The Statewide Title Newsletter and Legal Memorandum

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Issue  23  Article  55
Published:  6/1/1997

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Options to Purchase and Title Examinations
Chris Burti, Vice President and Legal Counsel

Since the 1975 amendment to G.S. 47-18, an option to purchase must be recorded to impart constructive notice to purchasers for value and lien creditors - just like a deed, contract to sell or deed of trust. Sometimes a title examiner will encounter a previously recorded option to purchase. The cases of Trogden v. Williams, 144 N.C. 192, 56 S.E. 865 (1907) and Lawing v. Jaynes, 285 N.C. 418, 206 S.E. 2d 865 (1907), should be noted although they pre-date the amendment.

In Trogden, an option dated 1-16-1905 with a 90 day option period was recorded 5-4-1905. It stated that if the holder decided to buy within the 90-day period, payment had to be completed within one year of the first payment due on the date of decision. On 6-28-1905, another party was given a contract to purchase by the owner. The court held that he took free of the option since there was no deed of record to the holder of the option. Held that where purchasers were persons who had knowledge of all circumstances surrounding their transactions with optionors, purchasers should be required to establish that they were purchasers for a valuable consideration and that they had no actual notice of the pendency of suit by optionees against optionors for specific performance when purchasers acquired deed from optionors.

The Lawing court held that where purchasers were persons who had knowledge of all of the circumstances surrounding their transactions with optionors, they should be required to establish that they were purchasers for a valuable consideration and that they had no actual notice of the pendency of the suit by optionees against optionors for specific performance at the time purchasers acquired deed from optionors. The court went on to note that, "under the registration statutes of Maryland and of Georgia, it has been held that the rights of an optionee under a properly recorded option agreement who exercises his [285 N.C. 425] option within the prescribed time are superior to those of a third party to whom the optionor has conveyed the same property Before the time for exercising the option has expired. Daniel v. Kensington Homes, Inc., > 232 Md. 1, 192 A.2d 114 (1963); Banks v. Harden, > 221 Ga. 505, 145 S.E.2d 563 (1965)."

In Several commentators question whether Lawing and "inquiry" rules of other jurisdictions, at least arguably, mean that prudent practice requires off-record inquiry as to exercise of the option. The recording gives record notice of the valid option when recorded; it does not mean that you can assume that there is no off-record notice of exercise within the option period, with a deed of record to follow after.

The best prepared options will provide that purchases for value and lien creditors can rely upon there being no record evidence of exercise within the stipulated option period. In any event, resolve these matters with the assistance of your title insurer. These aspects are discussed in more detail in E. Urban and G. Whitney, North Carolina Real Estate 21-101 (1996).


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