By: Stephen D. Richman,
Esq.- Senior Counsel, Kohrman, Jackson & Krantz
Becoming the “owner” of real estate is not quite as difficult as
acquiring a wicked witch’s broom, but it is somewhat of a labored journey.
The seemingly simple answer to the question of when one becomes
the owner of real estate is: when title is transferred by way of a deed. Arriving
at a more precise answer to this question is a bit more complicated due to the legal
concepts of “equitable title” vs. “legal title”, when a deed is considered
“delivered”, and whether or not a deed has been recorded.
Why do these concepts matter? Basically, because pursuant to “Real
Estate Law 101”: (i) real property ownership is more like the possession of a
bundle of rights (vs. merely the possession of dirt and improvements on the
dirt); (ii) a legal title owner has more of these rights to real property than
an equitable title owner has; and (iii) a legal title holder whose deed has
been recorded, will have greater protection from the possibility of other
parties claiming that they have rights that are superior to those of the legal
title holder.
What is equitable title?
According to Black’s Law
Dictionary (7th Ed.),
“equitable title” is “… a beneficial
interest in property that gives the holder the right to acquire, formal legal
tile.” When a buyer enters into a contract to purchase real property, the
buyer acquires equitable title. It is the first step on the proverbial journey
to Oz. Such equitable title, however consists of a small bundle of rights. In a
simple contract for sale, the buyer would merely possess the right to acquire
legal title, (and other limited rights granted by contract such as the right to
inspect the property); but in a land contract, the buyer would also have the
right to use and enjoy the property until enough payments are made to require
the seller to transfer legal title to the buyer by delivery of a deed.
What is legal title?
When an individual possesses legal title, he or she gets the full bundle
of legal rights that come with the property (except to any extent any such
rights have been previously granted to others). Among these rights are
possession, use and enjoyment, conveyance (i.e., the right to lease, sell,
mortgage, transfer equitable title…), access, hypothecation and partition. Legal
title also consists of a bundle of “physical” rights to real property such as
water rights, mineral rights, timber rights, farming rights, air rights and
development rights to erect improvements.
How does one acquire legal
title?
Legal title is transferred from one person to another by “delivery”
of a deed.
However, actual, physical delivery of the deed from a grantor to
grantee is not required. Rather, delivery may be accomplished by words without
acts; (such as if the deed is lying upon a table, and the grantor says to the
grantee, “take that as my deed”); or
it may be by acts without words. “The
fact of delivery may be found from the acts of the parties preceding,
attending, and subsequent to the signing, sealing, and acknowledgment of the
instrument.”
See Goddard v. Goddard, 2011-Ohio-680 (4th
Dist. Ct. of App., Scioto Cty.)
Does a deed need to be
recorded to legally transfer title?
No. A deed need not be recorded (in the office of the county
recorder in the county in which the property is located) to be valid as between
grantor and grantee. However, the
filing and recording of same is prima facie evidence of delivery, in the
absence of any showing of fraud.
Why record a deed, then?
Without a recording of the deed, the grantee has little protection
from its grantor, or anyone else from recording liens or other encumbrances
against the title which would have priority over the unrecorded deed. Moreover,
if the grantor transfers the same property by deed to another grantee (and the second
grantee has no notice of the first transfer), prior to the first grantee taking
possession; the second grantee owns the property and the first grantee owns a
lawsuit.
Turney, LLC v. Cuyahoga Cty. Bd. of Revision
As the recent case of Turney,
LLC v. Cuyahoga Cty. Bd. of Revision (2015-Ohio4086) illustrates, the
terminology and principles surrounding property transfers and real estate
ownership can be perplexing, even to attorneys and boards of revision.
The facts of this case are simple
enough. Turney, LLC (“Turney”) filed a tax complaint with the Cuyahoga County
Board of Revision (“BOR’) on March 28, 2014, seeking a $500,000 reduction in market
value for the 2013 tax year on property located on Dunham Road in Maple
Heights, Ohio. The complaint for reduction was based upon the purchase price
for the property which was sold in a recent, arms-length transaction.
The Maple Heights Board of Education
(“BOE”) argued that Turney failed to show that it was the owner of the subject
property at the time the complaint was filed, and that the deed was not
recorded until after Turney filed its complaint. The complaint was filed on
March 28, 2014, and the deed was not recorded until April 21, 2014.
The BOR dismissed the complaint, without
considering the merits for reduction in value. It found that Turney was not the
owner at the time it filed its complaint according to the recording date of the
deed, and that Turney failed to otherwise show that it was the owner. Turney then
appealed to the Cuyahoga County Court of Common Pleas which affirmed the
dismissal of Turney’s complaint.
According to the Cuyahoga Court of
Common Pleas, “in order to have standing
to file a complaint challenging the value of real property, the party
challenging the valuation must in fact be the owner recorded on the deed [and
since] the deed transferring the property to appellant was not recorded until
August 21, 2014, nearly five months after the complaint was filed… appellant
was without standing at the time the complaint was filed to challenge the
property’s tax valuation.”
Turney appealed this determination to
the Eighth District Court of Appeals, claiming, as its sole assignment of error
that the Cuyahoga County Court of Common Pleas erred when it upheld the
decision of the BOR in dismissing Appellant’s tax complaint on the basis that
the appellant was not the owner of the Property when the complaint was filed.
Turney argued that it sufficiently demonstrated that it was the owner at the
time it filed its complaint.
The BOE argued that a party filing a tax
valuation complaint as the owner should hold not merely legal title, but record
title, and alternatively, if legal (vs record) title is the standard, recording
was the only evidence of delivery of the Turney deed, which did not occur until
April 2014.
While the Turney deed was not recorded until April, 2014, the
evidence showed that the deed was signed and notarized on March 21, 2014,
delivered to Turney’s agent between March 21st and March 25th,
and on March 25, 2014 funds were exchanged and the property closed (even though
the settlement statements were never dated).
In reversing the trial court’s decision, the Eighth District Court
of Appeals in Turney first summarized
court precentent interpreting the word “owner” (in the statute governing tax complaints
[Ohio Revised Code Section 5715.19]) as a holder of legal vs equitable title.
The court then summarized the same Real Estate 101 principles that we have
summarized, aforesaid, regarding how to achieve the status of “legal title
holder”. Basically, the court stated that (1) “a deed must be delivered to be operative as a transfer of ownership of
land,” (2) “[a]ctual manual delivery
of a deed is not always required to effectuate the grantor’s intention to
deliver;” and (3) while “recording is
prima facie evidence of delivery and acceptance [of a deed], … it is not the
only credible evidence of these formalities.”
Applying the facts to the law, the Eighth District Court of
Appeals concluded that the delivery of the Turney
deed to its agent and the closing of the transaction prior to the filing date demonstrated
that Tully was legal owner at the time it filed its valuation complaint; that Turney
did not have to be record owner at time of filing; and therefore, “the BOR and common pleas court erred in dismissing
Turney’s complaint as jurisdictionally defective.” The case was then reversed and remanded to the
lower court for further proceedings consistent with the court’s opinion.
The moral of this story is simple. Neither a witch’s broom, nor
recording is required to establish proof of real estate ownership. But, do it
anyway (the deed, not the broom). Record the deed (or confirm your agent has
recorded the deed upon, or ASAP after closing. Since all that is legally
required to establish a prima facie case of delivery of a valid deed, and
hence, ownership of real property is a few dollars a page recording fee to the
local county recorder…. record the deed. You also get the positive side effect
of being able to claim superior rights in your real property, against all
others (subject, of course to any prior encumbrances transferred with title). While
the appellant ultimately prevailed in Turney,
it could have saved a whole heck of a lot of time and legal fees along its
yellow brick road to real estate ownership by helping to ensure that its deed
was promptly recorded.
