June 2001

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

     

DECEDENTS' ESTATES-PERSONAL REPRESENTATIVE'S POWER TO SELL REAL PROPERTY;
HOUSE BILL 716 IS INTRODUCED

The Title Company of North Carolina published an article on this subject in its April, 2000 newsletter. House Bill 716, introduced on March 21, 2001, deals with this subject and other subjects. The current status of this bill, as of June 13, 2001, is that it is in the Senate Judiciary Committee.

A copy of this bill can be obtained by calling 919-733-5648 or by accessing the bill on the following web site: www.ncleg.net.

The purpose of this article is to set forth what we feel our revised changes of certain portions of the bill should look like. To save space, we are not setting forth a copy of the bill as introduced.

The bill uses the phrase, "without a court order." In the context of the bill, it is unclear whether "without a court order" means (1) that the will must specifically grant the power to act, and specifically state "without a court order" or (2) that the will must specifically grant the power to act but need not specifically spell out that thc power to act is "without a court order." Therefore, we believe that a definition of "without a court order" should be added to G.S. 28A-1-1 as follows:

(7) "Without a court order", as used in G.S. 28A-13-3(a)(1), G.S. 28A-13-3(c), G.S. 28A-15-2(b), G.S. 28A-17-8.1 and G.S. 28A-17-10, means a provision in a validly probated will which expressly states that a personal representative can perform an act without a court order or expressly grants a power to the personal representative which does not expressly require the personal representative to obtain a court order before performing an act.

G.S. 28A-13-3(a)(1) is to be amended to make it clear that the procedure in G.S. 28A-13-3(c) applies unless the will authorizes the P.R. to act without a court order. The statute pertains to taking possession, custody or control over real property.

The bill makes two changes in G.S. 28A-13-3(c). The first is to make subsection (c) consistent with the proposed changes in G.S. 28A-13-3(a)(1). The second change allows combination of a G.S. 28A-15-1(c) proceeding and a G.S. 28A-13-3(c) proceeding to avoid two separate proceedings. A comparable change is proposed for G.S. 28A-15-1(c) as noted below.

G.S. 28A-15-1(c) will be amended if the bill is passed to eliminate any inference that separate proceedings under G.S. 28A-15-1(c) and G.S. 28A-13-3(c) must be conducted.    

The proceedings can be combined. This is consistent with proposed changes in G.S. 28A-13-3(c). However, we believe that G.S. 28A-15-1(c) should be further clarified. Our changes are to clarify matters in obvious ways, making helpful reference to G.S. 28A-17-8.1 and G.S. 28A-17- 10. Our proposal appears as follows:

(c)              If it shall be determined by the personal representative that it is in the best interest of the administration of the estate to sell, lease, mortgage, exchange, partition or grant options with respect to any real estate or interest therein to obtain money for the payment of debts and other claims against the decedent's estate, the personal representative shall institute a special proceeding before the clerk of superior court for such purpose pursuant to Article 17 of this Chapter, unless the transaction is conducted pursuant to G.S. 28A-17-8.1 or G.S. 28A-17-10 without a court order. If a special proceeding has been instituted by the personal representative pursuant to G.S. 28A-13-3(c), the personal representative may petition to sell, lease, mortgage, exchange, partition or grant options with respect to any real estate or interest therein pursuant to this subsection aspart of the proceeding under G.S. 28A-13-3(c) and is not required to institute a separate special proceeding.

Section 1.2 of the bill proposes changes to G.S. 28A-15-2(b), dealing with title to real property in a decedent's estate situation. The bill proposes to amend G.S. 28A-15-2(b) to make an exception to vestiture of title in the devisees by stating that this vestiture of title is subject to the P.R. (who is not devised title) and his power to sell pursuant to proposed G.S. 28A-17-8.1 and proposed G.S. 28A-15-2(c). G.S. 28A-15-2(c) would require notice to the devisees. The proposal for G.S. 28A-15-2 also does not, but should, state what happens to title vested in heirs as affected by a court ordered sale and should address transfers other than a sale, as our subdivision (3) does. Also, we feel that the bill should make some attempt to deal with pre-existing liens against an heir or devisee. See our article in our January, 2000 newsletter and E. Urban and G. Whitney, North Carolina Real Estate 13-43 (Harrison Co. 1996). Therefore, we believe that instead of the bill's version of G.S. 28A-15-2(b) and (c), G.S. 28A-15-2(b) should appear as follows:

(b)     Real Property - Subject to the powers of the personal representative referred to in subdivisions (1) through (4) of this subsection and subject to any rights or interests of any party created by the exercise of any of those powers, the title to and right of possession of real property of a decedent is vested in his heirs as of the time of his death; but when title to real property is not devised to the personal representative, the title to and right of possession of real property of a decedent devised under a valid probated will becomes vested in the devisees and shall relate back to the decedent's death, subject to the provisions of G.S. 31-39.

(1)             In the case of a valid probated will devising real property, the devisees shall be divested of title upon a sale of real property without a court order made pursuant to authority granted by that will as provided in G.S. 28A-17-8.1 or pursuant to an order as provided in Article 17 of this Chapter, and the personal representative may, without the joinder or consent of the devisees in the deed, execute a deed in favor of a purchaser for value who shall take title free of any rights of the devisees and of any party claiming through or against any devisee including, but not limited to, a party holding a docketed judgment against a devisee.

(2)             In the case of an intestacy as to real property, the heirs shall be divested of title upon a sale of real property pursuant to an order as provided in Article 17 of this Chapter and the personal representative may, without the joinder or consent of the heirs in the deed, execute a deed in favor of a purchaser for value who shall take title free of any rights of the heirs and any party claiming through or against any heir including, but not limited to, a party holding a docketed judgment against an heir.

(3)     The interest of any heir or devisee and any party claiming through or against any heir or devisee, including, but not limited to, a party holding a docketed judgment against an heir or devisee, shall be subject to the personal representative's right to lease, mortgage, exchange, partition or grant options pursuant to this Chapter.

(4)     The personal representative may take possession, custody and control of real property without a court order pursuant to authority granted by that will or pursuant to an order pursuant to G.S. 28A-13-3(c).  

Section 1.4 of the bill introduces new G.S. 28A-17-8.1. Section 1.3 of the bill would repeal existent G.S. 28A-17-8. We believe that proposed G.S. 28A-17-8.1 should be reconsidered. In our proposal, subsections (a) and (b) of the bill have been combined to clarify and eliminate repetition. Subsection (c) of the bill is unnecessary. However, our new suggested subsection (b) is necessary and overrides Montgomery v. Hinton, 45 N.C. App. 271, 262 S.E. 2d 697 (1980), discussed in TCNC's April 2000 newsletter. The deleted version of the bill's subsection (c) assumes the availability of G.S. 32-27(2) notwithstanding Montgomery v. Hinton. If that is desirable, our suggested subsection (b) is necessary since the case requires title to be vested in the P.R. in order for G.S. 32- 27(2) to be used by the P.R. Existing subsection (c) of the bill could be construed to apply only if title is vested in the P.R., because of Montgomery v. Hinton. Subsection (d) of the bill has been deleted. Subsection (d) of the bill would apparently change existing law as to "specifically devised property" and require the P.R. to get the joinder or consent of the devisees even when the will did not require it. Aside from possible disputes over what this term means in every case (is "all my land located in Mecklenburg County" specifically devised?), this is an unwise change in the law in a case where the will is clear and could hamstring the P.R. and force him to get a court order, at much expense to the estate.

Therefore, we believe that new G.S. 28A-17-8.1 should appear as follows:

28A-17-8.1. Sale or other disposition pursuant to authority in will.

(a)     A personal representative has the power to sell, lease, mortgage, exchange, partition, grant options with respect to, or otherwise dispose of the real property of a decedent without a court order if authorized to do so by the will of the decedent, regardless of whether title to the real property was devised to the personal representative. A sale, lease, mortgage, exchange, partition, grant of option or other disposition of real property pursuant to this subsection shall not require a proceeding under this Article or any of the procedures set forth in Article 29A of Chapter 1 of the General Statutes, entitled "Judicial Sales", but the personal representative shall include in the next account, whether annual or final, a record of any receipts and disbursements incident to any such transaction.

(b)     If all of the powers in G.S. 32-27 in its entirety or in G.S. 32-27(2) alone are incorporated into a valid probated will as powers granted to the executor, the executor shall have the powers set forth in G.S. 32-27(2) whether or not title to the real property is devised to the personal representative.

(c)              A transaction by the personal representative pursuant to the exercise of a power in accord  with subsection (a) or subsection (b) may be for any reason that the personal representative deems to be for the best interest of the estate, including the payment of debts and other claims against the decedent's estate, the payment of specific cash bequests to devisees, or the distribution of cash to residuary devisees.

(d)              A personal representative authorized by the will of a decedent to exercise a power specified in subsection (a) or subsection (b) without a court order may request the clerk of superior court to issue an order to exercise such a power. Upon such a request the procedure for the sale shall be as provided in Article 29A of Chapter 1 of the General Statutes, entitled "Judicial Sales" or by any other method of sale specified in the order and the procedure for the exercise of any other power specified in subsection (a) or subsection (b) shall be by any method specified in the order.

(e)      A purchaser, lessee, mortgagee, beneficiary of a deed of trust, exchangee, party to a partition, recipient of an option or any other disposition of real property or any successor to such a party can conclusively assume that a transaction pursuant to this section is for the best interest of the estate and is valid.

While the bill does not include a G.S. 28A-17-4.1, we believe such a section would be helpful. This addresses the P.R. selling property free and clear of liens against the decedent. It is believed that the current law probably allows this, but it should be spelled out. See E. Urban and G. Whitney, North Carolina Real Estate 13-42 (1996). Further, subsection (c) takes the position that a sale that would ordinarily not require a proceeding and order will require such a proceeding and order in order to be a sale free and clear of liens against the decedent. (Liens against an heir or devisee are dealt with by our proposed G.S. 28A-15-2(b) as noted above.)

G.S. 28A-17-4.1 might appear as follows:

28A-17-4.1 Sale free and clear of liens against the decedent.

(a)   Definitions. As used in this section:

(1)            "lien" shall mean any voluntary or involuntary lien of specific or general nature constituting a lien prior to the decedent's death against the real property owned by the decedent to be sold by the personal representative of the decedent's estate. "Lien" shall not include the lien for advalorem taxes pursuant to Chapter 105 or assessments pursuant to Chapter 160A or Chapter 153A having super priority pursuant to law.

(2)              "A sale free and clear of any lien" shall mean a sale pursuant to this section and other provisions of Article 17 of Chapter 28A free and clear of any lien which is not to be completely discharged of record as a result of full payment of the amount secured thereby.

(b)     A sale of the decedent's real property by the personal representative pursuant to a petition filed in accord with this Article shall be a sale free and clear of any lien if the lien claimant is made a party to the proceeding by service of summons in the manner required by law and if an order is entered stating that the sale is to be free and clear of liens. To the extent that a lien has not been filed as in the case of a claim of lien pursuant to G.S. 44A-7, et. seq., service of summons shall be as in the case of service against unknown parties in the manner required by law if the lien claimant is unknown to the personal representative.

(c)            In order for a sale by a personal representative under circumstances that make G.S. 28A-17-8.1 or G.S. 28A-17-10 otherwise applicable to be a sale free and clear of any lien, the personal representative shall file a petition pursuant to this Article and shall follow the procedure in this Article, including the procedure in subsection (b).  

(d)            After a sale free and clear of any lien, the proceeds of the sale shall be distributed in accord with G.S. 28A-19-6. The balance shall be distributed to the heirs or devisees otherwise entitled to the real property sold.

We are certain that our proposals can be improved upon. Our concern is that while House Bill 716 represents an excellent first step, further clarification is needed so that title examiners and title insurers can deal with real property conveyances by a P.R. with some degree of certainty. We invite you to direct comments to the Senate Judiciary Committee Chairman: The Honorable Sen. Dan Clodfelter, 406 Legislative Office Building, Raleigh, North Carolina 27601-2808.

ANTI-LAPSE STATUTE AMENDED-AGAIN

In our July, 2000 newsletter, we discussed the "anti-lapse statute." The statute appears in G.S. 31-42 and, as of July, 2000, was just amended effective January 1, 2001. The amendment applied to decedents dying on or after that date. The newsletter discussed several fact situations and differences between the old and new versions of G.S. 31-42.

G.S. 31-42(a) has been amended again by House Bill 182, approved and signed into law on May 17, 2001. The act applies to estates of decedents dying on or after that date. The last sentence of G.S. 31-42(a) has been amended to read as follows, with the italicized words constituting the added language:

In the case of the class devise, the issue shall take whatever share the deceased devisee would have taken had the devisee survived the testator; in the event the deceased class member leaves no issue, the devisee's share shall devolve upon the members of the class who survived the testator and the issue of any deceased members taking by substitution.

The change was recommended by the General Statutes Commission to clarify the law to expressly state what the statute previously intended.

RESTRICTIVE COVENANTS-RESUBDIVISION AND ASSESSMENTS

In our last issue we discussed restrictive covenants, re-subdivision and the issue of application of the requirement that one dwelling be located upon each lot. After that article, the case of Claremont Property Owners Association, Inc. v. Gilboy,           N.C. App.          , 542 S.E. 2d 324 (2001), was published.

In that case, 180 acres were subdivided and subjected to recorded restrictive covenants. Paragraph 16A provided that cost of maintenance of subdivision roads would be divided by the number of lots with each lot owner paying a prorata share. Paragraph 16B stated that each lot was made subject to a lien to secure payment and the lien would run with the land and be enforceable notwithstanding any change of ownership. Paragraph 16 also stated that the developers had to pay on the same basis until a lot was sold. Paragraph 16D provided that the developers may assign to an association of property owners the right to maintain subdivision roads and collect costs thereof from lot owners. In 1990, such an assignment occurred. The subdivision was developed in phases with the developer periodically recording new phase plats. In 1993 and 1994, plats were recorded depicting Lots 109 and 110 as separate lots. The developer paid to the owners association road maintenance fees for each lot individually.  In 1995, the plats were amended by a new plat depicting Lot 120 as a combination of Lots 109 and 110. However, the developer continued to pay two road maintenance fees as before. Then the developer conveyed Lot 120 to Steppe, who contended he had to pay a fee for only one lot-Lot 120. The court found that all of the elements of a covenant running with the land existed and that the obligation to pay road maintenance fees was a real covenant that attached to Lots 109 and 110 individually "upon the filing of the original plat, establishing these lots," and that the combination of the lots into Lot 120 did not change this. Therefore, Steppe had to pay two fees, not one. The court cited with approval the principles in Ingle v. Stubbins, 240 N.C. 382, 82 S.E. 2d 388 (1954), Callaham v. Arenson, 239 N.C. 619, 80 S.E. 2d 619 (1954); and Long v. Branham, 271 N.C.264, 156 S.E. 2d 235 (1967), discussed in our last newsletter for the proposition that, absent restrictions to the contrary. lots can be re-subdivided or combined but the property must conform to servitudes created by the covenants as they originally attached to the property

DEED OF TRUST - TITLE  INSURANCE COMPANY ASSIGNEE SUES MORTGAGOR

The case of Investors Title Ins. Go. v. Montague,           N.C. App.          , 543 S.E. 2d 527 (2001), deals with an action by a title insurance company to recover money spent on a claim. The court held that, where Investors Title paid a claim under an owner's policy insuring Holmes by paying off and taking an assignment of an outstanding deed of trust (and the note), in order to be paid by Montague (the original borrower who was not released on an assumption of the loan and remained a surety on the debt), Investors Title had to assign the note and deed of trust to Montague (who would be entitled to foreclose against Holmes). Also, G.S. 45-21.16(a) and G.S. 45-45.1(2) were found to be inapplicable. The result of the case is no surprise. 

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