The Supreme Court of North Carolina in Whitford has come out with a definitive, first impression, decision on the power of an attorney in fact to make gifts of real estate on behalf of the principal.

In 1988, George W. Pittman, Jr., now deceased met with an attorney, and executed a power of attorney giving his wife, Rose Lupton Pittman, authority to act for Mr. Pittman including the power to transfer real property. The power of attorney modified the statutory short-form power of attorney set forth in N.C.G.S. § 32A-1 and by stating that Mrs. Pittman had the specific authority to conduct "real property transactions, including the power to transfer the real estate known as the homeplace that I inherited from my mother."

Shortly thereafter, Mrs. Pittman signed a deed at the direction of Mr. Pittman, and in the presence of both Mr. Pittman and a notary public, conveying property from Mr. Pittman to Dessie Pittman Gaskill and Alice Pittman Lewis Durham, the defendants and Mr. Pittman's sisters. The deed was subsequently recorded and delivered to the defendants. At the time of delivery, the property was worth $75,000. The defendants did not pay any consideration for the property. Mr. Pittman died intestate and plaintiff (Mr. Pittman's daughter) and Mrs. Pittman's daughter, would be entitled to inherit the property.

In 1990, plaintiff initiated this action alleging that the deed to the defendants signed by Mrs. Pittman as attorney-in-fact for Mr. Pittman was void. The trial court granted partial summary judgment in plaintiff's favor after finding that the deed signed by Mrs. Pittman was void and of no effect. On appeal, the Court of Appeals affirmed the trial court and held that an attorney-in-fact may not convey real property by gift unless the power of attorney expressly confers the authority to make gifts of real property. Whitford v. Gaskill, 119 N.C.App. 790, 792, 460 S.E.2d 346, 347 (1995). The defendants appealed.

The Supreme Court opinion dealt with two main issues. First, does an attorney-in-fact have the authority to make gifts of real property on behalf of the principal if not expressly authorized to do so in the power of attorney? Second, if specific authorization is required, is the word "transfer," when added to the standard wording of the statutory short-form power of attorney, sufficient to confer such authority to make gifts of real property?

Citing; Annotation, Power of attorney as authorizing gift or conveyance or transfer without a present consideration, 73 A.L.R. 884 (1931) Johnson v. Fraccacreta, 348 So.2d 570 (Fla.Dist.Ct.App.1977); King v. Bankerd, 303 Md. 98, 492 A.2d 608 (1985); and Brown v. Laird, 134 Or. 150, 291 P. 352 (1930) the Whitford Court stated that " ... in accord with the majority of jurisdictions which have considered this issue, we hold that an attorney-in-fact acting pursuant to a broad general power of attorney lacks the authority to make a gift of the principal's real property unless that power is expressly conferred. Accordingly, the power of attorney set forth in N.C.G.S. § 32A-1 and the powers granted attorneys-in-fact by N.C.G.S. § 32A-2(1), standing alone, do not authorize an attorney-in-fact to make gifts of the principal's real property."

The Whitford Court then dealt with the issue of whether the word "transfer" was sufficient to modify the statutory form in order to grant the necessary authority by relying on its definition as set forth in Webster's Third New International Dictionary 2427 (1976)and Black's Law Dictionary 1497 (6th ed. 1990) stating "The common thread connecting each of these definitions is that the word "transfer" is a word ordinarily used to represent a conveyance of property by sale or by gift".

In 1995 the North Carolina legislature, amended N.C.G. S. §§ 32A-1 and 32A-2. The amendment adds a section to the statutory short-form power of attorney giving the principal the ability to grant the attorney-in-fact the authority to make gifts to individuals and charities in accordance with the principal's personal history of giving gifts. Interestingly the Whitford Court, in noting the amendment stated that it "...does not affect our decision as it relates to general powers of attorney executed prior to the effective date of the amendment nor does it affect our decision as it relates to the attorney-in-fact's authority to make gifts subsequent to the amendment where there is no personal history of gift-giving.". It would seem that a clear inference could be drawn when a title examination does not disclose any previous gift deeds that there is no history of giving gifts to meet the threshold requirement of the statute. The "history" requirement is probably unnecessary as being too protective since the required act of initialing the power should be sufficient to demonstrate the principals intent. In light of the holding in this case, and the language in amended N.C.G.S. §§ 32A-1 and 32A-2, it may be prudent for practitioners drafting these instruments to consider modifying the statutory form to include clear express language to implement their clients intentions.

The timing of the recording of an instrument conveying an interest in real estate can obviously make an important difference. Generally speaking, a mortgage or deed of trust meeting the requirements for validity has priority from the time of valid registration (G.S. 47-20: G.S. 47-20.1). With respect to its recording statutes North Carolina is what is referred to as a "pure race" jurisdiction and first in time equals first in priority with few exceptions such as Chapter 44A labor and mechanic’s liens and Federal judgment liens. Another exception to this rule is found in Carolina Builders, Corp. v. Howard-Veasey Homes Inc., 72 N.C. App. 224, 324 S.E. 2d 626, cert. Den., 313 N.C. 597, 330 S.E. 2d 606 (1985) which sets forth the effects of the doctrine of "instantaneous seizin". If a Judgment or mechanic’s lien exists against a party before the party acquires title to real estate, and the party gives a deed of trust to secure all or part of the purchase price, the purchase money deed of trust will have priority over those liens if certain conditions are met. The secured debt must only represent purchase money (including costs directly attributable to the transaction), the deed of trust must be executed, delivered and recorded as close to simultaneously as possible with the deed, and both instruments must be part of one transaction. This doctrine holds true when the lender is the seller or when it is a third party lender. Our courts have not clearly defined the term "simultaneous" and therefore many practitioners prefer to record the instruments at the exact same time. Because of the doctrine of "estoppel by deed" most would agree that the security is effective even if the page order of the instruments were reversed from the usual practice (priority problems may arise from reverse recording, see our March 1996 newsletter for a brief discussion).

This practice of simultaneous recording occasionally gives rise to a priority problem when multiple deeds of trust are recorded. Two deeds of trust recorded at the exact same time have equal priority (unless second priority or subordination is specified in the junior instrument) Hood Comr. Of Banks v. Landreth 207 N.C. 621 (1935). Logic would suggest that the instrument recorded first in page order would have priority but while the case referred to the order of indexing it contains this statement, " Obviously two entries could not occupy the same space at the same time on the records, and consequently it is necessarily apparent that in the act of entering a list of names on a record that one name had to come first" and it would seem that such would be the conclusion as applied to page order as well as indexing. Therefor, when preparing multiple instruments for recording in a single transaction, it would be advisable to insure a time separation between the recording of the instruments as well as to state in the junior instrument the status of its priority with respect to the senior deed of trust. This is especially true where the pre-printed form warrants that it is a first lien.

It is commonly accepted that foreclosure with proper notice to junior lien holders cuts off those lien rights. While this is certainly true in most cases, as may be expected, there are exceptions. The most insidious exception derives from a line of cases that may best be explained by the following example:

O gives a deed of trust in favor of B. Subsequent to the recording of the deed of trust, a junior deed of trust is granted by O and recorded. O then defaults on the loan from B and B causes foreclosure to be instituted. B then purchases the property at the foreclosure sale. B next conveys the property to O. Presumably O would take title free of the junior lien but this is not the case under the holding of the Jones "Where the mortgaged premises were sold under a prior lien, and bought by a third person, who sold again to the mortgagor, the rights of the mortgagee are not impaired by this transaction; so far from it, it will be regarded only as the removal of an encumbrance (sic), which it was the duty of the mortgagor to effect." Jones v. Kingsey, 55 N.C. 463. The doctrine was restated in a case where the owner purchased at the sale, "We hold that the purchase by trustor at the senior mortgage sale did not extinguish the lien of the junior deed of trust" DIXIELAND REALTY COMPANY,v.WYSOR 272 N.C. 172, 158 S.E.2d 7 (1967).

Presumably this exception would apply to a judgment lien docketed after the senior deed of trust. Extreme care should be taken when a title examination reveals a foreclosure and the debtor reacquires title if there are any liens of record that appear to be cut off by the foreclosure proceeding.