We recently were consulted by a couple who had purchased three residential lots with lake frontage.  They intended to build a home that straddles all three lots, so clear title to all three is critical to their plans.

Unfortunately, when they went to the bank for a loan on the properties to build their dream home, they learned that title to two of the lots is impaired.

Before buying the two lots, they had the title checked, and they thought the attorney wrote to them with a title opinion on both.  As they checked their paperwork, they did have one title opinion letter, but it recited neither of the lots in question, but rather a lot they had sold.  

Thus, they were ready to start construction of their home, but were “stuck” either with bad title, or waiting for the title to be cleared.

How could this situation have been avoided?

  • First, they could have purchased an owners’ policy of title insurance;
  • Second they could have read the policy — to make sure it covered the right property and that it did not have unacceptable “exceptions” to coverage (that topic is addressed in this blog entry); and
  • Third, they could have dealt with experienced real estate attorneys from the outset.

This firm worked to assure that the attorney handling the closing will in fact “stand behind” his deficient legal work, but with proper legal work or title insurance coverage in place, they could be proceeding to build their dream house music sooner.

We discuss here the power of a lis pendens action, which is the combination of a law suit to force a seller to perform combined with a public notice to all prospective purchasers and mortgage lenders that the buyer in the litigation has a claim to the title to the real estate.

In addition to litigation — which always runs the risk of becoming expensive, there is another tool available under Ohio law that should have the effect of preventing a seller from conveying title to a second buyer or mortgage lender free from claims of the buyer number 1: An Affidavit of facts relating to title.

Ohio Revised Code Section 5301.252 sets forth the requirements for an Affidavit of Facts Relating to Title.  Essentially, one includes the legal description of the disputed land, and then  recites the name of the owner and the recording reference for his deed, along with the facts underlying the buyer’s claim.  So, if a buyer has a contract to buy real estate that the seller is breaching, one attaches that contract to the Affidavit, recites that pursuant to that Contract the buyer has the right to buy the subject property and places that claim of record.

A subsequent buyer “should” not buy the land, as long as his title examiner catches the claim (which he should).  (We have seen circumstances where subsequent buyers blow past these claims.)

Thus, the seller of real property is placed in the position of needing to address the buyers’ claims before he can sell the property to another, or mortgage the property.

An Affidavit of Facts Relating to Title can be a powerful tool to force sellers to deal with a title claim from a buyer whom he would rather ignore.

 

For five years, the issue has been percolating through the Ohio Department of Taxation and the Courts: When Cincinnati leased its municipal golf courses to Billy Casper Golf Management, did their real property become taxable?

The State Tax Commissioner said the property did become taxable.  The Board of Tax Appeals disagreed, and the Ohio Supreme Court unanimously agreed with the City of Cincinnati last week that the privatization agreement did not render the property taxable.

Court News of Ohio has the story here.

The decision, Joseph P. Testa, Tax Commissioner of Ohio v. City of Cincinnati, is here.

In contracts, leases, loan documents and other agreements, we frequently see a request that one party indemnify the other against certain occurrences.

As a simple and general proposition, indemnity provisions are ill-advised for the indemnitor.  They are open-ended access to one’s checkbook for all sorts of claims, and are usually accompanied by a duty to defend against those claims (i.e., pay for an attorney to defend a suit), whether meritorious or frivolous.  Thus, a short indemnity paragraph could lead to hundreds of thousands or millions of dollars of unexpected and unintended liability.  As a rule: Not a good idea.

Taking this concept over into the world of real estate sales, as is explained in this blog entry, Real Estate 101: Types of Deeds in Ohio, when a seller executes and delivers a warranty deed in Ohio (General Warranty Deed or Limited Warranty Deed), he is essentially providing an open-ended indemnification to a buyer of that property — and his successors down the chain of title — against certain title claims.  Among other things, a warranty covenant is a promise to defend against certain claims to the title from a third party.

Ohio Courts have ruled that the failure to provide that defense will mean the grantor must pay the attorneys fees of the grantee to so defend the title.  Hollon v. Abner, 1997 WL 602968 (Ohio App. 1 Dist., 1997).

Thus, although it is “standard operating procedure” in real estate transactions to provide a warranty deed, sellers may want to re-think that (starting with the signing of the contract as that instrument dictates what form of deed is required at the closing) and understand their open-ended exposure from a warranty deed.

Under Ohio law, individuals can avoid probate in connection with real estate by executing and recording a Transfer On Death (TOD) Designation Affidavit. A TOD Designation Affidavit is an “effective upon death deed” allowing the owner to transfer the ownership of real estate upon the owner’s death to whomever the owner designates by name. On the death of the owner, the transfer of the real estate to the transfer on death beneficiary is accomplished by filing a certified death certificate and an Affidavit in the applicable County Recorder’s Office.

During the life of the owner, the designated beneficiary has no rights to the real estate, and the recording of a TOD Designation Affidavit does not create a present entitlement to the real estate. The TOD Designation Affidavit can be revoked at any time without the consent of the TOD beneficiary. The TOD beneficiary only becomes entitled to the real estate if the TOD Designation Affidavit remains in effect on the death of the owner.

An individual can designate more than one party as a TOD beneficiary. If multiple TOD beneficiaries are designated, the division of the ownership can be varied among the beneficiaries (e.g. 10% to John Doe and 90% to Jane Roe).

The TOD beneficiary can be the trustee of the owner’s revocable trust. There are advantages and disadvantages to making a trustee a TOD beneficiary as opposed to directly transferring the real estate to the trustee to hold for the trust.

A TOD designation will lapse if the TOD beneficiary predeceases that owner; however, it is possible to designate a contingent TOD beneficiary as a means of addressing this possibility (e.g. to John Doe, if living; otherwise to Jane Roe).

Individuals who own property in “joint and survivorship” can designate a TOD beneficiary of their real estate. Only upon the death of the last surviving survivorship tenant will real estate pass to the TOD beneficiary or beneficiaries designated in the TOD Affidavit.

Please contact us if you would like to determine if a TOD Designation Affidavit is right for your estate plan.

Ivy Pointe Title, LLC, our title company serving residential and commercial Realtors, lenders, investors and buyers, has a great series on the fundamentals of title insurance.  Read them here.

For more information on title insurance or for your real estate legal needs, contact Rick Turner ([513] 943-5661) or Isaac Heintz ([513) 943-6654).

There are different types of deeds used in Ohio real estate transactions, providing buyers with differing levels of assurance of title quality from the seller and differing levels of liability, and potentially continuing liability, for the seller.

In Ohio, a seller can use a deed with specific language of conveyance either on a form pre-printed by a publishing house, or one crafted by his attorney. We refer to this as a “long form” of deed. In the case of a long-form of deed, because the language can differ from deed to deed, it is important to read the language of the deed, not just the title, to ascertain the warranties that accompany the deed. Also available in Ohio are statory “short forms” of deed (Ohio Revised Code Chapter 5302), which, if they use certain “magic words” as defined by statute, have the specific meanings ascribed to them in the statute (thus allowing for very short deeds and avoiding costly court battles about the meaning of deed language).

In Kentucky and Indiana, only long forms of deeds are available, meaning that reading the specific language of each deed is important.

Quit Claim Deed. A quit claim deed is just like it sounds – a grantor surrenders his claim to title to the grantee, whatever that quality of title may be.  Indeed, a seller can convey by quit claim deed even if he does not have title to the subject property.  Because the buyer is getting no assurance of title with such a deed, a quit claim deed is unusual in an arms length transaction. Quit claim deeds are frequently used to clear up title problems, where someone with a stray land interest can extinguish it by “quit claiming” to the otherwise rightful owner.

We have seen quit claim deeds used in commercial transactions. When used hand-in hand with an owner’s policy of title insurance, it can be acceptable for a buyer to have assurance of the quality of title. Essentially the title insurance underwriter takes the risk of title problems instead of the seller. There is a statutory form of quit claim deed in O.R.C. Section 5302.11.

Limited Warranty Deed (sometimes called Special Warranty Deed). A limited warranty deed, also sometimes known as a special warranty deed, is one in which the grantor warrants title to the grantee against encumbrances made by the grantor for those grantees claiming through the chain of title created by the grantor.

Thus, the grantor is not warrantying that he has good title, just that he has not impaired title during his ownership.  Again, if accepting such title, a buyer should have title insurance.

There is a statutory form in Ohio that provides that as long as the magic words “grants…with limited warranty covenants” are used, the scope of the deed is as set forth in O.R.C. Section 5202.07. Limited warranty covenants do survive through the chain of title, so a grantor could be responsible decades after a conveyance, to a subsequent grantee in the chain of title, for title defects.

General Warranty Deed. A general warranty deed is a broad promise from the grantor to the grantee that the grantor was the owner of the property, that the property is free from all encumbrances (except those excepted in the deed), that the grantor has the authority to convey the property, and that the grantor will defend against all claims from all persons. This is the most common form of deed for transactions in Ohio, Kentucky and Indiana, residential and commercial.

Sellers should be aware of the broad and perpetual liability they assume under a general warranty deed – to correct title problems and to pay an attorney to argue those issues for the buyer – with such a deed.  Sellers who would resist signing an indemnity provision in a contract or lease, frequently sign warranty deeds without any thought to their resulting continuing liability.

Similar to the Limited Warranty Deed, there is a statutory form for a general warranty deed in Ohio that provides that as long as the magic words “grants…with general warranty covenants” are used, the scope of the deed is as set forth in O.R.C. Section 5202.05.  Also, general warranty covenants do survive through the chain of title, so a grantor could be responsible decades after a conveyance, to a subsequent grantee in the chain of title, for title defects.

Fiduciary Deed. These deeds are most frequently used when the seller is acting in a fiduciary capacity, such as the executor or administrator of an estate or the trustee of a trust.   In the long form of a deed, the warranty covenants must be fleshed out (i.e., it is language specific to that deed), but the Ohio statutory short forms (O.R.C. Section 5302.09 and 5302.10) provide that fiduciary covenants cover only the authority of the fiduciary to convey (i.e., that he is duly appointed, qualified and acting within the scope of his appointed authority and authorized to make the sale in such capacity).  A statutory short form of fiduciary deed is otherwise a quit claim deed, and as should be used only in conjunction with a title insurance policy issued to the grantee.

For both buyers and sellers, careful consideration should be given to the type of deed called for in the contract and used at the closing, as it will affect their rights and responsibilities when a title problem arises.  This also impacts the circumstances under which it is more compelling for a buyer to obtain an owner’s policy of title insurance at the closing.

If a tenant files for bankruptcy, an automatic stay goes into effect. The automatic stay immediately prohibits a landlord from taking any action against the tenant or its property. The landlord cannot send default notices, file or continue an eviction action, collect a judgment against the tenant, demand the payment of delinquent rent or other amounts, or terminate the lease (even if the lease provides that the landlord may terminate if the tenant files bankruptcy) without first obtaining relief from the bankruptcy court.

If a landlord violates the automatic stay, the landlord can face damages for such a violation. The tenant may seek actual damages, punitive damages, attorney’s fees and costs. Further, the landlord can face consequences for contempt (violating a court order) because the automatic stay is a court order. The sanctions a court can order for contempt include fines, attorney’s fees and damages.

Despite the automatic stay, the tenant must pay rent first coming due after the bankruptcy filing, but the landlord must be prepared to enforce this right in the bankruptcy court. Bankruptcy Code Section 365(d) requires debtors to perform all commercial lease obligations until the lease is assumed or rejected. If the tenant fails to pay rent or other amounts first coming due after the bankruptcy filing and thereafter, the landlord can move for the bankruptcy court to compel payment.

The tenant has three options for dealing with the lease in the bankruptcy case.

One option is to assume the the lease. If the tenant elects to assume the lease, it must cure all defaults under the lease and the lease will otherwise continue in accordance with its terms.

A second option is to assume and assign the lease to a third party. This is likely to happen if the tenant is selling its business as part of the bankruptcy. If the tenant elects to assume and assign the lease, the tenant must cure all defaults, and the assignee must demonstrate the ability to perform all future obligations under the lease.  Generally, the tenant may assign the lease regardless of any assignment prohibitions in the lease or requirement for landlord’s consent.  If the lease is assigned, the tenant will be relieved of all future obligations under the lease, and the assignee will be the new tenant under the lease.

The third option is to reject the lease. If the lease is rejected, all obligations of the tenant will cease, the landlord may retake the space, and the landlord may file a claim for damages just like any other creditor.

If a tenant files bankruptcy, it does not render a landlord helpless.  Instead, the landlord must work within the framework of the bankruptcy laws in exercising its rights and remedies.  Since bankrupt tenants are often permitted to disregard valid lease provisions absent an objection from the landlord, landlords should consult with experienced counsel to ensure their rights are enforced in the bankruptcy case.

We recently completed a litigation project for a commercial client to extinguish a Land Installment Contract where the buyer was in default and the owner wanted to lease or sell the property to another party by judicially extinguishing the buyer’s rights under the Land Installment Contract.

As a starting point, this article explains, in seller financing situations involving real property, there are several options available to structure and document the transaction.  As we explain, a Land Installment Contract is more difficult to extinguish than a lease with option to purchase, but less involved than a foreclosure action under a note secured by a mortgage against the property to be sold.

Thus, in the specified assignment, we proceeded with an action for “forfeiture” in Common Pleas Court before Hamilton County Judge Beth Myers.

Ohio’s Land Installment Contract statute requires that a foreclosure action be pursued in situations where the buyer has made payments under contract for more than five years or paid more than 20% of the principal portion of the purchase price.  O.R.C. Section 5313.07.  (In such case, the buyer is then entitled to any excess of the sale price from foreclosure sale over the remaining balance of the purchase price under the Land Installment Contract.)  However, Ohio Courts have found that this protection extends only to residential purchasers, and does not protect buyers in commercial real estate transactions.  See, e.g., P.M.D. Land Co. v. Warner Realty, 2009-Ohio-6704 (11th Dist., 2009).

Therefore, simple judicial action for “forfeiture” of the rights of the buyer is called for in a commercial setting.  It is not a truncated, expedited proceeding such as an eviction, but it is far less involved than a foreclosure action would be, and vests fewer rights in the buyer.

As it turns out, in our case the buyer defaulted and we then were able to quiet title in the name of our client, the property owner, the Land Installment Contract was judicially extinguished, and the title was thus quieted in favor of our client, freeing him to lease or sell the property to another tenant or buyer.

 

 

 

Lis Pendens, Latin for “suit pending,” means that any interest in real property acquired while a case is pending relating to that property is subject to the final determination of the case.

As set forth in R.C. 2703.26: “When a complaint is filed, the action is pending so as to charge a third person with notice of its pendency. While pending, no interest can be acquired by third persons in the subject of the action, as against the plaintiff’s title.”  Under this doctrine, the outcome of the litigation applies to, and is binding upon, any person who acquires an interest in the property; whether a party to the lawsuit or not. Indeed the purpose of the doctrine is to bind non-parties.

“The effect of lis pendens is that if a third party acquires an interest in the property while the lawsuit is pending, the third party takes the property subject to the final outcome of the suit.” Gunlock v. Z.B.P. Partnership, 1997 WL 598394, at *1 (Ohio App. 12 Dist., 1997). Indeed, “if the trial court awards the plaintiff rights in the property, the plaintiff takes free of any interest acquired by third parties during the lawsuit.” Martin, Rochford & Durr v. Lawyer’s Title Ins. Corp., 619 N.E.2d 1130, 1131, 86 Ohio App.3d 20, 22 (Ohio App. 9 Dist., 1993).

“In order for the plaintiff to utilize the doctrine of lis pendens, the property that is described for the purpose of invoking lis pendens must be at the very essence of the controversy between the litigants.” Levin v. George Fraam & Sons, Inc., 585 N.E.2d 527, 530, 65 Ohio App.3d 841, 846 (Ohio App. 9 Dist., 1990).

If the property is Unregistered Land, and the lawsuit is filed in the same county in which all of the property is located, Lis Pendens attaches upon the initial filing of a complaint relating to the ownership of real property and a description of the property in the complaint. Any interest in the property that is recorded after the filing of the lawsuit is subject to the Judge’s final ruling. If the suit is brought in a county other than that in which the property is located, a certified copy of the complaint must be filed with the Common Pleas Court in which the property is located (this also applies to property that straddles two or more county lines). See Civil Rule 3(F).

In a recent case we represented a buyer in a specific performance case.  Our client was under contract to purchase a parcel of unregistered land in Hamilton County. The seller informed our client that the seller would not complete the sale; rather he would sell to another buyer for a higher price. Our client was insistent on completing the purchase and forcing the sale.

Before the seller recorded the deed transferring the property to the third party, we filed suit for specific performance and included a notice of Lis Pendens in the complaint. After we filed the complaint, not only did the third party record a deed, that third party then sold the property to another third party who also recorded a deed. Bear in mind though, that each of these deeds were recorded after the lawsuit had been initiated, and thus those purchasers’ interests were subject to the outcome of our lawsuit.

Ultimately, we prevailed and the property was re-titled in the name of our client and the interests of the two third party purchasers were extinguished.  The third party purchasers now have to look to the original seller to recoup their money.

For Registered Land, Lis Pendens does not attach until after the complaint is filed with the Court and a Notice of Lis Pendens is filed with the County Recorder. Civil Rule 3(F) also applies where the suit is brought in county other than that in which all of the property is located.  What this means for purchasers of Unregistered Land is that certainty of your interest requires not only that you search the title, but that you also search the court filings for any litigation involving the property.

For a party seeking to invoke Lis Pendens over registered land, the process is slightly more complex. The party must first file the complaint with the court, then present a certified certificate of the pendency of the suit with the county recorder and a memorial of the suit entered on the certificate of title by the county recorder.

While the road to Lis Pendens against registered land is more cumbersome for the plaintiff, the third party buyer can rest easy that he has good title by simply looking at the county recorder’s certificate of title for the property to see if there is a memorial of a lawsuit on the certificate. Simply stated with registered land, the certificate of title tells the whole story.