practices of certain other states to see just how incompetent – not to mention dishonest – the results under different systems can be compared to our current excellent system involving attorneys. However, we must continue our efforts to always show the added value of an attorney, including in the careful drafting of documents. Otherwise, those who seek to change not only who issues title insurance but also who is responsible for examining titles, drafting documents and closing transactions will have fodder for their agenda.  

It is noted that the current version of the anti-lapse statute in G.S. 31-42 contains the same language that gave the litigants trouble in Columbo v. Stevenson. Therefore, perhaps the beginning of G.S. 31-42(a) and G.S. 31-42(b) should be amended to read: "Unless the will specifically states that the provisions of G.S. 31-42 or the provisions of the anti-lapse statute do not apply in a situation where application would otherwise be required..."  

EASEMENTS AND RIGHTS OF WAY 

In Mason v. Town of Fletcher, _____N.C. App. _____, 561 S.E.2d 524 (2002), it was found that a public right of way for Howard Gap Road existed and was 39.37 feet wide, with the paved portion of Howard Gap Road being 23 feet wide. The legal description of the plaintiff's deed stated that his property was "SUBJECT TO the right of way of Howard Gap Road." The court held that the Town of Fletcher placing a water line within the margin of Howard Gap Road, carrying water to the Town of Hendersonville (which town would become the owner of the line), which line went over the plaintiff's real property, was a proper use of a right of way dedicated to public use. G.S. 136-18(10). It is noted that the DOT entered into a standard form "Right of Way Encroachment Agreement" with the Town of Hendersonville permitting the town to encroach upon and utilize the DOT's right of way.  

EASEMENTS, RESTRICTIONS AND BOATHOUSES, RAMPS, ETC. 

In Bunn Lake Property Owner's Association, Inc. v. Setzer, _____ ­­­­N.C. App. _____, 560 S.E.2d 576 (2002), rights involving Bunn lake, a man-made lake, were involved. By-laws and recorded restrictive covenants for Bunn lake Subdivision were at issue. The relevant restrictions were summarized by the court as follows: 1. lakefront homeowners may have one waterfront boating or fishing pier, whose dimensions over the water are not to exceed 25 feet by 15 feet; 2. Subdivision homeowners are required to get plaintiff's prior approval before constructing a waterfront dock or pier; 3. Plaintiff's Lake Committee evaluates homeowners' requests for permission to construct a pier or dock, and reports to plaintiff's board of directors whether the proposed structure complies with the restrictive covenants and bylaws; and 4. Plaintiff's board of directors is the only group authorized under the bylaws or covenants to grant approval of homeowners' construction projects.  

The plaintiff association owned the lake bed. As the owner of the lake bed, plaintiff also owned the water above the bed, and may restrict the use of the land and water, including restrictions on structures built on the lake bed. Steel Creek Development Corp. v James, 300 N.C. 631, 268 S.E.2d 205. The restrictions and by-laws granted the defendant an easement over the lake bed for the purposes noted above. The uncontroverted evidence established that the defendant had structures on Bunn Lake that were not restricted to a single fishing pier and that exceeded 1500 square feet. The court found that the defendant exceeded his easement rights noting that if an easement is granted, the user of the easement may neither change the easement's purpose nor expand the easement's dimensions. Moore v. Leveris, 128 N.C. App. 276, 495 S.E.2d 153 (1998) (easement to use neighborhood road would not allow defendant to place sewer line under road); Swaim v. Simpson, 120 N.C. App. 863, 463 S.E.2d 785 (1995), aff'd, 343 N.C. 298,469 S.E.2d 553 (1996) (where plaintiff was granted easement for ingress and egress to tract, trial court errs by construing easement to permit installation of utility pipes, thus enlarging scope of easement).  

The court also held that the principle of equitable estoppel did not apply since there was lacking the requisite reliance upon statements from the correct source. The court also dealt with a consent judgment which the defendant unsuccessfully tried to disavow.  

PARTNERSHIPS, CONTRACTS, CONSTRUCTIVE TRUST ANO LIS PENDENS 

Cap Care Group, Inc. v. McDonald, _____N.C. App. _____, 561 S.E.2d 578 (2002), dealt with all of the captioned issues to some extent. The court found that there was substantial evidence that the plaintiffs and the defendants entered into an agreement to form a partnership to obtain title to and develop the real property, noting that a partnership can be formed orally or by the parties' conduct, pursuant to G.S. 59-36. This was true even though there was no written agreement. The defendants had accepted funds from the plaintiffs for the earnest money deposit. The funds were used for that purpose. However, the defendants closed on the transaction and took title in the name of one of the defendants. The court found that a lis pendens filed by the plaintiffs as part of their action to establish a constructive trust was appropriate under the lis pendens statute, G.S. 1-116, et seq.  

It is noted that the Court of Appeals has held that when title to real property is vested in A and is A's real property the property cannot subsequently become a partnership asset absent a written agreement satisfying the statute of frauds in G.S. 22-2. Ludwig v. Walter, 75 N.C. App. 554, 331 S.E.2d 177 (1985). In Potter v. Homestead Preservation Association, 330 N.C. 569, 412 S.E.2d 1 (1992), cited in Miller v. Rose, _____N.C. App. _____, 532 S.E.2d 228 (2000), Ludwig was distinguished with the court holding that a partner's interest in partnership assets – including real property currently owned by the partnership – is personal property pursuant to G.S. 59-56 and as such is not subject to the statute of frauds. The Supreme Court noted that Ludwig dealt with land owned' individually "by one entering the partnership." (Emphasis was the court's.)  

INSURED CLOSING PROTECTION LETTERS 

Insured closing protection letters are sanctioned by G.S. 58-26-1 (d). They are issued for no additional premium. They can impose liability upon a title insurer in a situation where a policy has been issued. In such a case, the liability imposed where no liability is imposed by the policy can be for loss caused by the approved attorney failing to obtain certain documents, such as a termite report. However, the letters have certain exclusions pertaining to enforceability of certain documents; for example, a termite report.  

The insured closing protection letter can also impose liability when a commitment is issued but a policy is never issued or when the policy is issued after a claim is made under the letter for issuance of a policy. This liability under the letter can include liability for the approved attorney absconding with loan proceeds, an unfortunate occurrence which has happened infrequently but with financially devastating results.  

The American Land Title Association (ALTA) form letter protects a purchaser that obtains a loan from a protected lender.  

A full discussion of these letters is beyond the scope of this ar1icle. For detailed treatments see E. Urban and G. Whitney, Nol1h Carolina Real Estate §23-4 (Harrison Co. 1996); J.K. Sherron, Insured Closings, appearing in Residential Real Propel1y, at p.p. 279-307 (Wake Forest Univ: School of Law, 1990); J. Davis, The Law of Closing Protection Letters, 36 Tol1 & Ins. L.J. 845 (2001 ). Let us know if you need a copy of any of these works.  

An important point or two should be made. The lender's closing instructions addressed to the approved attorney must be carefully reviewed by the attorney. Failure to close on time, obtain and transmit documents on time and failure to obtain the title insurance policy and deliver the same in a timely manner can result in time consuming claims under the insured closing protection letter. The claim filed with the title insurer or its agent can at least cost the time of the insurer or agent and the approved attorney. And, in certain cases, the claim can be for monetary damages for the lender's loss caused by the protected lender's inability to sell and assign the deed of trust and secured indebtedness. Therefore, it is important to follow the lender's written closing instructions. If they are ambiguous, the lender should be consulted with an effort to clarify things.    

LEGISLATIVE UPDATE 

House Bill 716, contains considerable revisions to Chapter 28A in an effort to clarify when a personal representative can sell, mortgage, lease or otherwise dispose of the decedent's real property and when a personal representative can take custody and control of that property. The Real Property Law Section (RPLS) representatives and the Estate Planning and Fiduciary Law Section (EP & FLS) representatives have essentially agreed on a revision to House Bill 716 which will now be submitted to the RPLS Council for approval.  

The North Carolina Land Title Association (NCL TA) has submitted a proposed statute governing subordination agreements to the RPLS for review. The proposal is similar to that proposed in our previous newsletter. The NCLTA is reviewing a first draft of a proposed statute governing and clarifying subrogation of the lien of one deed of trust to the priority position of a prior lien of a deed of trust. It has been suggested that the NCL TA add to its agenda a proposed statute governing modification agreements and possible priority problems.  

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