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Issue  26
Published:  9/1/1997

Beck v. Beck - Adverse Possession
Evidence of Ouster of Tenant in Common

Chris Burti, Vice President and Legal Counsel

Beck v. Beck 125 N.C.App. 402, 481 S.E.2d 317 (1997) is a recent case that gives further guidance as to what acts constitute ouster of a tenant in common. The Court points out that N.C. Gen.Stat. 1-40 allows for possession of land through the doctrine of adverse possession as follows:

No action for the recovery or possession of real property, or the issues and profits thereof, shall be maintained when the person in possession thereof, or defendant in the action, or those under whom he claims, has possessed the property under known and visible lines and boundaries adversely to all other persons for 20 years; and such possession so held gives a title in fee to the possessor, in such property, against all persons not under disability.

The court sets forth the well established requirements of the elements of adverse possession between tenants in common, "possession "is not considered adverse ... unless [the adverse claimant] ousts his cotenant 'by some clear, positive, and unequivocal act equivalent to an open denial of his [cotenant's] right.' " McCann v. Travis, 63 N.C.App. 447, 451, 305 S.E.2d 197, 200 (1983) (quoting Young v. Young, 43 N.C.App. 419, 427, 259 S.E.2d 348, 352 (1979))", Beck v. Beck, 125 N.C.App. 402, 481 S.E.2d 317, (1997) . This is known as an actual ouster. Actual ouster is often very difficult to prove factually.

In Beck the parties owned the property as tenants by the entirety until their 1972 divorce converted it into a tenancy in common. In 1973 Ms. Beck filed a partition petition an Mr. Beck filed a response denying she had any interest in the property. In 1978, petitioner's case was dismissed without prejudice by the trial court, pursuant to G.S. 1A-1, Rule 41(b), due to Ms. Beck’s failure to prosecute the action. She took no further action in this matter until March 1995 when she filed a new petition for partition. Mr. Beck again responded denying title and claiming adverse possession.

The Court set forth the trial court findings as follows, " The trial court found, and the record reflects, that petitioner knew in 1973 that respondent claimed the subject property as his own. Furthermore, respondent's responsive pleadings to petitioner's 1973 partition action unequivocally asserted his claim of total and exclusive ownership of the subject property. Petitioner also admitted, in her deposition testimony, that respondent had been in sole and undisturbed possession of the subject property since 1973, had collected rents and profits from the property without objection by petitioner, and had paid all taxes due upon the land.

Petitioner's deposition also indicates that she knew of, and did not object to, respondent's sale of timber cut from the land, respondent's use of the land for the grazing of cattle and for farming, respondent's claim of ownership to the land during a boundary dispute with another party (not petitioner), and respondent's rental of mobile homes on the property. Finally, petitioner admitted in her deposition that respondent had ‘treated said real property as his own,’ ‘open and notoriously to his own use,’ ‘to the exclusion of the Petitioner,’ by ‘clear, positive, and unequivocal acts of ownership.’"

The Court held that Mr. Beck’s response, denying title, in the 1973 partition proceeding constituted an actual ouster and his subsequent exclusive treatment of the property fulfilled the requirements for adverse possession as admitted by Ms. Beck. "Based on these facts, we conclude that petitioner was ‘actual[ly] ousted’ from the

property at issue on the date of respondent's filing of the answer in the first partition proceeding. See Willis[v. Mann], 96 N.C.App. at 454, 386 S.E.2d at 71. In Willis, on facts substantially similar to the ones at hand, this Court held ‘that the institution of this [Torrens] action unequivocally indicates that plaintiffs had actual notice that defendants were claiming the property to the exclusion of plaintiffs.... We hold that [such] evidence ... demonstrates an actual ouster of plaintiffs.’ Id. In our view, respondent's 26 July 1973 answer to petitioner's prior partition claim amounted to an open, unequivocal denial of petitioner's rights to any part of the subject property. Thus, for 1-40 purposes, the advent of respondent's adverse possession was 26 July 1973, the date of respondent's actual ouster of petitioner." Beck v. Beck 125 N.C.App. 402, 481 S.E.2d 317 (1997).

A significant issue was raised regarding whether the continuity of the possession was interrupted during the pendancy of the 1973 proceeding. Although the court held (we believe correctly ) that it was not interrupted, the courts reasoning appears to be confusing when the Court, citing Thomas v. Garvin, quotes as follows "if an actual ouster be made by one tenant in common with his co-tenant, there is no longer a common possession, and the remedy is not by petition for partition, but by ejectment to recover possession of the individual moiety." Thomas v. Garvan, 15 N.C. 223, 224 (1833).

Beck v. Beck, 125 N.C.App. 402, 481 S.E.2d 317, (N.C.App. 1997). If the Court had stopped the quote after the word "possession" there would not be an inference that an election of remedies or procedure was at issue as has been suggested by some commentators.

This case may not be of significant help to the title examiner trying to clear a title defect based upon adverse possession of a co-tenant since one rarely finds such clear evidence of ouster as a denial of title in a special proceeding file. It is probably simply encouraging that the appellate courts seem to be more willing to affirm a finding of adverse possession upon a set of clear facts.

1031 "Like Kind" rules unchanged by ‘97 Tax Bill

The proposed amendments to the definition of like kind property in Section 1031 tax deferred exchanges proposed to be included in the recently passed tax revisions have reportedly been dropped from the final version. Concerns about a narrowing of the scope of the types of real estate qualifying for deferred gain under Section 1031 are apparently allayed for the present.--- CLB

State of the Industry. Our Position. What is the future?
Hap Roberts, Chris Burti, Harry Cannon

Unlike most of the rest of the country, North Carolina is an "attorney state". By law, title examinations are to be performed by licensed practicing attorneys. The role of the title company is to take the title opinion and issue a commitment to insure the title based on the information provided. Closings as well are conducted by the attorney, who then renders a final opinion of title to the title company for the issuance of the final title policies.

For those of you who have been around for awhile, you have seen a number of attempts to alter the way business is supposed to be conducted. Our current system imposes stringent ethical standards on closing attorneys. As a result, the consumer receives a product that is professionally prepared, is cost efficient, and is reasonably certain to be free of known title defects. Purchasing a home is one of the largest financial decisions a person will make in their lifetime. Our system provides one of the lowest fee structures in the country, and the best insurance value found anywhere.

Ideally, the consumer is free to choose a lender, a title attorney, and a title company. While the use of legal secretaries and paralegals is certainly useful, and often times a necessity given the time constraints of real estate transactions, the consumer is protected by the work of a trained professional. Unfortunately, there has been, and continue to be, a number of forces aimed at circumventing this process.

In May of 1992, a four year legal battle ended between Investors Title and two competitors, Lawyers Title and Jefferson-Pilot Title. A federal jury found that Investors conspired to monopolize the market by making illegal kickbacks to employees of thrift subsidiaries and others who "recommended" that property buyers use Investors. The $4.36 million settlement was supposed to "return all of the (title) companies to a level playing field". Attorneys would no longer be coerced into using a particular title company for fear of being blackballed by a lender. In reality, it did very little do damage either Investors’ relationships with their lenders or their market position.

Controlled ("Affiliated" to be nice) business relationships between lenders and title companies, if conducted properly, are not in violation of RESPA regulations. As long as compensation is not tied to a percentage of volume, and there is no coercion on behalf of the lender for the borrower and / or attorney to use their title agency, state chartered banks can enter into these relationships. Typically the loan closing package issued from a lender involved in an affiliated relationship would include an additional document stating that "the borrower has chosen to use their affiliated title agency".

BB&T and Centura are currently involved in affiliated business relationships in North Carolina. They have partnered with several prominent national title companies, including Chicago Title and Lawyers Title. At a recent meeting of the Real Property Council of the North Carolina Real Property Section of the Bar, a variety of concerns were expressed to these lenders. Most important was that their practices were "coercive in nature in that the choice of title companies and coverage’s provided are not left to the attorney and client". Attorneys not electing to use the agency requested fear their action would cause that lender to direct their closing business elsewhere, to attorneys unwilling to stand up and resist.

In addition to state banks, there are many National Banks eagerly looking at how they can further diversify and cut into the business niche currently occupied by title attorneys and title companies. A recent front page Charlotte Observer article quoted First Union’s CEO as saying that the insurance segment of the market was very appealing. Norwest’s TOP’s (Title Option Plus) program has been vigorously fought and defeated in several states by attorneys and the title industry. Many other out of state lenders new to the North Carolina market do not understand our methods and are constantly looking for ways to reduce transaction costs by circumventing the attorney.

Despite all the outside pressure to change the way we do business, the simple fact is our current system works better for the consumer than practically anywhere else in the country. According to a national Residential Closing Survey conducted by Old Republic National Title Insurance Company, the average closing cost per transaction in North Carolina is the second lowest in the country. Taking inflation into account, attorney search and closing fees and title insurance fees are lower now than they were 20 years ago.

Where does this leave us? Statewide Title has taken the position that we will support the attorney system in North Carolina 100%. We are dedicated to preserving the system, protecting the current fee structure, and providing the consumer with the quality product and value they currently receive. Being an agent, and not a title company, we can choose to conduct the majority of our business with those companies who recognize that coercing attorneys and consumers is not the best way to do business. We are not, and do not intend to become, involved in an affiliated relationship of any kind.

Our diversification efforts have been geared toward giving back to the North Carolina real estate attorneys and firms who choose to support Statewide Title. For the past five years we have offered a series of free title insurance seminars around the state for attorneys, paralegals and legal secretaries. We created Statewide Title Exchange Corporation, a subsidiary that facilitates the processing of your 1031 tax deferred exchange transactions. We also created Statewide 1099 Service. Our goal is to constantly search for additional avenues of service to enhance your ability to provide the consumer with a better, more efficient product.

It is our opinion that we can preserve the attorney state system in North Carolina, while at the same time evolve and adapt to the ever-changing market conditions. Just as the word processor replaced the typewriter, the computer and fax machine have further escalated the speed at which transactions take place. We are on the threshold of true electronic commerce, where the bulk of the Paper Mountain we currently accept as routine and necessary will be a bad memory from the past. The Internet is rapidly becoming the backbone for the transmission of massive amounts of data worldwide. The instantaneous electronic transmission and reception of documents is rapidly making the paper fax machine and "waiting for the courier with a closing package" a thing of the past.

As a result of the rapid technological advances being made, our economy has gone from a local and regional focus to a national and even international focus. With the exception of the smaller community lenders, the large national lenders are daily acquiring the intermediate sized lenders who traditionally have been the entities with which we have conducted our business. Personal relationships are rapidly being replaced with impersonal transactions conducted with persons located throughout the country. These people, more often that not, are uneducated to our system and are unsympathetic to any impediment that inhibits their ability to execute their transaction under their required deadlines.

Given our limited resources, as law offices and a title agency, it is literally impossible for us to dedicate the resources necessary to remain on the cutting edge of technology. There are companies out there spending literally hundreds of thousands of dollars every week on software development. It is very easy to become discouraged at the thought that hardware and software deemed necessary just to keep up and compete, purchased today, will be obsolete in a couple of years. Is there a cost-effective way to circumvent this problem, while at the same time tapping into the rapidly expanding market? We think so.

Over the years Statewide Title has aggressively solicited referral business from around the country to pass along to our client title attorneys. As a result, we developed a network of reputable, competent real estate attorneys in most areas around the state who serve as the recipients and processors of these orders. These attorneys are familiar and comfortable with the fee structures and turnaround expectations associated with the various transactions. This network of attorneys is called StateNet™, and is growing daily.

Word has spread throughout the country to a number of lenders who have asked Statewide to serve as a routing mechanism to title attorneys in all 100 North Carolina counties. As a result of the increased demand, we created Statewide Mortgage Services, Inc. (SMSI), a wholly owned subsidiary of Statewide Title. SMSI features a Transaction Center which functions as the centralized routing point to North Carolina real estate attorneys for these lenders. On transactions not requiring title insurance, we simply route the order to the preferred attorney in the appropriate county and provide monthly billing. On transactions requiring title insurance we are able to provide equity, junior lien and full coverage.

It is not unusual for these lenders to be relatively unfamiliar with an "attorney state" and our associated fee structures and business methods. This is a critical area where SMSI can serve in an educational capacity to protect our system while at the same time establish solid business relationships with these national lenders. As a part of StateNet™, our client attorneys can be relatively assured that they will receive an ever-increasing volume of business. At the same time, they will be familiar and comfortable with the associated turnaround expectations and fee structures.

While most out of state lenders we have been in contact with have accepted the parameters of our system, others have made efforts to place unrealistic fee and turnaround expectations on the processing of their transactions. Still others have asked SMSI to use pre-prepared documents (including the title examination) or title examinations conducted by non-attorneys, simply wanting a "witness" or "courtesy" closing. SMSI will not work with lenders attempting to exclude the real estate attorney, and adamantly opposes the non-attorney practice of law.

In addition to the business generated directly through SMSI, we have partnered with Stewart Mortgage Information Company (SMIC), a wholly owned subsidiary of Stewart Title, the fourth largest title company in the country. SMIC was created to accommodate the business many lenders are now beginning to outsource pertaining to mortgage related services. They are currently the only company in the country who offer "bundled" services to national lenders all tied together electronically into one software package. While only a little over a year old, SMIC currently boasts First USA, First Union and GMAC as members of their rapidly growing client base.

SMSI serves as the routing mechanism for the SMIC transactions taking place in North Carolina. We also serve as a local contact for establishing business relationships with local and regional lenders. A good example is Central Carolina Bank, currently in the process of coming on line with SMIC. Our relationship with SMIC provides a perfect opportunity for us to do business with a multitude of lenders, both local and national, while at the same time generating good business within the system for North Carolina real estate attorneys. Lenders working through SMIC and SMSI can choose to have us incorporate the real estate attorneys they are currently working with into the process. All of this is done without the negatives associated with "affiliated" business relationships mentioned above.

On a recent visit to SMIC headquarters in Houston, Texas, we were told that within 60 days there would be a software product available that would enable SMSI and our StateNet™ attorneys to communicate transaction data electronically via free software and 800 numbers. We will all be electronically connected to SMIC and their client lenders. An example of one of the most exciting benefits is the remote print capability of mortgage documents through Stewart Mortgage Online Documents. StateNet™ attorneys having the appropriate software and authorized to do so by the lender, will have the ability to print closing documents in their office. Any changes, if necessary, can be made by the lender and reprinted in a matter of minutes, thereby saving a problem closing.

We are excited to have a partner such as SMIC. They can provide us and our client attorneys with communication software and business opportunities that will enable us all to grow and adapt as market conditions and requirements continue to change. Any law office with a 486 or faster computer and a modem now has the opportunity, through SMSI and SMIC, to be connected to a nationwide network of real estate transactions. If you would like more information about SMSI, SMIC, or would like to participate as a member of StateNet™, call Harry Cannon at (800)821-5414.

We hope that you will choose to partner with us as we work diligently to preserve our attorney state system, survive the constant changes, and effectively compete in an electronic marketplace. We appreciate your support, and look forward to providing North Carolina consumers with a superior product we can all be proud of.

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