August 2002

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

     

FTC/DOJ ADVOCACY LETTER OF DECEMBER 14, 2001 AND THE NORTH CAROLINA STATE BAR'S JUNE 24, 2002 RESPONSE 

In our last newsletter, we briefly addressed the above topic as soon as the Special Committee on Real Estate Closings' June 24, 2002 memorandum to the Executive Committee and the Council of the North Carolina State Bar was released. Since then, Adam Foodman, the new Chair of the Real Property Section of The North Carolina Bar Association, has written Dudley Humphrey, Chair of The NCSB Special Committee on Real Estate Closings, a letter dated July 9, 2002. In his letter, Mr. Foodman states:  

To insure that the consumer receives proper representation and protection, we do not feel that it is appropriate to move forward with the Proposed Opinions without addressing the problems contained in RPC 210. A sub-committee of our section was formed at the Special Meeting to attempt to come up with recommendations for the revision of RPC 210, and related rules, so that the representation of the consumer is better defined and more complete.  

 

****

The Council, and the representatives from consumer organizations that spoke at the Special Meeting,

uniformly felt that this opinion will be seized upon by individuals who see great personal benefit in their control of the residential real estate closing process from start to finish. The potential harm to both consumers, and the public record in this regard, is of such significance that we do not feel that it is appropriate to move the Proposed Authorized Practice Advisory Opinion to the comment phase without consideration as to how the inevitable lay closing industry that it will foster will be regulated. 

 

****

 

We request that the State Bar hold the Proposed Opinions until the appropriate matching consumer protection initiatives can be put in place so that consumers in North Carolina will have the benefit of choice and the protection of their most valuable assets.  

(RPC 210, issued April 4, 1997, is entitled "Representation of Multiple Parties to the Closing of a Residential Real Estate Transaction.")  

We agree with Mr. Foodman,  

At the annual meeting of the North Carolina Land Title Association (NCL TA) in Atlantic Beach, North Carolina, attended by Jay Hedgpeth, of our Winston-Salem office, Gary Chadwick of our Wilmington office, and North Carolina Land Title Association General Counsel Ed Urban of our Charlotte office, Adam Foodman addressed this matter. He said that while the FTC is concerned about the consumer, no one should be under any misunderstanding about the motives of those prompting the FTC/DOJ investigation. We agree that certain providers of services, some of whom are operating in the state already in utter contempt of our laws, have prompted the FTC/DOJ inquiry as the cheapest way of changing our excellent system. He said, and we agree, that it is laughable to think that these service providers are staying up at night, sleepless, worrying about the consumer. He said, and we agree, that the people and organizations wanting to influence the federal government in the effort to change our system are concerned about two things: controlling business and making money. 

He said, and we agree, that the arguments about changing the system to reduce costs to consumers is misleading at best. Allow us to give you an example. Recently, a poorly researched Charlotte Observer article quoted a former Michigan real estate agent as saying a residential closing only cost him $150. Evidently, the reporter did not bother to call any North Carolina title company for comment or assistance in verifying Michigan fees. We talked with a title agent in a Michigan town comparable to Charlotte and in ten minutes of investigative reporting we were advised of the following Michigan fees which we were assured were competitive and typical for a $150,000 house. Title premium: $598.50, seller's portion for an owner's policy and $231.40, buyer's portion if there is a loan to be insured. Closing charge: $150 for the seller and $150 for the buyer. There is no charge for title exam or instrument preparation, but the agent does all of the work and takes in all of the fees. Total of above charges to both consumers: $1,129.90. Typical charges in Charlotte are as follows: Title exam, closing and deed preparation: $600. Title insurance: $110 (reissue rate). Total charges to both consumers: $710. In the above example, in Michigan if there is no loan involved, the $231.40 title insurance premium is not charged to the buyer and instead of $150 each for closing, $98 each is charged. So in a cash sale, the total in Michigan is: $794.50. If an owner's policy and loan policy are issued for a $250,000 house, the seller's portion of the premium is $851 and the buyer's portion is $352 and each pays $150 for closing, for a total charged to both consumers of $1,503. This is compared to $600 plus a premium of $170 or a total of $770.  

Mr. Foodman distributed an extensive July 14, 2002 memorandum to the members of the North Carolina Bar Council. It was written by Judith Wegner, Professor of Law, University of North Carolina. She was not retained by the Real Property Section. She believes that the above referred to opinions proposed by the Special Committee on Real Estate Closings should be rejected. We believe that her analysis is sound.  

Remember, the interest of the consumer your client is not what the people who want to change the system and control business have in mind. While we would never argue that no attorney makes mistakes or engages in fraud or that no non-attorney can conduct a capable closing, we can say that Professor Wegner's July 14, 2002 memorandum clearly shows statistically that the present North Carolina system supervised by attorneys results in considerably less negligence and fraud on the average than under other systems. And, those who argue that costs will dramatically decrease if the system is changed do not have their facts straight. 

So, we advise several things. Voice your support for Mr. Foodman's efforts, which are those of the Real Property Section under his leadership an effort supported by The Title Company of North Carolina. And consider patronizing companies that believe in the approved attorney system and are not trying to get into and control business through realtor or lender affiliated or owned agencies. We want to express our thanks to Adam Foodman for taking the time from his practice to lead the Real Property Section.  

RESTRICTIVE COVENANTS AUTOMATICRENEWAL AND AMENDMENT 

A set of uniform restrictive covenants running with the land will often contain the following:  

2.   TERM. These covenants are to run with the land and shall be binding on all parties and all persons claiming under them for a period of twenty-five (25) years from the date these covenants are recorded, after which time said covenants shall be automatically extended for successive periods of ten (10) years unless an instrument signed by a majority of the then owners of the lots has been recorded, agreeing to change said covenants in whole or in part.  

An annotation at 4 A.L.R. 3rd 570 indicates that an amendment pursuant to such a provision must be executed during (1) the original term to go into effect for the first renewal term or (2) during the renewal term to go into effect for the next renewal term. The annotation also discusses how many people must execute the amendment. Also, in a case where, for example, Jones owns five of the total of eleven lots, there are cases going both ways as to whether Jones is counted once or five times. Clear drafting of restrictions can avoid ambiguity and lawsuits. However, if the land is in a planned community created on or after January 1, 1999, G.S. 47F-2-117 governs. It requires a vote or written agreement signed by lot owners of lots to which 67% of the votes of the association are allocated or any larger majority the declaration specifies or by the declarant if necessary for the exercise of any "development right." G.S. 47F-2-117(a). Under G.S. 47F-2-117(a), the declaration can specify a smaller number only if all lots are restricted exclusively to non-residential use.  

Under G.S. 47F-1-102(d), a planned community created prior to January 1 , 1999 can elect to make Chapter 47F applicable. This is done by amending the declaration. That requires the 67% vote or agreement or any smaller majority the declaration specifies. G.S. 47F-1-1 02(d).

It is noted that, while the term "development right" is used in G.S. 47F-2-117(a) and is used in G.S. 47F-1-103(28)s definition of "special declarant rights," the term "development right" is not defined in G.S. 47F-1-103. It is defined in the condominium act. Compare G.S. 47C-1-103(11). 

Further, in the above quoted restrictive covenant provision, a mortgage lender holding a deed of trust would not have to join in the amendment. G.S.47F- 2-117 in conjunction with G.S. 47F-1-103(20) provides the same result. Of course, a declaration could expressly require such joinder.  

NORTH CAROLINA LAND TITLE ASSOCIATION [NCLTAJ] LEGISLATIVE AGENDA CONTINUED 

In our February, 2002 issue we noted the items on the NCL TA's agenda. An NCLTA draft governing subordination agreements has been sent to the Real Property Section. A draft governing subrogation has been drafted by NCLTA General Counsel. A revision of House Bill 716, dealing with clarifying the personal representative's power of sale has been agreed upon by the NCLTA, the Real Property Section representative and the Fiduciary and Estate Planning Section representatives. Another section or subsection will be added to deal with improvements and payments made by any devisee after probate but prior to the P.R.'s exercise of his power. The problematic elective share statute is being reviewed by the NCLTA and the Fiduciary and Estate Planning Section. Revisions to the future advances/equity line statutes and deed of trust cancellation statutes are proceeding. Jay Hedgpeth of our Winston-Salem office has analyzed new G.S. 20-109.2, G.S. 47-20.6 and G.S. 47-20.7 pertaining to manufactured housing unit titles and has agreed to draft a clarification for submission to the NCLTA. An effort to clarify when a modification of deed of trust does or does not result in loss of priority has been added to the list.  

CUMULATIVE INDEX 

Our next issue will contain the revised index and space permitting, one article.

 

Back to Top