A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA
MESSAGE NORTH CAROLINA LAND TITLE ASSOCIATION (NCLTA) TO PROPOSE
would like to note that the NCLTA has developed a legislative agenda. Ed
Urban, Sr. Vice President and State Counsel of our company joined our
company in March, 1999. He also serves as NCLTA General Counsel and
Chairman of its legislative committee at the request of the NCLTAs
President. The NCLTA will be drafting legislative recommendations for the
Real Property Section of the North Carolina Bar Association to consider
and hopefully support.
House Bill 716 pertaining to clarifying Chapter 28A as it pertains to a
personal representative's power to sell, particularly without a court
order, the NCLTA is already working closely with the Real Property Section
in crafting clear legislation. Ed is also serving on a Real Property
Section committee in this area. That committee will work with the Estate
Planning Section committee to come up with an acceptable version of House
Bill 716. We discussed House Bill 716 in our June, 2001 newsletter.
other areas under consideration by the NCLTA are:
mortgage and deed of trust cancellation by the closing attorney (we
recommended such a statute in our December, 2000 newsletter); (2)
increasing the penalty for a lender failing to
cancel a deed of trust; (3) inserting a "reasonable time"
requirement for providing a tax statement under G.S. 105-361; (4) a
statute governing simultaneous recording of deeds of trust providing for
priority based on order of recording (see our August, 2001 newsletter);
(5) clarification of the future advances statute; (6) a statute governing
validity and effect of subordination agreements (see our October, 2001
newsletter); (7) a statute regarding subrogation of one deed of trust to
another; (8) clarification of the scrivener's error statute, G.S. 47-36.1
(see our July; 2000 and Fal11999 newsletters); (9) clarification of
foreclosure notice to subordinate lien-holders in absence of request for
notice; (10) effect of ad valorem tax foreclosures on restrictions,
easements, etc.; (11) amending restrictions under the UCA and UPCA (see
our March, 2001 newsletter); (12) a statute clarifying easement of
necessity; (13) clarifying G.S. 136-96 regarding withdrawal of dedication;
(14) modifying and/or clarifying G.S. 29-30 and G.S. 30-3.1 through G.S.
30-3.6 pertaining to spousal rights (see our October, 2000 newsletter);
and (15) modifying G.S. 45-81(c) in view of Raintree pertaining
to payment and cancellation of an equity line deed of trust.
NCLTA will also be monitoring, and making suggestions with respect to, the
Construction Law Section's new effort to clarify the mechanics' lien
If you have any suggestions, please call Ed at 704- 333-9911, fax him at 704-372-4568 or e-mail him at firstname.lastname@example.org.
would like to encourage attorney membership in the NCLTA. Membership is
enjoyable, worthwhile and very economical. Penny DePas and Lauren Copen
are the contact persons at 919-787-5181.
The NCLTA website is www.nclta.org.
appreciate your support.
COVENANTS-ENFORCEMENT AS AFFECTED BY RADICAL CHANGE, WAIVER AND ESTOPPEL:
THE MEDEARIS CASE
opinion in Medearis v. Trustees of Myers Park Baptist Church, C.D.
Spangler Foundation, Inc. and Queens College, Inc., 2001 N.C. App.
Lexis 1265, has been decided by the Court of Appeals. A petition for
discretionary review has been filed by the petitioners, Medearis. A
response to that petition has been filed. The facts below are lifted from
the opinion. The opinion seems ambiguous as to counting lots acquired.
were 14 lots in Block 37 of Myers Park subdivision. Lots 1 and 14B were
not restricted. The deeds to Lots 3 through 14A contain identical deed
restrictions, including a covenant that the property be used only for
residential purposes and that the covenants run with the land. By 1929,
ten of the twelve restricted lots had residences built upon them. The
opinion states that by 1963, Myers Park Baptist Church ("MPBC")
acquired three of the twelve restricted lots (actually; according to the
opinion, it appears that the number may have been four lots 3, 5, 11
and 14A), removed structures from two of them and built offices and class
rooms on two of them. Thereafter, in 1971, Queens College acquired Lot 7
and the Jones House, which acquisition was used for parking since 1974. In
1989, MPBC acquired
Lot 6 and the Pressley House and rented it for residential purposes until
1994 when it became vacant. It was demolished in 2000 by MPBC. In 1991,
MPBC acquired Lot 4 and the Withers House. It was leased to Queens College
until 2000 for college purposes. MPBC sold the house to the college in
2000 and moved it to Lot 8.
1997, the Foundation acquired Lot 12 and the Archer House. It agreed to
donate the lot to MPBC. The Foundation sold the house for one dollar. The
house was moved off the property in 2000. Lot 12 has been vacant since
petitioners purchased Lots 9 and 10 from Mr. Medearis's parents for
$880,000. Petitioners moved in on October 31, 1999. In November, 1999, the
Foundation acquired Lot 11 and the Baldwin House, for $1.6 million. (But
see the opinion's facts above.) This house was demolished on February 2,
2000 to prevent MPBC from having to obtain a zoning ordinance to build the
Cornwell Center. The opinion states that in roughly eighty years since the
completion of Block 37, MPBC acquired seven of the twelve restricted lots,
removed or demolished at least five structures, and built several
buildings for the church complex. One of the remaining five restricted
lots belongs to the Foundation, which also demolished the house on the
lot. Two of the remaining lots belong to Queens College and are used for
parking, classes and social events. The remaining two restricted lots
belong to petitioners, who use both lots for a single residence.
Petitioners filed an action for declaratory judgment on August 3, 2000
seeking to enforce the residential restrictions against MPBC, the
Foundation and Queens College. The trial court granted respondents'
motions for summary judgment on October 26, 2000 and petitioners appealed.
way that restrictive covenants may be terminated is when changes in
area are "so radical as practically to destroy the essential
objects and purposes of the agreement." (Citations omitted.)
Court of Appeals noted that three of the twelve restricted lots were used
for parking or, "one quarter of the lots " The court held that
"parking could, under certain circumstances, constitute such a
radical change as to destroy the restrictive covenant." The opinion
states that prior cases are distinguishable. In one prior case, seven of
approximately eighty-five restricted lots were used for parking. In
another case, only one lot was used for parking.
opinion states that in summary; Lots 5, 7 and 8 are currently used for
parking, in violation of the restrictive covenant. Lot 13 is now used as a
vehicle turn-around for church activities, in violation of the restrictive
covenant. Lots 3 and 14A are currently used "openly and
notoriously" by MPBC as offices and classrooms in violation of the
restrictive covenant. Lot 4, the site of a house used for almost ten years
in violation of the restrictive covenant, is now vacant. Lots 6, 11 and 12
are now vacant after all residential structures were either demolished or
moved to prepare for the building of the Cornwell Center. The court noted
that, at this part of its analysis, six of the twelve lots containing a
residential restriction in Block 37 are in open and obvious violation of
the restriction. Four other lots- 4, 6, 11 and 12
previously used for residential purposes now stand vacant in
preparation for building the Cornwell Center. As of the filing of this
appeal, Block 37 contains one residential structure. At this point in its
opinion, the court seems to be noting as ominous for the petitioners that
50% (that is, six of twelve) of the restricted lots are in violation by
virtue of use for parking (three lots), vehicle turn around (one lot) and
offices and classrooms (two lots), before the respondents
commenced their bulldozing and other activities on four other lots
previously used for residential use.
Court of Appeals held:
Based on our
examination of the use of the lots in Block 37, we hold that the trial
court did not err in granting summary judgment for respondents because the
changes to Block 37 are "so radical as practically to destroy the
essential objects and purposes of the agreement."
their petition for discretionary review; the petitioners seem to argue
that the respondents cannot profit from systematically acquiring lots and
demolishing residences. The real issues could be restated as follows:
Can the respondents add Lots 4, 6, 11 and 12 to the other lots to
have the court find the above cited required "radical change"?
If the answer to 1. above is "no," does 50% or 58%
(depending upon how you count) of the lots being in prior violation for
the reasons noted by the court constitute the required "radical
Does "radical change" mean that the lots can no longer be
used or sold for residential purposes?
argue that seven of twelve residential lots were being used for
non-residential purposes at the time the petitioners bought their home.
See p. 3 of Respondents' Joint Opposition To Petition For
seems as though, whether it is expressly articulating it or not, the Court
of Appeals is holding that non-residential uses of lots in violation of
the restrictions, while not radical enough per se (with respect to each
lot) to constitute the required radical change, can constitute a radical
change as to the entire subdivision if a majority of the
lots are in violation. The respondents forcefully argue the importance of
the number of lots being in violation of the covenants. See, for example,
Respondents' Joint Opposition To Petition For Discretionary Review; p. p.
12-14, and p. 15.
Court of Appeals also held that the petitioners waived their right to
enforce the covenants, even assuming the trial court erred in finding
termination of the covenants based on the radical change test. The court
stated that the first time the petitioners raised the issue of enforcing
the covenants was on May 18,2000, dismissing the petitioners' prior
negotiations with MPBC by noting: "Notwithstanding the numerous
negotiations, Mr. Medearis never requested that MPBC not build the
Cornwell Center," and noting the respondents' incurring of
significant expense to build the center.
title insurance industry should be encouraged by this decision. We hope
and believe that it will stand. It should make it easier to respond to
customer requests to insure against loss or damage caused by the
enforcement of residential restrictions against commercial or other non-
residential use, particularly if the effect of the number of, or
percentage of, violations is clarified should the Supreme Court hear the
case. It is noted that, once a judgment that the restrictions are
terminated becomes final, any non- residential use permitted by the
zoning ordinances will be permissible. Of course, when a title insurer
analyzes a request to insure before such litigation is filed and a
judgment is entered, it must do so carefully so that it does not subject
the insured, and itself, to litigation. That will mean (1) carefully
applying Medearis and cases cited therein to the facts to be
analyzed and (2) determining if there are homeowners or a homeowners'
association contemplating legal action regardless of what the insurer
thinks of the case. If the insurer feels that the case
is easily in point with Medearis and there is no threat of
litigation, it can insure. If litigation is threatened, it can insure if
appropriate precautions are taken to avoid losing a fortune for attorneys'
fees. The precautions can include (1) the policy excluding attorneys'
fees, costs and expenses of litigation or (2) more likely; not excluding
liability for the fees, costs and expenses, but escrowing an amount to
cover such items, the amount coming from either the seller or buyer or
both, pursuant to an agreement.
way of disclosure, in mid-1998, our company issued one of the title
policies involved. Our attorneys defending against the petitioners' claims
are to be congratulated for their outstanding litigation work.
LLCS ANO PARTNERSHIPS SENATE BILL 842
Bill 842 was signed into law on August 26, 2001. It is a lengthy bill and
covers quite a bit. Of particular note is the bill's clarification of
conversion of one business entity to another. New Article 11A of Chapter
55 provides for conversion of a business entity to a domestic corporation
and conversion of a domestic corporation to a different business entity:
New Part 1A of Article 9A of Chapter 57C provides for conversion of a
domestic LLC to a different business entity: New Part 2 of Article 2A of
Chapter 59 provides for the conversion of a business entity to a domestic
partnership. G.S. 59-1050 has been amended. It pertains to conversion of a
business entity to a domestic limited partnership. New Part 10B of Article
5 of Chapter 59 pertains to the conversion of a domestic limited
partnership to another business entity:
statutes require a plan of conversion (see, for example, G.S. 55-11A-02;
G.S. 55-11A-11; G.S. 57C-9A-11; G.S. 59-73.11; G.S. 59-73.21; G.S.
59-1051; and G.S. 59- 1061), the filing with the Secretary of State
articles for the new entity and the registration of a certificate of
conversion in the real property records under G.S. 47-18.1 (G.S.
55-11A-03; G.S. 55-11A-12; G.S. 57C-9A-12; G.S. 59-73.12; and G.S.
59-73.22), and provide for the effects of the conversion (G.S. 55-11A-04;
G.S. 55-11A-13; G.S. 57C-9A-13; G.S. 59-73.13; and G.S. 59-73.23). Title
to real property vests in the new entity without impairment.