Special Situations and Entities

Transcription

1 Special Situations and Entities Nancy Short Ferguson Chicago Title Insurance Company November 7, 2002 I. PARTIES, GENERALLY Title insurers, clients (lenders and purchasers) and later searchers and purchasers rely upon the closing attorney to verify the identity and authority of parties through the closing process. Title insurers typically do not require additional documentation (or often even know of any issues), unless the attorney specifically requests advice. The primary considerations regarding any party and the documentation necessary for closing include the following: 1) Identify all owners of any present or future interest, through the title search and discussions with parties, 2) Confirm current correct legal names, by checking record documents in title search, with Secretary of State or elsewhere, and assure that documents reflect all names, 3) Check record evidence and indexing of names as originally vested, reflect any interim changes (such as marriage or merger) and clarify any erroneous references (See Tomika Investments, Inc. v. Macedonia True Vine Pentecostal Holiness Church of God, inc., 136 N.C.App. 493, 524 S.E.2d 591 (2000)) for a clear chain of title, 4) Assure joinder by all persons and entities with an interest (and spouses), 5) Verify competency of the person or entity, 6) Verify appropriate capacity of the persons executing the instruments, 7) Obtain appropriate approvals or joinders by others, especially in transactions which are not apparently for the purpose of carrying on the regular business of the entity, 8) Identify and discuss potential creditors rights if the transaction is other than arms length for full value (in situations where creditors, lienholders or federal, state or local taxing authorities may have an interest in the equity of the grantor) and 9) Address potential claims of other interested persons (in situations of potential self-dealing between, for example, attorney-in-fact, fiduciary, officer, director or manager, and their principal). 10) Post-closing, assure that all parties who execute have been properly shown in indexing. See Paragraph 3.04 of the Minimum Standards for Indexing Real Property Instruments. However, some Registers of Deeds only index by named grantor on first page, others only index by signature lines. NOTE: The insured under a title insurance policy includes on the named insured and those who take by operation of law, such as merger or inheritance, but insures only as to vesting on the effective date of the policy. The typical owner s policy of title insurance will not extend to those taking by conveyance, such as a conveyance by the named insured to a related entity or to a family limited partnership. However, the 1998 Homeowner s Policy (sometimes called the enhanced policy) or specific affirmative coverage such as an Assignment or a Fairway endorsement may be considered in these situations. Page 1 of 47

2 NOTE REGARDING NOTARY ACKNOWLEDGMENTS: Many suggested and statutory forms are included in this manuscript. However, substantial revisions to the forms and requirements are being actively discussed for legislative revision in the 2003 North Carolina General Assembly. They can be viewed when available on the web site of the North Carolina Secretary of State, Notary Public Section, II. USEFUL WEB SITES Below are some useful web sites for checking on the exact proper name of entities, their existence, current standing, officers or managers, or even death records on individuals. These can provide contacts to reach entities (such as lenders who seem to have disappeared ). They can provide information on which the attorney is entitled to rely, such as annual reports identifying managers of a limited liability company so that the attorney has a legal presumption of their authority to execute documents on behalf of the company. More and more county records are being placed on-line for quick access, though most are 30 days or more behind, are not updated regularly and must not be relied upon as the primary source for a title search. North Carolina Association of Registers of Deeds, Minimum Standards for Indexing Real Property Instruments, Published by the Secretary of State, Land Records Management Division, Raleigh, NC, Revised November, 1996, Effective January 1, 1997 (approximately 50 pages!) Office of the North Carolina Secretary of State Corporations division Corporations, LLC s, limited partnerships, etc. Find name changes, registered agents, managers and officers (in annual reports); railroad company, mortgage broker or other entity mergers or name changes; status; Download forms National Association of Secretaries of State (for other states offices) NC Commissioner of Banks (for registered mortgage bankers or brokers for Good Funds Settlement Act or to locate any banks or brokers): Social Security Death Index: Cities and Counties: Tax information, Registers of Deeds, other local governmental information and contacts (State and Local Governments on-line, lists & links) (municipal codes and ordinances) Page 2 of 47

3 Administrative Office of the Courts, for schedules, forms, appellate court cases, but not judgment, civil actions, special proceedings or other local actions: Federal courts, including many bankruptcy filings, District and appellate court cases: North Carolina Bar Association North Carolina State Bar Bar Associations for other states and cities all over the country North Carolina General Statutes on-line (including bills in the Legislature) North Carolina Institute of Government State Library of North Carolina, E. Jones Street, Raleigh NC (Copies of the railroad charter can be obtained (for a fee) by identifying the railroad company, year and Session Law. Maps, corridors, encroachment applications and other information about the primary railways and ownership can be obtained from the: North Carolina Department of Transportation Rail Division, 1553 Mail Service Center, Raleigh, (MAIL), or 1 South Wilmington Street, Raleigh, (DELIVERY), FAX: (919) , TEL: (919) III. INDIVIDUALS. Any competent individual, 18 years or older, may hold or convey title. If their name has changed since the vesting instrument, any mortgage or conveyance should include both the current correct name, any intervening names and the prior vested name and should be indexed by the Register of Deeds in all such names. The test for the title searcher and certifier: Would I (or the next person searching this title) be able to identify from the record every name in which this property has been held at any time, in order to search out-conveyances, judgments, etc.? The title search should include out conveyances, judgments and indexes under all such names, for the relevant periods. This may not be readily obvious, for example: This includes creditors of any persons who obtained title as tenants in common -- for example through an estate or inheritance. Washburn v. Washburn, 234 N.C. 370, 67 S.E.2d 264 (1951) This also includes creditors of any individual who obtained title through a voluntary partition deed. (Note that voluntary partition deeds do not create a tenancy by the Page 3 of 47

4 entireties between a former tenant in common and their spouse unless they expressly so state and are signed by the tenant in common. N.C.G.S ) Forms of acknowledgment for individuals. G.S and Execution: (SEAL) (Signer s name) Acknowledgment: State of, County I,, a notary public of the above county and state, do hereby certify that personally appeared before me this day and acknowledged the due execution of the foregoing instrument. Witness my hand and official seal this the...day of , (Signature of officer.) (Affix official seal) My Commission Expires: IV. SPOUSES AND MARITAL INTERESTS Certainly, in any conveyance of property for which both spouses have title (such as a tenancyby-the-entireties or tenancy in common), the title of each must be addressed by conveyance or court order. However, even in the case of property held only in the name of one spouse, the nontitle-holding spouse of any individual must join in either join in the conveyance or have their marital interest addressed pursuant to one of the specific situations outlined below. Many a client, involved in a separation or divorce, has been surprised at the closing table to find that their spouse (whether current, former or soon-to-be-former) has an inchoate but very real interest in the property. A. Deeds and Contracts Between Spouses. A simple deed from one spouse to the other will not, in and of itself, waive the contingent statutory marital rights that attach,. The conveyance only conveys record title, and does not waive potential marital interests. See, for example, N.C.G.S. 39-7(b) and (c), N.C.G.S (e) Beroth v. Beroth, infra. However, agreements or memoranda can often be recorded which effectively provide the waiver in conjunction with conveyance of the actual title interest, whether in the same instrument or not. These must confirm full disclosure of assets, waiver of all such rights, be executed and acknowledged before a notary by both spouses and be recorded in the office of the Register of Deeds of the county in which the affected real property is located, all in compliance with N.C.G.S or N.C.G.S (See sections below). Some suggested comprehensive language for this purpose is as follows: Page 4 of 47

5 This conveyance is made pursuant to N.C.G.S , N.C.G.S and N.C.G.S in order to vest title to the within described property solely in the Grantee herein, free and clear of any right, title and interest of the Grantor herein. (For purposes of this provision, the Grantor shall mean any Grantor other than the individual Grantee spouse in whom title is to remain vested herein). The parties hereby acknowledge full and complete disclosure of their separate and marital assets, each unto the other. For these purposes, by execution of this deed, with regard to the property conveyed hereby, the Grantor hereby waives, releases and quitclaims forever unto the Grantee (1) any and all right to share in the estate of the Grantee upon the Grantee s death as provided in N.C.G.S , or pursuant to a Last Will and Testament or codicil thereto of the Grantee, (2) all and every right to elect to take a life estate in said real estate upon the death of the Grantee under N.C.G.S and 39-7, (3) all and every right to dissent from the will of the Grantee, (4) any and all rights arising out of any action for equitable distribution under N.C.G.S , (5) any and all community property laws of any state, (6) any and all right to an elective share in the described property pursuant to N.C.G.S et seq and (7) any and all other rights and interests in said real estate which the Grantor now has or may hereafter have or acquire arising out of or accruing to said Grantor by reason of past, current or future marital relationship with the Grantee. These rights attach to fee simple, to remainders, and even for purposes of releasing negative easements (restrictive covenants). Moore v. Shore, 208 N.C. 446, 181 S.E. 275 (1935). However, they would not attach to a life estate only in the decedent spouse, since that estate terminates before the condition precedent for the marital interest occurs, i.e., the death of the owning spouse. B. Tenancy-by-the-Entirety: Severance and Protection of the Claimant Spouse North Carolina has long provided special recognition of property held by husband and wife as a tenancy by the entireties. Davis v. Bass, 188 N.C. 200, 124 S.E.2d 566 (1924). N.C.G.S With the exceptions of liens of the U. S. Internal Revenue Service and the North Carolina Racketeer Influenced and Corrupt Organizations Act (RICO) (discussed later), property held as a tenancy-by-the-entirety is exempt from creditors of a single spouse during the marriage, Gas Light Co. v. Leggett, 273 N.C. 547, 161 S.E.2d 23 (1968); Dealer Supply Co. v. Greene, infra, including mechanics and materialmen s liens contracted by one party and not ratified by the other, Air Conditioning Co. v. Douglass, 241 N.C. 170, 84 S.E.2d 828 (1954). Property originally held as tenancy-by-the-entireties will be protected from the liens of debtor spouses (other than the IRS) via one of the following: Conveyance to the non-debtor claimant spouse (or a third party if the claimant spouse has creditor lien problems as well), pre-divorce, whether by voluntary deed or court order. Conveyance to a third party (not an escrow or trust for the benefit of the debtor spouse) prior to divorce, Dealer Supply Co. v. Greene, 108 N.C. App. 31, 422 S.E.2d 350 (1992), cert. denied, 333 N.C. 343, 426 S.E.2d 704 (1993). Joinder of all such creditors in the civil action and transfer of their lien to other assets awarded to the debtor spouse in the proceeding, Washburn v. Washburn, 234 N.C. 370; 67 S.E.2d 264 (1951). Page 5 of 47

6 An interest as tenancy-by-the-entirety is not immune from attachment of creditor liens ahead of the claimant spouse s interest in the following situations: 1) Upon divorce, the tenancy by the entirety is severed and converted to a tenancy in common. Tax, judgment or other liens of one spouse attach to the one-half interest of the debtor spouse, Union Grove Milling and Manufacturing Co. v. Faw, 103 N.C.App. 166, 404 S.E.2d 508 (1991). The deeds of trust of the relinquishing spouse only immediately attach to the one-half interest of that borrower-spouse, Branch Banking and Trust Company vs. Wright, 74 N.C. App. 550; 328 S.E.2d 840 (1985), pet. For discretionary review allowed 314 N.C. 662; 335 S.E.2d 321 (1985) appeal withdrawn, 318 N.C. 505, 353 S.E.2d 225 (1985). This has disastrous consequences on the ability of the debtor spouse to resolve marital property issues with the non-debtor spouse post-divorce. 2) Upon death of one spouse, the surviving spouse inherits all, so his/her creditors liens will attach, or the death of the non-conveying spouse may feed the estoppel of a prior conveyance by the surviving spouse. Hallyburton v. Slagle, 132 N.C. 947, 44 S.E. 655 (1903); Harrell v. Powell, 251 N.C. 636, 112 S.E.2d 81 (1960). However, the conveyance is subject to an intervening conveyance to a bona fide purchaser or mortgagee for value under the recording statutes, the Conner Act, N.C.G.S or 47-20, respectively. 3) North Carolina Racketeer Influenced and Corrupt Organizations Act, Chapter 75D, allows enforcement against both spouses, though just against an undivided interest in the criminal spouse. 4) The Slayer Statute prohibitions of N.C.G.S. 31A-5 severely limit inheritance. 5) On simultaneous death of husband and wife, G. S. 28A-24-3 presumes a 1/2 undivided interest in each. 6) Federal Tax Liens against only one taxpayer-spouse will attach (see below). C. Tenancy by the entireties Special situations Any single conveyance to two persons married to each other at the time of the conveyance is presumed to be as tenants by the entirety, pursuant to N.C.G.S , unless: the conveyance specifically provides otherwise, e.g., N.C.G.S (b), the conveyance is in partition of property, only one spouse was a tenant in common and the conveyance does not comply with the provisions of N.C.G.S , which require: o both spouses sign the conveyance in conformity with N.C.G.S ; o the conveyance is dated after 1/1/78; and o the conveyance expressly provides it is intended to vest the interest as a tenancy by the entirety between the spouses the parties became married (or divorced and remarried) subsequent to the conveyance, N.C.G.S (b), Lawrence v. Heavner, 232 N.C. 557, 61 S.E.2d 697 (1950). Page 6 of 47

7 the conveyance was prior to prior to 10/1/69 (the effective date of N.C.G.S (b)(3)), Davis v. Bass, 188 N.C. 200, 124 S.E. 566 (1924). Property held as tenants by the entireties is presumed to be marital for purposes of Equitable Distribution absent clear, cogent and convincing evidence otherwise. Such a high burden of proof has proven difficult to meet. Thompson v. Thompson, 93 N.C.App. 229, 377 S.E.2d 767 (1989). A conveyance to husband, wife and a third party is presumed to vest a 1/2 undivided interest as tenants by the entireties in the husband and wife, as tenants in common with the third party which holds the other 1/2 undivided interest. In re Gardner, 20 N.C.App. 610, 202 S.E.2d 318 (1974), Lawrence v. Lawrence,, 100 N.C.App. 1, 394 S.E.2d 267 (1990). Therefore, any conveyance including husband and wife as grantees which is other than as tenants by the entireties or includes other grantees should be very specific as to the estate intended in each party. C. Tenancies-by-the entirety: Federal Tax Liens On April 17, 2002, the United States Supreme Court decided the case of United States v. Crafts, 535 U.S. 122 S. Ct. 1414; 152 L. Ed. 2d 437 (2002), U.S. Lexis 2790, for which the slip opinion is online at This decision provides that a federal tax lien against one spouse attaches to real property held by both spouses as tenants by the entirety. In a 6 to 3 decision, the Supreme Court held that the husband s interests in the entirety property constitute property or rights of property under 26 U.S.C to which a federal tax lien may attach. The court used state law to determine which property or rights of property are included in the husband s entirety interest, then turned to federal law to determine whether or not those rights constitute attachable property under the federal tax lien statute. Justice O Connor s majority opinion used a metaphor to explain the analysis: A common idiom describes property as a bundle of sticks a collection of individual rights which, in certain combinations, constitute property. State law determines only which sticks are in a person s bundle. Whether those sticks qualify as property for purposes of the federal tax lien statute is a question of federal law. The Court reviewed Michigan tenancy by the entirety law, which is substantially similar to North Carolina s laws. The Court held that each spouse owned sufficient sticks in the bundle of rights for the court to recognize that the spouse s interest in the entirety property may be subjected to a lien under the federal tax law. The sticks referenced include most of the basic attributes of tenancy by the entirety interests: the right to use the property, the right to exclude third parties, the right to share income produced by the property, the right of survivorship, the right to become a tenant in common upon divorce, the right to sell or encumber the property with the nondebtor spouse s consent, and the right to block the nondebtor spouse from unilaterally selling or encumbering the property. The case was remanded to the trial court to value this property right for federal tax lien purposes. Page 7 of 47

8 The case has engendered much discussion. How will the IRS value the property right? How does this change in lien rules affect the priority vis-à-vis other judgments, deeds of trust or liens? Is it retroactive and, if so, under what circumstances? What effect does this have on states that had previously adopted the Uniformed Federal Tax Lien Registration Act? These issues (and others) will be left for future analysis and decisions. But for now, BE ALERT: Effective immediately, in any situation involving a federal tax lien against one or both spouses where property is or will be held in a tenancy by the entirety, most title companies will require the satisfaction and release of such liens, or discharge of the property from the liens, duly filed in the office of the Clerk of Superior Court in the applicable miscellaneous file(s), notwithstanding the fact that the title to the property is (or was, predivorce) held in the names of both spouses as tenants by the entirety. IRS Form 8821 can be used to obtain release information on these or any other federal tax liens. The form is on-line at: D. Tenancies-by-the-entirety: The North Carolina Racketeer Influenced and Corrupt Organizations Act (RICO) N.C.G.S. 75D-8(a) provides that as part of a final judgment of forfeiture, any judge of the superior court may, after giving reasonable notice to potential innocent claimants order any defendant to divest himself of any interest in real property including property held by the entirety. Where property is held by the entirety and one of the spouses is an innocent person, upon entry of a final judgment of forfeiture of entirety property, the judgment operates to convert the entirety to a tenancy in common and only the one-half undivided interest of the offending spouse shall be forfeited. E. The Premarital, Prenuptial or Ante-nuptial Agreement Pursuant to N.C.G.S. Chapter 52B, The Uniform Premarital Agreement Act (effective 1/1/87), Howell v. Landry, 96 N.C.App. 516, 386 S.E.2d 610 (1989), a man and woman contemplating marriage may enter into a valid contract with respect to property rights. In order to be reliable, insurable, recordable and clearly govern rights regarding real property, the agreement: Must be executed and acknowledged by both parties. Must not be unconscionable (a matter of law for a court to decide). Must be made after fair and reasonable disclosure of the property or financial obligations of each party, duly given, not waived. Must be voluntary. Must not waive spouse support such that a spouse would become eligible for support under a public assistance program. If real property title is to be affected, must be recorded in the office of the Register of Deeds of the county in which the real property is located. The recorded instrument may be either the entire agreement or a memorandum thereof reciting the relevant waivers, signed by both spouses. Page 8 of 47

9 Should provide that it can be relied upon by third parties once recorded and unless rescinded of record. Should provide specifically for waiver of right to an elective share under N.C.G.S The document is valid against creditors and purchasers for value only from registration. N.C.G.S F. Separation and Property Settlement Agreements The primary concern for real estate attorneys is with property settlement agreements, rather than the sometimes related Separation Agreement, though the terms are often used interchangeably. Pursuant to N.C.G.S , N.C.G.S , N.C.G.S (a)(2) and N.C.G.S , such agreements must be in writing, signed by both spouses, after full disclosure, duly acknowledged in recordable form,. The agreement must be untainted by fraud, must be in all respects fair, reasonable and just, and must have been entered into without coercion or the exercise of undue influence, and with full knowledge of all the circumstances, conditions, and rights of the contracting parties. McIntosh v. McIntosh, 74 N.C. App. 554, 328 S.E.2d 600 (1985). The agreement should contain specific waiver of all of the contingent rights outlined earlier. The agreement should provide that it can be relied upon by third parties once recorded and unless rescinded of record. Third parties have a right to rely on the document only to the extent their rights arise after the time of recordation of the marital settlement. The document is valid against creditors and purchasers for value only from registration. N.C.G.S Upon any reconciliation of the parties, the separation agreement provisions immediately become null and void and of no further effect. Therefore, provision for the property settlement portions of the agreement to remain in full force and effect upon later reconciliation of the parties is critical, especially in the event one of the parties is to retain title. In re Estate of Tucci, 94 N.C.App. 428, 380 S.E.2d 782 (1989) aff d per curiam, 326 N.C. 359, 388 S.E.2d 768 (1990). A separation agreement is not a conveyance unless it contains the minimum requirements of a deed, i.e., grantor, grantee, granting clause, habendum clause, under seal, and satisfactorily acknowledged. Nor does a Separation Agreement sever a tenancy by the entireties, at least until it serves as a conveyance and all conditions have been met. See Dealers Supply v. Greene, 108 N.C.App. 31, 422 S.E.2d 350 (1992) (property was conveyed to husband s parents before he and wife divorced, then reconveyed to he and new wife after their marriage, preventing the judgment liens of husband s individual creditors from attaching). But see Riley v. Riley, 86 N.C.App. 636, 359 S.E.2d 252 (1987); Higgins v. Higgins, 86 N.C.App. 513, 358 S.E.2d 553 (1987). A separation agreement may serve as a renunciation of an earlier will benefiting the estranged spouse. Sedberry v. Johnson, 62 N.C.App. 425, 302 S.E.2d 924, cert. denied 309 N.C. 322, 307 S.E.2d 167 (1983). Typically spouses do not want their entire Separation Agreement on public record. Therefore, a recorded Memorandum of Separation citing the above provisions is common in any situation Page 9 of 47

10 where a deed from both parties to the third party is unattainable or where one of the separating spouses is retaining title. G. Agreements during marriage Pursuant to N.C.G.S , agreements signed by both parties, under seal, duly acknowledged, in recordable form, with or without consideration, may determine marital rights. The agreement should be recorded in the office of the Register of Deeds of the county in which the property to be released is located. They should include waivers of inheritance, administration of estate, equitable distribution, dissent from the will, and election of a life estate. However, no statutory reliance protection is available absent a marital settlement (above), even upon recording of the instrument. H. Joint conveyance to third parties In the event neither spouse is retaining title, a deed directly from both spouses to the third party is preferable, in order to avoid any question at all about spousal rights in the future. But see Schiller v. Scott, 345 S.E.2d 444, 82 N.C.App. 90 (1986): Husband signed deed of trust, wife signed solely to release her marital interest and without consider. Husband then gave a deed of trust to wife who reached the courthouse before the lender. Held: Wife s deed of trust was first priority, even though she had signed lender s deed of trust. Since Wife s deed of trust was for consideration, she was a bona fide protected party under N.C.G.S and won the race to the courthouse. Case law has added a presumption that the non-owning spouse joins only to release the inchoate interests. Hughes v. Young, 115 N.C.App. 325, 444 S.E.2d 248 (1994); Wellons v. Hawkins, 46 N.C.App. 290, 264 S.E.2d 788 (1980); Maples v. Horton, 239 N.C. 394, 80 S.E.2d 38 (1954); Taylor v. Bailey, 49 N.C.App. 216, 271 S.E.2d 296 (1980). I. Divorce from Bed and Board The innocent spouse is protected in making conveyances of separate property. G. S. 31A-1. However, a divorce from bed and board does not dissolve a tenancy by the entireties because it does not dissolve the marriage. Turlington v. Lucas, 186 N.C. 283, 119 S.E. 366 (1923). J. Slayer statute Under N.C.G.S. 31A, any person pleading guilty to or found guilty (in a criminal or civil action, as primary actor or accessory) of the willful and unlawful killing of another from whom they would otherwise take title to property, is barred or limited in their ability to take such title. Page 10 of 47

11 K. Final Divorce Marital interests end when the marriage ends; the person s rights are the same as any single person. A tenancy-by-the-entireties is converted to a tenancy in common between the spouses, vesting ½ undivided interest in each (and allowing attachment of individual creditors interests). Property held only in the name of one spouse is cleared of the marital interests of the nonowning spouse, other than ongoing Equitable Distribution proceedings. A woman may file with the Clerk of Superior Court to revert to a former name under N.C.G.S , including: (1) Her maiden name; or (2) The surname of a prior deceased husband; or (3) The surname of a prior living husband if she has children who have that husband's surname. In the event that the female spouse elects to revert to her former name under N.C.G.S and will be the owner, post-divorce, of real estate, the attorney should similarly consider registering a certified copy of this judgment containing the name change with the Register of Deeds of any county in which affected real estate is located, to assure it is appropriately indexed and locatable by anyone searching title. L. Equitable Distribution A lis pendens under N.C.G.S and N.C.G.S (h) should be filed for any Equitable Distribution (or other court proceeding involving title to real estate), pursuant to N.C.G.S (h). Though a request for equitable distribution may be filed anytime after separation of the spouses under N.C.G.S (a), a final judgment of Equitable Distribution may not be entered until after absolute divorce is granted, as envisioned by N.C.G.S (e). For example, a third party purchaser of or lien creditor upon the interest of the relinquishing spouse may gain priority over the claimant spouse s interest in the gap period between Complaint and final judgment of distribution in favor of the claimant spouse, absent a lis pendens filing. Pursuant to 50-20(g), [i]f the court orders the transfer of real or personal property or an interest therein, the court may also enter an order which shall transfer title, as provided in N.C.G.S. 1A-1, Rule 70 and N.C.G.S However, this order is not a conveyance unless it continues the next step further. An order to transfer and the order actually transferring (in lieu of a voluntary deed) is a two-step process, outlined under N.C.G.S. 1A-1, Rule 70, entitled Judgment for specific acts; vesting title, which provides, in relevant part: If a judgment directs a party to execute a conveyance of land or to deliver deeds or other documents or to perform any other specific act and the party fails to comply within the time specified, the judge may direct the act to be done at the cost of the disobedient party by some other person appointed by the judge and the act when so done has like effect as if done by the party... If real or personal property is within the State, the judge in lieu of directing a conveyance thereof may enter a judgment divesting the title of any party and vesting it in others and such judgment has the effect of a conveyance executed in due form of law... [emphasis added] Page 11 of 47

12 A conveyance, whether by voluntary deed or under Rule 70, must contain actual present conveyance language from the relinquishing spouse to the claimant spouse. Many court orders simply order the proposed relinquishing spouse to convey. But the record does not show the final step of the actual conveyance, whether by the relinquishing spouse or by the court s order. If the interests of lien creditors of only the relinquishing spouse have already attached to any interest in the property, in order for their liens to be released from specific real property and attached to other assets, they must be joined as parties and their interests appropriately addressed by the Court. Washburn v. Washburn, 234 N.C. 370; 67 S.E.2d 264 (1951), or their financial liens should be paid and/or calculated into the equitable division of property. N.C.G. S requires that Every judgment of the superior or district court, affecting the right to real property, or requiring in whole or in part the payment of money, shall be entered by the clerk of said superior court on the judgment docket of the court.... However, despite this provision, it is rare indeed that a Clerk of Superior Court will index a judgment only conveying property in the judgment index. And the Clerk is under no obligation to enter the judgment in the real estate records. In effect, the judgment may never appear in the record title of the property, absent specific affirmative action by the attorney. The attorney certifying title through or representing the claimant spouse must assure recording (registration) of a certified copy of the Judgment or Order actually conveying title in the office of the Register of Deeds of any county in which the property is located. N.C.G.S requires that: Every judgment, in which the transfer of title is so declared, shall be regarded as a deed of conveyance, executed in due form and by capable persons, notwithstanding the want of capacity in any person ordered to convey, and shall be registered in the proper county, under the rules and regulations prescribed for conveyances of similar property executed by the party. The party desiring registration of such judgment must produce to the register a copy thereof, certified by the clerk of the court in which it is enrolled, under the seal of the court, and the register shall record both the judgment and certificate. All laws which are passed for extending the time for registration of deeds include such judgments, provided the conveyance, if actually executed, would be so included. Only through such registration can the claimant spouse have valid record title, effective against subsequent claimants through the interest of the relinquishing spouse. Until this registration is complete, the interest to be conveyed to the claimant spouse (and their purchasers for value) may not be protected against the rights and claims of protected parties claiming through the courtordered relinquishing spouse under N.C.G.S or N.C.G.S M. Purchase Money Mortgages With regard to property to which title is taken, with simultaneous deed of trust for a portion of the proceeds, joinder of the non-owning spouse is not necessary. N.C.G.S provides as follows: Page 12 of 47

13 Spouse need not join in purchase-money mortgage. The purchaser of real estate who does not pay the whole of the purchase money at the time when he or she takes a deed for title may make a mortgage or deed of trust for securing the payment of such purchase money, or such part thereof as may remain unpaid, which shall be good and effectual against his or her spouse as well as the purchaser, without requiring the spouse to join in the execution of such mortgage or deed of trust. Similarly, N.C.G.S (g) provides, in relevant part, as follows: Election of surviving spouse to take life interest in lieu of intestate share provided.... (g) Neither the household furnishings in the dwelling house nor the life estates taken by election under this section shall be subject to the payment of debts due from the estate of the deceased spouse, except those debts secured by such property as follows: (1) By a mortgage or deed of trust in which the surviving spouse has waived his or her rights by joining with the other spouse in the making thereof; or (2) By a purchase money mortgage or deed of trust, or by a conditional sales contract of personal property in which title is retained by the vendor, made prior to or during the marriage; or (3) By a mortgage or deed of trust made prior to the marriage; or (4) By a mortgage or deed of trust constituting a lien on the property at the time of its acquisition by the deceased spouse either before or during the marriage. North Carolina courts recognize the doctrine of instantaneous seisin, but only for the purchase money portion of a loan taken at closing, and not for the construction or other future advances to be advanced thereafter! Therefore, in a case where the purchaser had contracted for survey, architect and other lienable services prior to purchase, and the loan obtained at closing was for purchase and construction, the court held that the deed of trust had priority only for the purchase price. The architect s lien, including the portion for services rendered long after closing, related back to prior to the construction advances under the same deed of trust! Dalton Moran Shook v. Pitt Development Company, 113 N.C.App.707, 440 S.E.2d 585 (1994). N. Incompetent non-owning spouse. The spouse owning separate property can convey it without joinder of their incompetent spouse, if a guardian has been appointed for the incompetent spouse and joins in the conveyance. N.C.G.S. 39-7(b). Page 13 of 47

14 O. Abandonment and Bigamy A spouse who abandons the other or enters into a bigamous marriage faces a loss of specified property rights under N.C.G.S. 31A-1. V. CORPORATIONS. In any documentation of purchase, sale or mortgage by a corporation, the corporation s name must be exactly as shown in its filed Articles of Incorporation. The name, current standing and named officers can be check with the Office of the North Carolina Secretary of State, or, for out-of-state corporations, by locating the secretary of state (or equivalent) of their home state at the National Association of Secretaries of State, The state of incorporation is, in many cases, a key piece of identifying information needed on record instruments. Many corporations have related entities with the same or similar names, but incorporated in different states; thus, they are not the same entity. If a corporation has merged or otherwise changed its name, a Certificate of Merger issued by the Secretary of State of the home state of the corporation must be recorded in the office of the Register of Deeds in each county in which the corporation owns real property in order to complete the record chain of title. N.C.G.S , 55A-4-05, , N.C.G.S. 55D-26, N.C.G.S (d). In addition, the deed should contain a reference to the grantor including the vested name, any interim names and the current name of the entity now mortgaging or conveying title. As between the parties, title passes by operation of law on the date of the filing of the Articles of Merger with the Secretary of State. However, the record title to the property remains at risk until the Certificate has been filed with the appropriate Register(s) of Deeds. N.C.G.S and The official corporate seal should be affixed when available to lend the legal presumption of authority. N.C.G.S (b). Catawba County Horsemen s Association, Inc. v. Deal, 107 N.C.App. 213, 419 S.E.2d 185 (1992) Any mortgage or a sale, lease or conveyance for the apparent purpose of carrying on the ordinary business of the corporation (such as a developer selling lots), may be made by authority of the board of directors without shareholder approval. N.C.G.S In the case of a sale, lease or exchange of all or substantially all of the corporation s property otherwise than in the usual and regular course of business, the attorney should verify that the appropriate vote of the shareholders at a duly-called meeting (or by unanimous written consent unless less is required by Articles and N.C.G.S , revised 2002) and directors votes have been obtained pursuant to N.C.G.S , as in the situation where a developer-builder contemplates a bulk sale of undeveloped lots or property is being conveyed from the corporation to a shareholder. The prudent attorney should review the Articles, bylaws and the particular resolution(s) authorizing the transaction to assure authority of the designated officers. Page 14 of 47

15 The presumption of self-dealing on conveyances to officers and directors taints such conveyances. Mountain Top Youth Camp, Inc. v. Lyon, 20 N.C.App. 694, 202 S.E.2d 498 (1974), Poore v. Swan Quarter Farms, Inc., 95 N.C.App. 449, 382 S.E.2d 835 (1989). A certificate of existence, issued by the Secretary of State, is conclusive evidence that the corporation was in existence at the time of the transaction, and is, therefore, highly recommended. N.C.G.S (c). If a corporation has been administratively suspended (N.C.G.S ), involuntarily dissolved (N.C.G.S , N.C.G.S , N.C.G.S , N.C.G.S A-01) or voluntarily dissolved (N.C.G.S et seq.), but has not otherwise conveyed away title, the corporation is only empowered to distribute the property to shareholders or convey to a third party, acts consistent with the winding up of its affairs. It cannot purchase, refinance or otherwise act as if it were continuing in business, unless the charter is reinstated. Piedmont and Western Investment Corporation v. Carnes-Miller Gear Co., 96 N.C.App. 105, 384 S.E.2d 687 (1989), cert. denied 326 N.C. 49, 389 S.E.2d 93 (1990); N.C.G.S prior to 1990, now N.C.G.S ; N.C.G.S et seq. (revised 10/1/01). A corporation which has been suspended by the Department of Revenue under N.C.G.S must seek reinstatement under N.C.G.S if the corporation is to continue to do business. For a pre-july 1, 1985, suspension, the corporate cannot reinstate under prior law. However, these harsh rules are leavened by the provisions and case law that record title remains in the corporation, assets of the corporation are not intended to be dispossessed by suspension and third parties should be protected. Thus, title can be conveyed by the last officers of the corporation. N.C.G.S , N.C.G.S , Rae v. Miller, 252 N.C. 23, 113 S.E.2d 52 (1960), Parker v. Life Homes, Inc., 22 N.C.App. 297, 206 S.E.2d 344 (1974) A foreign corporation can mortgage, sell or convey property in North Carolina, notwithstanding failure to qualify to do business here. N.C.G.S Simply owning real estate or entering into an isolated transaction is not sufficient to require qualification. However, a foreign corporation may not be able to enforce contracts made while its North Carolina authority was suspended. Ben Johnson Homes, Inc. v. Watkins, 142 N.C. App. 162, 541 S.E.2d 769 (2001), aff d without precedential value, 2001 N.C. LEXIS 1227 (2001). And a corporation that has not qualified cannot maintain an action or proceeding in the courts of this state unless it qualifies prior to trial. N.C.G.S (a), though it can defend. N.C.G.S (e). If the signing officer on behalf of the corporation is any officer other than chairman, president, vice president, chief executive officer, chief financial officer, or treasurer, a certified copy of a signed and attested resolution of the corporation s board of directors must be either (1) attached to the document as recorded or (2) separately recorded in the office of the Register of Deeds prior to the instrument signed and acknowledged by such officer. N.C.G.S (e). This item (2) is a better alternative when a corporation must sign through an agent than, for example, a corporate power of attorney, thus avoiding the question of the authority of a corporation to delegate authority to an attorney-in-fact rather than a duly elected officer. In 1999, the requirement of attestation was removed for most corporations. N.C.G.S In 2002, this was extended to include banks. N.C.G.S Page 15 of 47

16 Appropriate corporate acknowledgments, as required by statute, are: Execution is as follows: ABC CORPORATION, INC. (Official Corporate seal) By: (Chair, Pres, CEO, VP, Treas, CFO) [Attestation Optional:] Attest: (Secr, Asst Secr, Trust Officer (assistant or associate) or, if a bank, Cashier) FORM 1: ACKNOWLEDGMENT IF SECRETARY, TRUST OFFICER OR CASHIER APPEARS BEFORE NOTARY State of, County I, , a notary public of the above county and state, certify that... (Name of secretary, assistant secretary, trust officer, assistant trust officer, cashier or assistant cashier) personally came before me this day and acknowledged that he (or she) is... (Secretary, assistant secretary, trust officer, assistant trust officer, cashier or assistant cashier) of..., a corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its... (Chairman, president, chief executive officer, vice-president, assistant vice-president, treasurer, or chief financial officer), sealed with its corporate seal, and attested by himself (or herself) as its... (Secretary, assistant secretary, trust officer, assistant trust officer, cashier or assistant cashier). Witness my hand and official seal, this the day of , 200. (Official seal)... (Signature of officer taking acknowledgment) My commission expires... Page 16 of 47

17 FORM 2: ACKNOWLEDGMENT IF (VICE) PRESIDENT, TREASURER OR OTHER SIGNING OFFICER APPEARS BEFORE NOTARY State of, County This the day of, 200, personally came before me,, Notary Public for the above county and state, who, being by me duly sworn, says that he is the (President, Treasurer, or other signing officer) of, a (state) Corporation, and that the seal affixed to the foregoing instrument in writing is the corporate seal of said company, and that said writing was signed and sealed by him in behalf of said corporation by its authority duly given. And the said (President, Treasurer, or other signing officer), acknowledged the said writing to be the act and deed of said corporation. Witness my hand and official seal, this the day of, 200. My Commission Expires: Notary Public FORM 3 (After 10/1/99): ACKNOWLEDGMENT IF SECRETARY, TRUST OFFICER OR CASHIER APPEARS BEFORE NOTARY (and no corporate seal is affixed) State of, County I, , a notary public of the above county and state, certify that... (Name of secretary, assistant secretary, trust officer, assistant trust officer, cashier or assistant cashier) personally came before me this day and acknowledged that he (or she) is... (Secretary, assistant secretary, trust officer, assistant trust officer, cashier or assistant cashier) of..., a corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its... (Chairman, president, chief executive officer, vice-president, assistant vice-president, treasurer, or chief financial officer), and attested by himself (or herself) as its... (Secretary, assistant secretary, trust officer, assistant trust officer, cashier or assistant cashier). Witness my hand and official seal, this the day of , 200. (Official seal)... (Signature of officer taking acknowledgment) My commission expires... Page 17 of 47

18 FORM 4 (After 10/1/99): For conveyances in the ordinary course of business of the corporation, ACKNOWLEDGMENT OF "AN OFFICIAL OF THE CORPORATION, SIGNING THE NAME OF THE CORPORATION BY HIM IN HIS OFFICIAL CAPACITY, OR ANY OTHER AGENT AUTHORIZED BY RESOLUTION PURSUANT TO G.S (e)" (usually a president, vice president, CEO, CFO, treasurer or other officer), APPEARS BEFORE NOTARY (and no attestation and no corporate seal affixed) G.S (c), amended 6/17/99. I,, Notary Public, certify that [official executing for corporation] personally came before me this day and acknowledged that he (or she) is [official's title] of, a corporation, and that he/she as [official's title], being authorized to do so, executed the foregoing on behalf of the corporation. Witness my hand and official seal, this the day of, 200. My Commission Expires: Notary Public Page 18 of 47

19 VI. LIMITED LIABILITY COMPANIES. Pursuant to Section 57C-2-02(3) of the North Carolina Limited Liability Act, a limited liability company can purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located. Similarly, the limited liability can sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property pursuant to N.C.G.S. 57C-2-02(4). A limited liability company must have one of the designations limited liability company, LLC, or L.L.C. in its official name or the name under which it does business in North Carolina, as filed with the office of the Secretary of State. A fictitious name may be adopted and filed by a foreign limited liability company if their name is either not available or fails to include the above designation. N.C.G.S. 57C The Operating Agreement should be consulted for any limited liability company participating in a closing. Limited liability company conveyances are executed by managers (which may include officers or directions, depending on the Operating Agreement) as defined by N.C.G.S. 57C-1-03(13), N.C.G.S. 57C-2-02(10), N.C.G.S. 57C-3-22 and N.C.G.S. 57C-3-25(c). Any bona fide purchaser or mortgagee is conclusively entitled to rely upon the status and managers identified on the last filed Annual Report in the office of the Secretary of State. N.C.G.S. 57C-3-25(a). However, the prudent attorney must verify the manager has not been removed and that the managerial authority under the Operating Agreement includes the type of transaction contemplated. Most companies file their own Annual Reports and many are less than conscientious about identifying all managers adequately. Any act apparently for carrying on in the usual way the business of the limited liability company, can be executed by a single manager, N.C.G.S. 57C-3-23, unless the third party knows the manager lacks authority. A manager may delegate authority for specific acts to others, so long as allowed by the Operating Agreement. N.C.G.S. 57C-3-24(a)In order to [s]ell, transfer, or otherwise dispose of all or substantially all of the assets of the limited liability company prior to the dissolution of the limited liability company, a unanimous vote of managers is required unless the Operating Agreement provides otherwise. N.C.G.S. 57C-3-23, N.C.G.S. 57C Upon dissolution, title to the real property is not automatically conveyed. N.C.G.S. 57C-6-04(c). Self-dealing such as conveyances between limited liability company and member or manager should be carefully reviewed and discussed with the title company prior to closing. N.C.G.S. 57C-4-05 and N.C.G.S. 57C A certified copy or Certificate from the Secretary of State regarding any merger, conversion, consolidation or amendment changing the name of the owning entity must be recorded in the office of the Register of Deeds where real property is located. N.C.G.S. 55D-26, N.C.G.S. 57C- 9A-03(d), N.C.G.S. 57C-9A-12(c), N.C.G.S. 57C-2-34(a), N.C.G.S. 57C-9A-22 & -23, N.C.G.S Title transfers in such cases by operation of law. N.C.G.S. 57C-9A-04(2), N.C.G.S. Page 19 of 47