Page 12 - Tree Line - North Carolina Forestry Association - Fourth Quarter 2020

Obtaining a
Title Search
If you are a landowner with experience purchasing real estate, you are likely aware that having your attorney perform a title examination, also known as a title search, is standard due diligence. The title search will verify the ownership
of real estate and report any liens or encumbrances affecting the property.
The type of title search needed depends on the potential liability incurred from
the intended use of the property, and the potential liability based on the value of the transaction. The following are a few of the most requested title search varieties:
(a) Current owner search: examines title back to the most recent deed in the chain of title and reports any encumbrances on the property created by the current owner. This type of search is often requested in lower liability matters, mainly to confirm ownership and lien priority.
(b) 30-year search: complies with the Marketable Title Act (NCGS Ch. 47B), which states, “Any person having the legal capacity to own real property in this State, who, alone or together with
his predecessors in title, shall have been vested with any estate in real property of record for 30 years or more, shall have a marketable record title to such estate in real property.” This type of search is most commonly used in residential real-estate transactions in North Carolina.
(c) 40-year search: the standard search term required by most title insurance companies for title insurance in a commercial transaction. This type of search is the standard for most commercial real-estate transactions in North Carolina.
(d) 100-year search: often used for developments or high-liability transactions. A search of this length reveals rights- of-way granted to the North Carolina Department of Transportation as the
road systems were established across the state, easements granted to the utility companies as the state was developed, and other encumbrances that may impede or disrupt development.
(e) Land grant or patent search: This is the most comprehensive search available. This search extends back to the grant from the sovereign or government and is considered to be the highest evidence of title for the possession, use and enjoyment of land. This type of search is frequently
used on high-liability transactions due to expensive improvements such as solar or wind farms.
Determining
Ownership of the
Real Property
In addition to a title search being fundamental due diligence for a real estate acquisition, it is also advisable that some form of title search be performed prior
to cutting standing timber. A contract for cutting standing timber is only enforceable against the parties to the contract and
a timber deed is only valid against the grantors, so it is essential to have the correct property owners sign those legal documents.
One fact pattern that gives rise to ownership concerns is the instance where an agent enters a transaction involving family land where the heirs are vested in title. Without a title search, the agent is dependent on the family members’ interpretation of North Carolina probate law or the county tax department’s listing of the real property ownership, which may be inaccurate.
Often, the primary contact for the family will either misconstrue the probate law in identifying heirs or be uncertain
as to the actual heirs due to their relatives either being physically distant or legally distant. Occasionally, the primary family contact will “misremember” the rightful heirs, possibly as an honest mistake or possibly out of convenience.
A common fallback option to a title search is to verify ownership via geographic information system (GIS) and tax records; however, when conducting a title search, the title examiner often finds that GIS and tax records misidentify the correct property owner(s) of family-owned land on a regular basis. Often, the last owner to acquire
the property by deed is listed instead of
the heirs, or if multiple family members own the property, only some of the family members may be listed on tax records.
Confirmation
of Authority
Another common fact pattern that gives rise to potential liability is when the transaction involves a corporation (or a limited liability company) as the property owner. Frequently, transactional attorneys encounter a situation where the purported corporate landowner has been subject
to a merger or acquisition or has filed a name change. Such filings are made at the Secretary of State, either in North Carolina or the state of incorporation
of the acquiring entity, but not at the Register of Deeds. Therefore, the most recent deed filed at the Register of Deeds is in the name of the former corporate entity and the GIS/tax records will have ownership listed incorrectly. The potential liability occurs when the former corporate owner does not have authority to bind the acquiring entity or merged entity that is the legal property owner.
A second issue related to the corporate property-owner scenario is where the corporation has been administratively dissolved by the North Carolina Secretary of State (NCSOS) for failure to file annual reports, or suspended by the NCSOS for failure to pay taxes to the North Carolina Department of Revenue (NCDOR). There are scenarios where the corporation can legally transact business when dissolved by the NCSOS for failure to file annual reports; however, any act performed during the period of suspension of the corporation for failure to pay taxes to
the NCDOR is invalid and of no effect, pursuant to NCGS§105-230(b).
It is worthwhile to note that both scenarios described above are applicable to all contracts, not just those contracts involving real estate or timber. It is advisable to obtain a certificate of existence from the NCSOS and proof of authority from the individual contact when contracting with a corporate entity.
Verifying Access
In a transaction involving a parcel of real estate that doesn’t abut a public right-of- way, it is crucial to determine legal access to the property. Although the property may have indirect access to a public right- of-way via an access easement, language limiting the scope of that access easement may prohibit certain functions required for the buyer’s intended use of the property. For example, an access easement may contain language that grants access across the easement area for the “ingress and egress for vehicular traffic.”
Although this language could be broadly interpreted to permit access by logging trucks, since logging trucks are vehicular traffic, an argument could be made by
the grantor of the easement that use of logging trucks was not intended in the easement conveyance and overly burdens the easement. An even stronger argument is that the use of logging equipment is not permitted across the easement area because its use is outside the scope of the easement. In these instances, the underlying fee owner could potentially deny access across the easement area. Although alternative means of
10 ncforestry.org / FOURTH QUARTER 2020