April 2002

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

     

FEDERAL TAX LIENS AGAINST ONE SPOUSE WHERE PROPERTY IS VESTED AS TENANTS BY THE ENTIRETY AND U.S. V. CRAFT;  535 U.S. _____ [U.S. SUPREME COURT, 2002 U.S. LEXIS 2790, APRIL 18, 2002]

In this case, the IRS assessed the unpaid taxes against the husband. Once assessed, 26 U.S.C. 6321 provides that the lien attaches to "all property and rights to property, whether real or personal, belonging to "the person liable to pay the tax. Apparently, a notice of federal tax lien was filed only against the husband. (In North Carolina, a notice of lien would be filed in the clerk of superior court's office where the land is located. 26 U.S.C. 6323(f) and G.S. 44-68.12.) The property was owned by the husband and wife as tenants by the entirety and was located in Michigan.

In the case, after the notice of the lien was filed, the husband and wife jointly executed a quitclaim deed purporting to transfer the husband's interest in the property to the wife for one dollar. When the wife attempted to sell the property a few years later, a title search revealed the lien. The IRS agreed to release the lien and allow the sale with the stipulation that half of the net proceeds be held in escrow pending determination of the Government's interest in the property.

The characteristics of, and each spouse's rights in, the tenancy by the entirety were not significantly different from those outlined in G.S. 39-13.6 and North Carolina cases.  

After its analysis in a 6 to 3 vote, the court stated, "[w]e therefore conclude that respondent's husband's interest in the entireties property constituted 'property' or 'rights to property' for the purposes of the federal tax lien statute." (Emphasis added.) The court added, "[w]e express no view as to the proper valuation of respondent's husband's interest in the entireties property, leaving this for the Sixth Circuit to determine on remand."

Justice Thomas wrote an excellent dissenting opinion. It makes the majority opinion look ridiculous. The dissenting opinion's main argument is that whatever rights the husband had should not result in a lien upon the title to the entireties property.  

Therefore, if you find a notice of federal tax lien docketed against only one spouse and the title is vested in both spouses as tenants by the entirety and the lien has not expired, it should be reported in your opinion and should be removed of record by settlement with the government when (1) those spouses convey, lease or mortgage the property to the proposed insured(s) or (2) those spouses convey, or one spouse conveys, the property to one of the spouses who subsequently conveys, leases or mortgages the property to the proposed insured(s). If you are relying upon a prior owner's policy issued by our company or any other company, the named insured(s) in that prior policy should be checked for liens. However, we are not requiring that you go back behind that prior policy and check that prior policy's insureds' grantors, or those grantors' predecessors in title, for liens not reflected in the prior policy. A federal tax lien's period is effectively 10 years and 30 days from the date of assessment. (That is the period within which the lien can be refiled.) We will include additional comments on these liens in our next issue.

NEW LAWS

There have been several new statutes enacted. These bills can be accessed at www.ncleg.net. We will briefly touch on several below.  

AD VALOREM TAXES

G.S. 161-31 became effective November 16, 2001. G.S. 161-31(a) states that the board of county commissioners by resolution may require the register of deeds not to accept any deed for recording unless the tax collector has certified that there are no delinquent city or county ad valorem taxes or other taxes with which the tax collector is charged. G.S. 161- 31(b) makes G.S. 161-31(a) applicable only to certain counties: Alleghany, Anson, Beaufort, Cabarrus, Camden, Cherokee, Chowan, Currituck, Forsyth, Graham, Granville, Harnett, Haywood, Jackson, Lee, Madison, Montgomery, Pasquotank, Perquimans, Pitt, Stanly, Swain, Vance, Warren, and Yadkin.

As part of the same bill, G.S. 161-14(a), pertaining to the register of deeds being required to register documents, was made subject to new G.S. 161-31. Oddly, the bill (House Bill 108) repeals the change to G.S. 161-14(a) on July l, 2002, but says nothing about G.S. 161-31 "sunsetting."

G.S. 105-375(i) was amended effective July l, 2002 and applies to an in rem tax foreclosure begun on or after that date. It changes from six to three months after the indexing of the judgment the period before which execution cannot issue.    

ANNEXATION

Effective October 15, 2001, G.S. 160A-58.1(b1) was added authorizing a city that has entered into an annexation agreement to annex certain non-contiguous areas without complying with general annexation standards in G.S. 160A- 58.1 (b)(2).  

ENVIRONMENTAL LAW LAND USE  RESTRICTIONS AND PUBLIC HEALTH

House Bill 1301 is an act to clarify the circumstances in which land-use restrictions and recordation of those restrictions in the office of the register of deeds are required in connection with the cleanup of a release from a petroleum underground storage tank in order to protect the environment and public health, to ensure enforceability of restrictions, and to provide notice to subsequent owners of the property; and to make conforming changes to related statutes. Various sections of the extensive bill require, depending upon circumstances outlined in the bill, the owner to record in the register of deeds' office certain documents such as "NOTICE OF CONTAMINATED SITE" (G.S. 143B-279.10; G.S. 143B-279-10 refers to current or future use restrictions provided in G.S. 143B-279.9); "NOTICE OF RESIDUAL PETROLEUM" (G.S. 143B-279.11) which must set out any restrictions on current or future use of the property imposed by the Secretary; plats showing the site of contamination (G.S. 143B-279.11 (c)); and cancellation of notices when the offending hazard is removed (G.S. 143B-279.10(f); G.S. 143B- 279.11 (g)). The "NOTICE OF CONTAMINATED SITE" recorded pursuant to G.S. 143B-279.10 is indexed in the grantor index under the names of the owners of the land. G.S. 143B-279.10(c). Subsequent deeds, etc. must refer to the book and page of its recording when the site is subject to current or future land use restrictions. G.S. 143B-279.10(e). The Secretary of Environment and Natural Resources can cancel the notice by recorded cancellation indexed in the grantor index under the name of the owner(s) in the notice and in the grantee index in the name "Secretary of Environment and Natural Resources." The register of deeds shall make a marginal entry on the Notice showing the date of cancellation and the book and page of recordation of the Secretary's statement. G.S. 143B-279.10(f). The "NOTICE OF RESIDUAL PETROLEUM" pursuant to G.S. 143B-279.11, which can set out restrictions on current or future use of the property, is recorded and indexed under the name(s) of the owner(s) of the real property. G.S. 143B-279.11(e). When the residual petroleum is eliminated, the Secretary can record a cancellation of the notice which is indexed in the manner of the cancellation discussed above in G.S. 143B-279.10(f). G.S. 143B-279.11(g).

G.S. 47-29.1 lists the statutes under which environmental filings must be filed.  

EQUITABLE DISTRIBUTION

House Bill 1084 has made certain changes in the equitable distribution laws. The bill became law on August 10, 2001.

New G.S. 50-20(1) states that a pending equitable distribution action does not abate upon the death of a party. Conforming changes were made to G.S. 50-20(c) which requires all listed factors to be considered. G.S. 50-20(c)(11b) lists property considerations to be considered in the event one party dies prior to the entry of the equitable distribution order. Conforming changes have been made to recently enacted G.S. 30-3.2(d) and G.S. 30-3.3(a), as well as the addition of G.S. 29-14(c). 

ESTATES AND PERSONAL REPRESENTATIVES

House Bill 1070 rewrote G.S. 28A-13-3(c). It authorizes combining a proceeding to exercise possession, custody and control over estate real property with a pending proceeding under G.S. 28A-15-1(c) to sell, lease or mortgage real property. G.S. 28A-15-1(c) has been similarly amended to provide the same where there is a pending petition under G.S. 28A-13-3(c). These amendments were taken out of controversial House 8ill 716 which deals with amending the personal representative's power to sell, mortgage and convey real property without a court order. The North Carolina Land Title Association and Real Property Law Section are working with the Estate Planning and Fiduciary Law Section to come up with an unambiguous House Bill 716.  As of April 18, 2002, memos have been exchanged and a resolution of differences of opinion and requests for clarification appears eminent.  

JUDICIAL AND EXECUTION SALES  PROCEDURE REVISED

Lengthy Senate Bill 681 is effective January 1, 2002. It applies to judicial sales when the original order of sale is issued on or after that date and to execution sales when the execution is originally issued on or after that date. The title of the bill describes its purpose:

An act to amend the law governing judicial sales and execution sales to provide for a rolling upset bid procedure and to conform the time periods for posting and publishing notice of sale to the law governing foreclosure sales under a power of sale, as recommended by the General Statutes Commission.  

With respect to judicial sales, G.S. 1-339.17(a)(1 ), pertaining to posting of notice, changes the requirement to 20 days immediately preceding the sale instead of 30 days. G.S. 1-339.17(b)(1 ), pertaining to the period between the first and last publications, reduces the period to 7 days instead of 22 days. G.S.1-339.25, pertaining to upset bids in a public sale, now states that there are no resales (except as in G.S. 1-339.27A, which is new and pertains to ordering resales after sale or upset bid, and G.S. 1-339.30), but there may be successive upset bids, "each of which shall be followed by a period of 10 days for a further upset bid. If a timely motion for resale is filed under G.S. 1- 339.27A, no upset bids may be filed while the motion is pending. If an upset bid or a motion for resale under G.S. 1-339.27A is not filed within 10 days following a sale, resale, or prior upset bid, the rights of the parties to the sale or resale become fixed." G.S. 1-339.25(a). G.S. 1-339.25(d1 ), (d2), (d3), (d4) and (d5) and (e) have been added. They  pertain to notice of upset bid and the related procedures. Other conforming changes to the judicial sales statutes were made.

G.S. 1-339.52 pertains to posting and publishing notice of sale in an execution sale proceeding. G.S. 1-339.52(a)(1 ) requires the posting at least 20 days, instead of 30 days, immediately prior to the sale. In G.S. 1-339.52(b), as in the case with judicial sales as noted above, the period between first and last publications has been shortened from 22 days to 7 days. G.S. 1-339.64(a) has been amended to state that there "shall be no resales; however, there may be successive upset bids, each of which shall be followed by a period of 10 days for a further upset bid. If a timely motion for resale is filed under G.S. 1-339.66A, no upset bids may be filed while the motion is pending. If an upset bid or a motion for resale under G.S. 1-339.66A is not filed within 10 days following a sale, resale, or prior upset bid, the rights of the parties to the sale or resale become fixed. "G.S. 1- 339.66A, entitled "Ordering resale of real property after upset bid," is new.

G.S. 1-339.64(e), (f), (g), (h) and (i) have been added. These govern notice of upset bid and the related procedures.  

G.S. 46-28.1(e) has been amended to conform to these changes.  

LENDERS AND HOME LOANS 

G.S. 24-1.1A(a1) is effective October l, 2001 and applies to loans applied for on and after that date. It states that:  

Subject to federal requirements, at the time a person applies with a lender for a home loan, the lender shall provide the applicant with information and examples of amortization of home loans reflecting various terms in a form made available by the Commissioner of  Banks and, for fixed rate home loans only, shall provide the person an amortization schedule for the person's home loan at closing. The Commissioner of Banks shall develop and make available to home loan lenders materials necessary to satisfy the provisions of this subsection.  

NOTARIES 

G.S. 10A-16 validates certain acts of notaries and has been amended by House Bill 700. Those acts include an acknowledgement by a notary whose commission has expired. G.S. 10A-16(a). G.S. 10A-16(b) lists defects in the notarization, including an error in the expiration of the notary's commission and the amendment adds reference to a notary's seal "that does not bear the name of the notary exactly as it appears on the commission, as required by G.S. 10A-11 , or where the signature does not comport exactly with the name on the notary commission or on the notary seal, as required by G.S. 10A-9" as defects cured by G.S. 10A-16. It should be recalled that G.S. 10A-16(c) validates a deed of trust in which the notary was named as trustee only. G.S. 10A-16(d) was amended to state that the curative provisions of G.S. 10A-16 apply to notarial acts performed on or before April 15, 2001, in lieu of February 28, 1999.  

House Bill  955 amends other provisions of the law of notaries effective January 1, 2002, G.S. 10A-4(c) was amended and G.S. 10-9(g) through [j) were added as were G.S. 10A-12(f) and (g). These are changes to inhibit the unauthorized practice of law.  

RIGHTS OF WAY NEW G.S. 136-96.1 AND G.S. 136-44.7[c]

New G.S. 136-96.1 became effective December 19, 2001 , along with new G.S. 136-44.7(c).

G.S. 136-96.1(a) provides that a special proceeding under Article 3 of Chapter 1 of the General Statutes may be brought to declare a right of way dedicated to public use if: (1) the landowners of tracts constituting two-thirds of the road frontage of the land abutting the right of way in question join in the action; (2) the right of way is depicted on an unrecorded map, plat, or survey; (3) the right of way has been actually open and used by the public; and (4) recorded deeds for at least three separate parcels abutting the right of way recite the existence of the right of way as a named street or road. G.S. 136-96.1 (a)(2) does not require the plat or survey to comply with any statutory or regulatory requirements governing plats or surveys.

G.S. 136-96.1(b) provides that in a special proceeding brought pursuant to G.S. 136-96.1, the clerk of court shall issue an order declaring the right of way to be dedicated to public use upon finding that provisions of G.S. 136-96.1 (a) have been proven.

G.S. 136-96.1(c) states that any right of way established under G.S. 136-96.1 that is proposed for addition to the state highway system shall meet the requirements of G.S. 136-102.6.

G.S. 136-96.1(d) provides that G.S. 136-96.1 shall not apply to any right of way established by adverse possession or by cart-way proceedings. G.S. 136-44.7(c) provides that when it is necessary for the Department of Transportation to acquire a right of way in accordance with G.S. 136-44.7(a) and (b) in order to pave a secondary road or undertake a maintenance project, the Department shall negotiate the acquisition of the right of way for a period of up to six months. At the end of that period, if one or more property owners have not dedicated the necessary right of way and at least 75% of the property owners adjacent to the project and the owners of 75% of the road frontage adjacent to the project have dedicated the necessary property for the right of way and have provided funds required by Department rule to the Department to cover the costs of condemning the remaining property, the Department shall initiate condemnation proceedings pursuant to Article 9 of Chapter 136 to acquire the remaining property necessary for the project.

TRUSTS AND TRUSTEES

House Bill 1070 has made substantial revisions to Article 3 of Chapter 36A, effective January l, 2002. "Trustee" does not include a trustee in a deed of trust. G.S. 36A-22.1 (6).

G.S. 36A-23.1(a) allows the clerk to determine issues involving the administration and distribution of trusts, the declaration of rights and the determination of other matters involving trustees and trust beneficiaries, to the extent those matters are not otherwise provided for in the trust instrument. Those areas include proceedings to appoint or remove a trustee, to ascertain beneficiaries, to determine distribution of a trust or trust powers, and to construe trust documents. All known beneficiaries, trustees or co-trustees not joined as petitioners shall be joined as respondents. G.S. 36A-26.1. A hearing and determination is as provided in G.S. 1-301.3. Appeal to a superior court judge is determined under G.S. 1-301.3.  See G.S. 36A-27.  G.S. 36A-26.3 sets forth extensive, special rules when parties are represented by others, such as an attorney-in-fact.

A special or successor trustee is vested with title of the predecessor trustee. A predecessor trustee shall execute such documents transferring title to trust property to facilitate the trust's administration. If the predecessor trustee fails to do so, the clerk can transfer title. G.S. 36A-40.

G.S. 28A-22-10 and G.S. 36A-141 were added by the bill, effective September 14, 2001.

G.S. 28A-22-10 provides that when the facts at the time of distribution of property to a trust are such that the trust would be inoperative under the terms of the instrument creating the trust for any reason, including the death of a beneficiary, renunciation by a beneficiary, the exercise of a right to withdraw the property by a beneficiary, or the attainment of a stipulated age by a beneficiary, the personal representative or the trustee authorized or required to make the distribution of that property to the trust may distribute the property directly to the person or persons entitled to it under the terms of the instrument creating the trust without the interposition of the establishment of the trust. If only a portion of the trust would be inoperative, the property distributable to that portion of the trust may be distributed directly to the person or persons entitled to the property under the terms of the instrument creating the trust. G.S. 36A-141 provides for the same rule for non-testamentary trusts.   

UNIFORM ELECTRONIC TRANSACTIONS ACT

Senate Bill 1023 became effective October 1, 2001. G.S. 66- 313(e) was added to state that the article does not apply to notices of default, acceleration, repossession, foreclosure or eviction, or certain rights to cure.  

RESTRICTIVE COVENANTS ENFORCEMENT AND MEDEARIS v. TRUSTEES OF MYERS PARK BAPTIST CHURCH, ET AL 

This case was discussed in our February, 2002 newsletter. The Supreme Court has denied discretionary review.  

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