Stray Interests and the Chain of Title

Welcome title enthusiasts. As Steve Harvey might say . . . “we have a good one for you today.”

The term “chain of title” is probably the most widely recognized term in the title insurance industry. Chain of title and title examination walk hand-in-hand. And it is this chain of title that an examiner studies in preparing the title Commitment.

A chain of title consists of numerous links. Each time a particular parcel is conveyed, a new link is added. Ideally, this chain of title would have no flaws, often referred to as an unbroken chain of title. 

But, as the night follows the day, there are many occasions when a chain of title is not perfect, often referred to as a broken chain of title. The broken chain of title represents a workable issue for the title examiner; which issue must be resolved for the attainment of marketable title.

Stray Interests: Example

Fact #1: Lot 4 of Phillips Subdivision has an unbroken chain of title since its creation in 1970.

Fact #2: On May 1, 2014, Lot 4 was owned by A, B, and C.

Fact #3: On October 1, 2014, A and B convey to D.

Fact #4: On June 1, 2015, D attempts to sell to E. 

The title examiner, in researching the chain of title, will spot the October 1 conveyance from A and B to D. This conveyance should have included the interest of C, which it failed to do. The chain of title of Lot 4 is now broken. The interest of C will be considered a “stray interest,” as it was not properly conveyed through the chain. The examiner will use the title Commitment to call for proper termination of C’s interest, via deed or otherwise.

Note: a stray interest should not be confused with a “wild deed.” A wild deed is just that – usually a conveyance from a grantor who never appeared in the chain of title. Wild deeds are usually the product of improper drafting, such as the deed being drafted with the incorrect legal description. Conversely, stray interests concern parties who were part of the legitimate chain of title.

The chain of title represents the history of a parcel’s ownership. This chain flows from one link to the next, each link being inspected for flaws. Flaws represent stray interests . . . stray interests represent a broken chain of title. The examiner works to fix the break in the chain, thereby restoring the unbroken chain. Sounds like a Dr. Seuss compilation.   

Be great!

Dave Phillips ~ Examiner
State Street Title Agency

Lady Bird Deed

Land ownership is usually straight forward: Person A conveys to Person B. Person B now owns in fee simple.

There are, however, instances in which land ownership is not so straight forward, and the so-called “Lady Bird Deed” offers such instance.

In Michigan, the Lady Bird Deed is technically referred to as “The Life Estate With Power to Convey.” This post will discuss the creation and function of this estate.

Creation

The Lady Bird Deed is created in the following manner:

Grantor: Mrs. A

Grantee: Mrs. A, coupled with an absolute power to convey, sell, mortgage, or lease. If the property is not disposed of prior to her death, then to Child A and Child B, as tenants in common.

Function

In the above example, Mrs. A conveyed to herself a life estate with power to convey. And it is truly a life estate coupled withpower to convey.

Mrs. A owns the life estate interest.

Child A and Child B own a contingent remainder interest. In property law, a contingent remainder interest is considered a present right to a future interest.

Child A and Child B’s interest is contingent on the actions of Mrs. A. If Mrs. A sells the property to a third-party, the interests of Child A and Child B are destroyed, as the contingency fails.

Conversely, if Mrs. A dies, without having sold the property, the land would vest in Child A and Child B, as the contingency has been met.

Conclusion

The Life Estate With Power to Convey (referred to as the Lady Bird Deed) is not so mysterious.

This tenancy affords the life estate holder free-flowing power, unencumbered by the interests of the contingent remainderman. And, practically speaking, there are only two possible results regarding this tenancy. Either the life estate holder conveys the land, destroying the interests of the remainderman, or the life estate holder dies without having conveyed, which transfers a fee simple interest to the remainderman.

The Lady Bird Deed is a contingent holding.

Be great.

Dave Phillips ~ Examiner
State Street Title Agency

Instruments of Conveyance

This article is written for Michigan land owners. In particular, I will be discussing a few of the instruments that are used to convey an interest in your land, as well as the actual interest these instruments convey. I feel that a basic understanding of these instruments can be of great assistance to the land owner with an otherwise layman’s understanding of property laws. This writing will touch on three such instruments: 1) the deeds; 2) the easement; and 3) the mortgage.

The Deeds

In the world of deeds, there are two main players: 1) the warranty deed, and 2) the quit claim deed.

The warranty deed is generally used to convey ownership of land. The warranty deed tells the purchaser that the seller owns the land, in fee simple, and that the seller is now conveying such fee simple interest to the buyer.

The quit claim deed is generally used to convey whatever interest the grantor has in the land. In other words, the quit claim deed makes no representation as to the legal interest of the grantor. The quit claim deed simply conveys to the grantee whatever interest the grantor holds. A common use of the quit claim deed is to clean up stray interests, or to convey interests from one owner to another.

When you purchased your land, you likely received a warranty deed from the seller. This deed acted as a promise from the seller that you were receiving actual ownership of the land.

The Easement

An easement may be defined as the right to use the land of another for a specific purpose. This right will usually not permit the easement holder to occupy or control the easement area. In other words, the easement holder cannot build on the easement area, or use the easement area in excess of its intention.

Easements are commonly obtained for : 1) access, and 2) utilities.

An owner of Parcel A may have to cross Parcel B to get to a main road. In order to accomplish this, the owner of Parcel A will request that the owner of Parcel B grant an “access easement” across the land of Parcel B. The owner of Parcel A will then have the right to cross this easement in accessing the main road. Remember, the owner of Parcel A will not be able to occupy of control this easement area, other than that stated in the easement agreement itself.

In our example, Parcel A is considered the dominant tenement, as the easement is for the benefit of Parcel A. Conversely, Parcel B is considered the servient tenement, as the easement burdens Parcel B.

The Mortgage

A mortgage is a grant of land to a lender, from the owner, for the purpose of securing the loan to the owner’s land. The mortgage is an instrument of security. Such mortgage will remain secured to the land until such time as it is paid off. And, of course, this loan may be foreclosed, by authority of the mortgage, should the owner become sufficiently delinquent on its payment schedule.

The land owner granting the mortgage is referred to as the mortgagor. The lender receiving the mortgage is referred to as the mortgagee.

In Michigan, the mortgage conveys a security interest only. This security interest may only ripen into a fee simple interest through the process of foreclosure.

Conclusion

All of the above material pertains to conveyances of an interest in land. An owner of land is conveying some interest to another. The instrument used will declare the legal interest actually conveyed. And, of course, any conveyance of an interest in land must be in writing, and preferably recorded; all designed to satisfy the statute of frauds.

© 2015 State Street Title Agency, LLC
All Rights Reserved

Tax Foreclosure: the Element of Due Process

In our last posting, we discussed the process of tax foreclosure as it relates to Michigan land. At the close of that article, I began to touch on the aspect of due process. Due process, or the lack thereof, will determine the quality of title actually purchased at the tax sale auction.

Wikipedia defines due process as: “the legal requirement that the state must respect all legal rights that are owed to a person.” In the context of tax foreclosure, due process is a constitutional guarantee that one will not lose their property without notice and an opportunity to be heard.

Notice and an opportunity to be heard is a commonsensical standard. An owner must first be notified of a court proceeding, followed by an opportunity to present his/her side. Due process can be considered a balance between government power and individual rights.

Due process and tax foreclosure

Before an actual tax foreclosure occurs, every person or entity with a legal right in the property must be notified of the proceedings. The legal rights are largely determined through a search of the public records. Notifications are sent to the respective parties at some point after tax forfeiture. Remember, the tax forfeiture is sort of like a batter in the on-deck circle. When this batter steps to the plate, foreclosure is up.

Now, by way of example

A pre-foreclosure search determines that Mr. A, Mr. B, Mr. C, and Mr. D have legal rights in blackacre.

Mr. A, Mr. B, and Mr. D are given proper notification of the proceedings; Mr. C is not notified.

A judgment of foreclosure is rendered and the property is sold at tax auction to Mrs. E.

Mrs. E then attempts to sell to Mrs. F.

Mrs. E approaches a title company in hopes of purchasing the Owner’s Policy for Mrs. F.

The title company is likely to deny coverage, at least up-front, on the basis of due process. The title company can not be certain that all necessary parties were given proper notification of the foreclosure proceedings. And, as our example shows, Mr. C was not afforded due process. As a result, Mr. C could wreak havoc on the newly acquired interest of Mrs. F. The interest of Mr. C has not been terminated. If the title company insures Mrs. F in fee simple, her policy is likely to be attacked.

Summary

The previous article discussed the process of tax foreclosure. This article discussed due process as it relates to tax foreclosure. The quality of title, following tax auction, is suspect. A title insurer will typically require a “quiet title” judgment in favor of the tax purchaser before it will agree to insure a sale out. Short of a quiet title judgment, the insurer must be made comfortable that all necessary parties were given proper notice of the foreclosure proceedings.

© 2015 State Street Title Agency, LLC
All Rights Reserved

Michigan’s Tax Foreclosure Process

In this article, I will hold your hand and walk you through the tax foreclosure process. It is my hope that an understanding of such process will allow some owners to avoid being foreclosed. Based on my experience, I feel that many people are foreclosed on simply because the whole process confuses them. It becomes overwhelming. And, once something becomes overwhelming, it seems human nature to bury your head in the sand.

The following depicts the foreclosure process:

Land Owner: Mr. A
Tax Year: 2012
Note: taxes are collected twice per year; in the summer and winter.

Mr. A has not paid his taxes for 2012. What happens next State Street title people?

Answer: the “delinquent” 2012 taxes are transferred from the municipality to the county in March of 2013. At this time the local municipality washes its hands of the matter. It is now up to the county to ramp up the pressure.

O.k., the delinquent taxes have transferred. What happens next State Street title people?

Answer: over the course of the next year, the county will send a series of notices to Mr. A requesting payment. Interest and penalties will accrue through this time. Assuming that Mr. A does not pay, what happens next State Street title people?

Answer: In March of 2014, the county will file a Certificate of Forfeiture citing the delinquent 2012 taxes. The forfeiture is procedural. Forfeiture must occur prior to foreclosure.

What happens next State Street title people?

Answer: Mr. A will have an additional year to cure the delinquency. In reality, Mr. A is given ample time to right the ship. Let’s assume that Mr. A does not pay.

What happens next State Street title people?

Answer: In March of 2015, Mr. A’s property will be officially foreclosed. After a 21 day redemption period, fee simple title will pass, by operation of law, to the foreclosing county. Game, set, and match. At this time, the interest of Mr. A has been legally terminated.

What happens next State Street title people?

Answer: Mr. A’s property will be sold at auction to the successful bidder.

To summarize, there is a full two-year period in which Mr. A had the opportunity to cure the delinquency. If he had cured, the county would have filed a redemption certificate regarding the certificate of forfeiture. I studied under Dr. Seuss.

It is important for the homeowner to understand that a “forfeiture” is not a “foreclosure.” The forfeiture precedes the foreclosure. My advise is to deal with the county during this time frame; do not run and hide.

Author Note:

In the environs of title insurance, tax foreclosure represents a two-part monster. Part one concerns the foreclosure process itself, as discussed above. Part two concerns the element of due process. And for the title insurer, as well as the purchasers at auction, due process is the Tricky Ricky. Because, until it can be shown that due process was afforded all appropriate parties, title to the land is typically considered uninsurable. And this is really grounded in the basis that the land, post auction, is not marketable.

For the tax investor, as well as the title insurer, it is a two-part formula ** Auction + Due Process = Marketable Title.

Revisit our site soon, as I will be discussing due process as it relates to tax foreclosure.

© 2015 State Street Title Agency, LLC
All Rights Reserved

Title Commitment: the Heart of the Matter

Title insurance offers protection for a wide range of real estate transactions. Purchasers seek insurance when they buy. Lenders seek insurance when they lend. Upon completion of a transaction, State Street Title will issue a title policy insuring its customer. The title policy is the end product. This represents the contract between the insurer and the insured.

A customer will approach State Street seeking title insurance. From this point, we begin a process of communication with our client, as there are numerous steps that must be taken before State Street can issue its policy. We communicate, in large part, through use of the title commitment.

The title commitment contains three parts: Schedule A, Schedule B-I, and Schedule B-II.

Schedule A sets forth the parameters of the transaction. It discloses the parties, the amount of the sale or finance, and a description of the land which is the subject of the transaction. Schedule A can be described as the “informative page.”

Schedule B-I sets forth the particular requirements that a customer must satisfy. Schedule B-I strikes to the heart of the matter. This schedule represents the meat and potatoes of the deal. This schedule will give direction to the customer as to what title issues, if any, need to be cleared up, prior to closing.

Schedule B-II sets forth the exceptions to coverage. Most of the items sets forth in this schedule will appear as exceptions to coverage on the title policy. Common exceptions include building and use restrictions, recorded easements, and easements appearing on the plat.

The title commitment falls within the jurisdiction of title examination. Title examiners are responsible for the production of the title commitment. Of note, a title commitment is true to its name. It is a commitment from the title company to insure its customer, if particular conditions are satisfied.

A title commitment represents the process, whereas a title policy represents the product.

Make sure to visit our site on a frequent basis, as new articles will consistently appear.

© 2015 State Street Title Agency, LLC
All Rights Reserved