It is time, again, to present a heads-up on legislation pending in the Legislature that may have a significant impact on title examination or real property practice.
Anti-Lapse Statute amendment. HOUSE BILL 182
Sponsors: Representatives Culpepper and Hurley.
G.S. 31-42(a) has been amended to add the following underlined 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."
This act clarifies the distribution of devises to members of a class that contains persons who predecease the devisor. Under the former law, a devise to "the children of my sister Molly B. Goode", would lapse as to the share of any member of the class dying before the devisor since they were not descendants of the devisor. After the 1999 amendment to this Section, effective January 1, 2000, anti-lapse protection was extended to descendants of the devisors grandparents. That change did not expressly state what would occur in the event of the death of a class member without issue. The current amendment codifies traditional common law doctrine applicable to per stirpes class gifts. We believe that this amendment conforms the statute to the actual intentions of the majority of typical devisors and will produce an expected result in most cases. It will place an additional burden on will drafters to inquire about the clients desires since the act will result in property that otherwise may have lapsed to the residuary, or intestate heirs, staying within the class. Where the class members are not descendants of the devisor, this could produce results contrary to the devisors actual intent.
The amendment will produce a potential pitfall for title examiners. Property devised by will may have a different beneficiary depending upon the date of death if determined under the three versions of this statute. This amendment became effective May 8, 2001 and will apply to estates of decedents dying on or after that date.
Estate Law Changes. HOUSE BILL 716
Sponsors: Representative Haire
This amendment of Chapters 28A and 32, if passed, would correct some of the problems in decedents estates since the rendering of the decisions in Montgomery v. Hinton, 45 N.C.App. 271, 262 S.E. 2d 697, (1980) and James v. James, 58 N.C. App. 371, 293 S. E. 2d 655, (1982). It is too lengthy to do more than summarize the more significant provisions in the space available. It may prove to be of limited benefit if adopted in its present form. The provisions apply in cases where the personal representative is not the devisee. The bill would amend G.S. 28A-13-3(a)(1) and G.S. 28A-13-3(c) to provide that the personal representative would not be required to petition the Clerk in order to take control of devised property if the will of the decedent authorizes the personal representative to do so without a court order.
G.S. 28A-15-2(b) would be amended to read (new language underlined): "(b)Real Property. 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. However, notwithstanding the foregoing provision of this subsection: (1) 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, and the personal representative may, without the joinder or consent of the devisees, execute a deed in favor of a purchaser for value who shall take title free of any rights of the devisees. (2) The personal representative may take possession, custody, and control of real property without a court order pursuant to authority granted by that will."
G.S. 28A-17-8 would be repealed and the following provision substituted.
"§ 28A-17-8.1. Sale or other disposition pursuant to authority in will. (a) Subject to the provisions of subsection (d) of this section, 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. (b) A personal representative who sells, leases, or mortgages real property of a decedent without a court order pursuant to authority granted by the will is not required to institute a proceeding under this Article or to follow any of the procedures set forth in Article 29A of Chapter 1 of the General Statutes, entitled "Judicial Sales", but shall include in the next account, whether annual or final, a record of any receipts and disbursements incident to any such transaction. (c) A general provision in the will of a decedent granting authority to the personal representative to sell the decedent's real property without a court order, or the incorporation by reference of the provisions of G.S. 332-27(2) in the will, is sufficient to authorize the personal representative to sell that real property without a court order 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) Notwithstanding the provisions of subsection (c) of this section, a general provision in the will of a decedent granting authority to the personal representative to sell the decedent's property without a court order, or the incorporation by reference of the provisions of G.S. 32-27(2) in the will, shall not be deemed to authorize the personal representative to sell specifically devised property without the joinder or consent of the devisee of that real property. (e) A personal representative authorized by the will of a decedent to sell or lease real property without a court order may request the clerk of superior court to issue an order to sell or lease real property of the decedent. 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.""
This act would reduce a great deal of uncertainty in this regard. There is at least one significant problem that we observe. The language of the bill seems to require that the will contain the phrase "without court order". Our experience is that this language is frequently not present where the will, otherwise, contains an express power of sale in addition to the incorporated statutory powers. There is already a statutory power of sale upon petition to the Clerk. Typical will construction doctrine dictates that we give meaning to words that would otherwise be meaningless. If we require the words "without court order" in order to get the benefit of these provisions then an express grant of a power of sale to the personal representative, without the words, is essentially meaningless. We feel that omitting these words in reference to the language of the relevant will would be a vast improvement.
G.S. 28A-15-1(c) as rewritten, would read: "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, or mortgage 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, except that no such proceeding shall be required for a sale made pursuant to authority given by will. A general provision granting authority to the personal representative to sell the testator's real property, or incorporation by reference of the provisions of G.S. 32-27(2) shall be sufficient to eliminate the necessity for a proceeding under Article 17."
This provision avoids the problem discussed above, but in effect, creates a new problem as to whether it overrides the "without court order" requirement. It should, since the power is created by reference to the statute or "pursuant to authority given by will". Note that the problematic language does not appear here. It should be pointed out that the new G.S. 28A-15-1(c) will not be available for conveyances of convenience, such as where the heirs are scattered and it would be time consuming to get signatures on a deed. If the terms "without court order" were eliminated entirely, these amendments would indeed be a vast improvement in permitting conveyances by a personal representative when authorized by will.
Due to space limitations, we will not discuss the remaining sections of the bill that essentially conform pertinent sections of Chapters 28A and 32 to permit these powers.
Chapter 28A of the General Statutes is proposed to be further amended by adding a new section 28A-22-10. "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." This provision would eliminate the existing technically required futile creation of a trust where its purpose has been obviated by circumstance. It would be helpful to make this section relate back and apply to trusts where this was not done for the very reason that it seemed unnecessary at the time. 36A-141 would be added to permit a trustee to distribute the assets of an inoperative trust under the authority granted under the provisions of G.S. 28A-22-10.
This bill has passed the House and it was referred to the Senate Judiciary Committee on April 25, 2001.
Revised Judicial & Execution Sales Procedure. SENATE BILL 681
Sponsor: Senator Hartsell.
This is a major rewrite and streamlining of the judicial sales procedure. If passed it would essentially conform the notice requirements to those of the power of sale foreclosure. The more significant changes are as follows. The notice of sale period set out in G.S. 1-339.17 will be reduced from thirty days to twenty. Publication of the notice of sale will be reduced from the current four weeks with a minimum of twenty-two days apart to two consecutive weeks and seven days apart. The prohibition against the last publication occurring more than ten days prior to the sale remains.
One of the more significant changes would, in many cases, eliminate the requirement of a resale after an upset bid. G.S. 1-339.25 would provide that there will be no resales except as provided in G.S. 1-339.27A and G.S. 1-339.30. However, there may be successive upset bids, each of which will be followed by a further upset bid period consisting of 10 days. When an upset bid or a motion for resale under G.S. 1-339.27A has not been filed within 10 days following a sale, resale, or upset bid, the rights of the parties to the sale will become fixed. If an upset bid on
real property is submitted to the court, the upset bidder will have to file a notice of upset bid with the Clerk. The notice of upset bid must include:
(1) The name, address, and telephone number of the upset bidder;
(2) The amount of the upset bid;
(3) A statement that the sale shall remain open for the filing of additional upset bids for a period of 10 days after the date that the notice of upset bid is filed; and
(4) The signature of the upset bidder or the attorney or the agent of the upset bidder.
The clerk will then notify the person holding the sale of the upset bid. The person conducting the sale will then mail a written notice of upset bid by first-class mail to the last known address of the last prior bidder and the current record owners of the property. An upset bid releases the last prior bidder from any further obligation on account of the bid, regardless of how the bid was made, and their deposit or bond shall be released. The clerk of superior court will have authority to make any "orders as may be just and necessary to safeguard the interests of all parties and may fix and determine all necessary procedural details with respect to upset bids in all instances in which this Article fails to make definite provisions as to that procedure." As before, the provisions of this section will not apply to public sales of timber by sealed bid.
G.S. 1-339.27A would be a new provision for ordering a resale of real property after an upset bid. "Upon motion of an interested person and for good cause, the judge or clerk having jurisdiction may order a resale of real property when an upset bid is submitted as provided in G.S. 1-339.25. If the motion is granted, the procedure for the resale is the same in every respect as is provided by this Article in the case of an original public sale. If the motion is denied, the 10-day period for subsequent upset bids begins upon the entry of the order."
This bill, if adopted, would provide a mechanism to expedite judicial sales tremendously without prejudicing any parties. There does appear to be one serious procedural flaw in this otherwise excellent legislation. The case of Mennonite Board of Missions v. Adams, 462 U.S. 791, 103 S. Ct. 2706, 77 L.Ed.2d 180 (1983), should be noted. In that case, a tax foreclosure sale was conducted. The statute provided for posting, publication and notice by certified mail to the owner. No statutory provision was made for personal or mailed notice to subordinate lienholders. In this case, the mortgagee learned of the sale two years later after an applicable redemption period had expired. The Supreme Court held that the notice by posting and publication did not meet the standards of the due process clause of the 14th Amendment to the U.S. Constitution. The court stated that the state statute must provide notice reasonably calculated, under all circumstances, to apprise interested parties of the pending of the action and afford them an opportunity to present their objections. A mortgagee has a legally protected property interest and is entitled to notice reasonably calculated to apprise him of the pending sale. Personal service by mail or reasonable notice is required even though sophisticated creditors have ample means to discover a tax delinquency and the pendency of a sale.
It is our view that there is, arguably, sufficient "state action" to make Mennonite applicable to a power of sale foreclosure. If so, it would require proper notice even if the subordinate lienholder did not file a request for notice under G.S. 45-21.17A. Under this proposed judicial sale statute, we believe Mennonite would clearly apply. It would seem that notice of sale is what Mennonite requires. It would appear that notice of hearing should not be required to be provided to a subordinate lienholder.
This act would become effective January 1, 2002, if passed. It would apply to judicial sales when the original order of sale was issued after December 31, 2001. It would also apply to execution sales when the execution was originally issued on or after December 31, 2001. The act will not apply to any judicial sale when the original order of sale is issued prior to the effective date of the act. Nor will it apply to any execution sale held pursuant to any execution originally issued prior to the effective date of the act.
Extend Lien for Public Health Nuisance. SENATE BILL 352
Sponsor: Senator Kerr.
This bill would make the lien for expenses and costs incurred under this section attach to any other real property owned by the owner of the building or structure and located within the city limits or within one mile thereof, except for the owner's primary residence. Under the current statute, the lien only attaches to the property involved. There is no filing requirement to give notice to purchasers under the amendment or under the current statute. G.S. 160A-432 is the enforcement provision for failure to correct building inspection violations. This lien would be added to that section as well on non-residential structures. There is a requirement that the liens must be filed but it does not provide where. Since these liens are in the nature of a tax lien, they should be required to be filed in the office of the tax collector if not the Clerk of Superior Court. Before passage in the Senate the bill was revised to include the lien in the provision for housing code enforcement under G.S. 160A-443(6). This act would be effective when passed and is currently in the House Committee on Finance.
Change the Ownership Requirements for Use Value Taxation.
SENATE BILL 256
Sponsor: Senator Hartsell.
SENATE BILL 145
Sponsors: Senators Kinnaird; Albertson, Ballance, Carter, Cunningham, Gulley, Harris, Lee, Metcalf, Purcell, Warren, Weinstein, and Wellons.
These bills have the same purpose. It is their objective to avoid loss of use valuation due to a change in ownership when it is likely that the use will not change. Senate Bill 256 is more comprehensive and should provide greater consistency of treatment from county to county. It would avoid loss of favorable treatment that occurs as a result of estate or tax planning. In addition, it would avoid tax recapture when agricultural land is purchased by a non-related farmer. Both bills failed to make it through their respective chambers by the crossover deadline. They did not make it out of the Finance committee and we expect to see them again in another session.
Certain Manufactured Homes Real Property.
HOUSE BILL 253
Sponsor: Representative Brubaker
G.S. 105-273(13) would be amended to include singlewide manufactured homes in the definition of real estate. Chapter 20 of the General Statutes would be amended by adding the following new section: "G.S. 20-109.2. Surrender of titles to manufactured homes. (a) Surrender of Title. When a manufactured home becomes real property as defined in G.S. 105-273(13), the owner shall submit an affidavit to the Division that the manufactured home meets this definition and shall surrender the certificate of title to the Division. The Division shall then rescind and cancel the certificate of title. (b) Sanctions. A person who violates this section is subject to a civil penalty of up to one hundred dollars ($100.00), to be imposed in the discretion of the Commissioner." The amendment would be effective for taxes imposed for taxable years beginning on or after July 1, 2001. Section 2 of this act would becomes effective October 1, 2001. The remainder of this act is to be effective when it becomes law. This bill addresses an issue that needs serious attention. Its primary shortcoming is that it does not provide a simple procedural mechanism for accomplishing its goals and it will not provide record notice to title examiners. As a result, landowners will still be unable to consistently avail themselves of the protection of our recording statutes. The North Carolina Land Title Association is working on such provisions that it hopes can be incorporated into this bill before final passage. It has passed the House as of March 27, 2001. It is currently moving through committee in the Senate.