Pay Your Lawyer Now, or Pay Your Lawyer (a lot more) Later (to review a residential real estate contract)

Have you heard this one? A man/woman walks into a lawyer’s office (of, course, after he/she signs a contract and closes on a deal) and asks, “Can you help me?”

We hear it a lot, and unfortunately, the “punchline” is often not funny at all. All the old adages hold true- “an ounce of prevention is worth a pound of cure”, “you can pay me now, or pay me (a lot more) later”…In other words, the best time to evaluate your legal rights, responsibilities and potential liability is before you sign on the dotted line. And, by no means let the person on the other side of your transaction (or their broker/agent) convince you a lawyer is not necessary. Odds are they will be little help to you if/when something goes wrong in the deal later on.

The following presents a real life example that happens all too often in the residential real estate arena.

A buyer of a parcel of real estate (improved with a house and other improvements thereon) is presented with a broker form contract from the seller’s agent. The buyer asks, “Do I need a lawyer?” The answer given is, “No, they’ll just add time (theirs) and money (yours) to the equation. Anyway, the contract forms were drafted by lawyers. It is your choice, of course, but if you take all that extra time, you’ll probably lose the deal. There are a lot of interested buyers”.

So, buyer signs, without having a lawyer look over the contract. During the two months prior to Closing, things seem to go well; the inspections don’t reveal any problems and buyer’s financing goes through…Then, on the day of closing there is a stack of forms to sign; “all routine” according to the broker and the banker. Finally, about two weeks after closing, the buyer gets a package of documents from the title company including the deed and title insurance policy. The buyer then puts the documents in his safe, thinking he is.

The trouble begins about six (6) months later.  The neighbor writes the buyer a letter (with a copy of a survey) showing that some of buyer’s landscaping, retaining wall and driveway gate encroach upon the neighbor’s property, and demanding that buyer remove those items or the neighbor will sue. The buyer thinks the neighbor is crazy, but asks us to review everything. The buyer says this should be “a no brainer” because he has a survey, title insurance… everything he was advised to get when he bought the property.

Suffice to say, thing are not always what they seem. The buyer did get a survey, but not because the broker form called for a survey. Most broker forms do not contain survey provisions. Since the buyer got a loan, the bank ordered a “Mortgage Location Survey”.

The Mortgage Location Survey, however, did not show the landscaping, retaining wall (barely visible within the landscaping) or driveway gate. Mortgage Location Surveys in Ohio (and elsewhere) typically just show that the building(s) and/or other permanent improvements of the property are actually located on the land covered by the legal description in the mortgage.

Pursuant to Ohio law (Ohio Administrative Code Section 4733-38), there are minimum standards for a Mortgage Location Survey, but most of the same just require the surveyor to show: the boundary lines as cited in the legal description; major improvements (permanent structures; e.g., residence, garages, outbuildings with foundation); any visible utilities; apparent encroachments and the address posted on the building(s). Our buyer’s landscaping, wall and gate were not deemed permanent structures and were not apparent to the buyer’s surveyor.

Had the buyer procured an ALTA/ASCM Land Title Survey, odds are the surveyor would have noted the encroachments. The ALTA/ASCM Survey is the “Cadillac” of surveys. The Mortgage Location Survey is more like the “Mini Cooper”. An ALTA/ACSM Land Title Survey must adhere to a set of national standards put forth by the American Congress on Surveying and Mapping and adopted by the American Land Title Association. The ALTA/ACSM standards require much more detail than the typical border survey or Mortgage Location Survey including:

•           Easements benefitting or encumbering a property.

•           Encroachments across the boundary or easement.

•           Whether or not there is access to a public road.

•           Zoning setbacks.

•           Flood zones that may impact the property.

•           Evidence of any use by other parties.

•           Water boundaries within the property.

•           The names of the owners of the adjoining property.

The ALTA/ASCM survey is also held to very strict standards of accuracy. The allowable error in linear feet for urban property is approximately 1 foot in just less than 3 miles. In other words, for every 15,000 feet the survey can only be off by as much as 1 foot.

An equally important reason our buyer should have gone with an ALTA/ASCM survey is that the title insurance company would have (if asked) deleted its standard exception for survey matters. Many buyers don’t concern themselves with the “provisos” of title insurance, and believe that if they are getting a title insurance policy before closing, they are protected. They will be protected, but not from survey encroachments and other matters unless they request such protection, and have an ALTA/ASCM performed. Sometimes, in smaller residential deals the title company will even waive its survey exception with a Mortgage Location Survey. All you have to do is ask. With the survey exception deleted, all our buyer would need to do is send the neighbor’s letter to the title company. The title company’s lawyers would then work out a deal with the neighbor, and our buyer wouldn’t need to spend a dime.

Most broker form contracts, by the way do contain provisions for title insurance (to be provided at closing), but few include the right to receive a title commitment, prior to closing. To ensure that buyers get “good, marketable title” to property, as well as enough time to make that determination, buyers should insist upon (in the purchase agreement) a “title commitment” being delivered within a short time after signing the contract. The “title commitment” is a contract by the insurance company to enter into an insurance contract with the buyer, whereby the title insurance company will guarantee good title, subject to exceptions it finds upon a title search of the property (e.g., easements and liens having been filed against the property).

If buyers have an early chance to review these items (via a title commitment), they can evaluate whether or not same will adversely affect the property they are purchasing, and exercise a right to terminate the contract if there are items that will adversely affect the buyer’s use or value of the property.

While a title commitment (and corresponding right to terminate if the commitment shows liens, defects…) would not have helped the buyer on our facts, it will prevent many buyers from being unpleasantly surprised after they close with easements and other recorded rights against their property.

So, to recap, the buyer in our fact pattern has a survey, but is shows no encroachments. Our buyer has title insurance, but no coverage for survey matters.  Our buyer is essentially out of luck. While there may be an action against the surveyor, proving “apparent encroachments” of “permanent improvements” could end up costing more in legal fees than removing the encroachments. Can the buyer at least sue the seller? Sure, but in our fact pattern, the seller would probably prevail as it had a very common clause put in its deed (i.e., “subject to facts an accurate survey would disclose”).

What’s the moral of the story for buyers of real estate (residential and commercial)?
Have a real estate lawyer draft or review your contract, BEFORE you sign it, to ensure that you have: (1) the right to receive/procure a title commitment and survey, (2) the right to have the title insurance standard exceptions removed, (3) the right to review and object to adverse title/survey matters, (4) deed language that won’t effectively prevent an action against the seller; and (5) the right to terminate the contract if the seller won’t cure survey or title matters that adversely affect the use or value of the property you are buying.

Also, if your title company will not remove the survey exception without an ALTA/ASCM survey, make sure you procure the same. Further, for an additional premium, residential buyers can get even more protection with the ALTA Homeowner’s Policy. The ALTA Homeowner’s Policy (vs. the “Owner’s Policy”) provides coverage against losses from zoning violations, subdivision law violations, improvements that encroach into an easement, building permit violations, violations of covenants, conditions and restrictions, lack of vehicular and pedestrian access, supplemental assessments arising as a result of construction or transfer prior to the policy date and damage to the home caused by someone with easement rights.

A few extra “ounces of prevention” will always be worth the “pounds of cure”.

Closing Protection Coverage-A Somewhat Distasteful but Advised Insurance Product

I sometimes wonder, how much wealthier I would be if I never paid for title insurance, homeowner’s insurance, commercial property insurance…  In the last 25 years or so, my house has never gone up in flames, no neighbor ever came by and said they own half my property, and when I owned rental properties, no floods or hurricanes swept them away. I have definitely paid out more in premiums over the years, than the insurance companies have paid me, and I get tired being one of the reasons that many insurance companies are doing well these days. I presume many of our Blog readers feel the same way. 

On the other hand, I presume that not many of us have made the Forbes List of the World’s Wealthiest People, and if our luck changed, few of us would be able to recover from an uninsured casualty that destroyed the home we live in or other major asset. No matter how low the odds may be that our home or commercial building will be destroyed, or that after a closing we’ll find out that someone else owns our property (or has a lien against it), or has stolen our funds from escrow, it almost always makes sense to insure against the loss, unless we can afford to self-insure. The reason is that most real estate related insurance (property, title) is relatively (in comparison to the risk of loss) inexpensive, and required by any lender financing real property.

While the State of Ohio has a formal fee schedule for title insurance, title insurance for most deals should not exceed $5-6/$1,000. Title insurance is designed to protect an owner's or a lender's financial interest in real property against loss due to title defects, liens or other title related matters. If there was a recorded highway easement across your property that the title company missed, or your home got sold at a tax sale, without your seller’s knowledge, or someone forged your seller’s name to a deed and sold the property to a third party, or someone accidentally placed a lien against your property (Lot 431) when they really meant to place the lien on Lot 341, you’ll be glad you bought title insurance.

What if an independent agent for your title company was also your escrow agent (which is very common), and that agent took the buyer’s funds and retired to Mexico (becoming more and more common). You are covered, right, because you took everyone’s advice and bought title insurance?

Unfortunately, no, unless you bought “Closing Protection Coverage”. Title agents are just that, agents to sell title insurance. The title agent is NOT an agent of the underwriter for escrow, closing and disbursement of funds purposes, so the insurance underwriter is not liable for such independent agent’s fraud or failing to adhere to escrow instructions, if such coverage is not in effect.

What is Closing Protection Coverage? It is basically (via issuance of a Closing Protection Letter) insurance that will bind the title underwriter to cover you in the event of a loss due to "theft misappropriation, fraud, or other failure to properly disburse settlement, closing or escrow funds..." by the licensed agent.

Is Closing Protection Coverage (“CPC”) required? There is no requirement that CPC be procured, but, pursuant to Section 3953.32 of the Ohio Revised Code (effective January 1, 2007) Ohio law now mandates that closing protection coverage be offered to all parties in a closing transaction – the seller, the buyer, and the lender.

How much does CPC cost? Rates for Closing Protection Coverage in Ohio are now (updated in 2013) as follows:

• $40 for a lender, its successors/assigns
• $55 for seller(s)
• $20 for buyer(s)/borrower(s)
• $20 for each additional title insurance applicant.

Is CPC advised? In light of its low cost, relative to the potential loss (my initial research indicates recent closing agent fraud claims ranging from $12,000 to $27,000,000), yes.

Certainly, you can reduce the risk of fraud/negligence by using an agency that has worked well for you in previous deals. When faced with the prospect of a new agent, it is important to ask about the agency’s experience, how long they have been in business, the qualifications of its personnel, and whether or not any claims have been made against the agency in the past. While you can lower the risk by carefully selecting the agent, the only way to eliminate the risk is to buy the coverage.  You don’t have to be happy about it. Most who buy the coverage are not. In one sense, CPC can be analogized to a protection racket that Tony Soprano would be proud of. As Robert Franco, in his “Source of Title Blog” (www.sourceoftitle.com/blog) characterized the coverage, “you [agents] have to tell them [customers] that there is a chance that you may steal their money and in order to be protected from your dishonesty, they must pay extra.” 

While I sympathize with the bad taste one gets when trying to rationalize CPC, the bottom line is that you can pay next to nothing at closing, or pay out up to everything you own, later.

RECENT CHANGES TO TITLE INSURANCE FORMS AND RATES

(Reprinted with permission from Bruce E. Cweiber, President of Precision Title Agency, Inc.)

The Ohio Title Insurance Rating Bureau has approved the following ALTA forms and rates for use in Ohio, effective May 1, 2013:

Closing Protection Coverage

This coverage, which is limited to a specific transaction, provides the covered party with certain protection as set forth in Form CP-24 against fraud, misapplication of funds or failure to comply with written closing instructions by the Licensed Agent (an agent licensed and authorized to issue title insurance in the State of Ohio for the Company) subject to the provisions contained therein. The Rate for the issuance of this coverage shall be: forty dollars ($40.00) for a lender, its successors and assigns, as their interest may appear; fifty-five dollars ($55.00) for seller(s); twenty dollars ($20.00) for buyer(s)/borrower(s) and twenty dollars ($20.00) for each additional applicant for title insurance. The Minimum Premium is $40.00 and this Rate is remitted in its entirety to the Underwriter. The premium shall be earned when funds or documents are deposited with the Licensed Agent

Standard Mechanic’s Lien Exception

There is now a premium to delete the Standard Mechanic Lien Exception in the following instances in Ohio:

Loan Policies

The Ohio Title Insurance Rating Bureau has filed a rate filing with the Ohio Department of Insurance which becomes effective on December 1, 2012. The rate provides when a Loan Policy is issued insuring a mortgage, and there is a risk of loss of priority to mechanics’ lien claimants, i.e., work started prior to recording, and the standard general exception for mechanics’ liens is to be deleted, the premium shall be 40% of the Original Rate for Loan Policies as set forth in PR-8 and is in addition to the policy premium. The minimum charge to delete the standard general exception for mechanics’ liens when there is a risk of loss of priority is $500.00. The Company will continue to require the necessary documentation to underwrite this risk and determine if the risk is insurable.

There is no charge to delete the standard mechanic’s lien exception on a loan policy if there is no known mechanic’s lien risk.

 Owner’s Policy

When mechanics' lien coverage is provided in an Owner's Policy, whether within the express insuring provisions of the Policy issued or by the absence or deletion of the general exception for mechanics' liens:

a). Where the risk of loss due to mechanics' lien claims cannot be determined, the premium for such coverage shall be ten percent (10%) of the Original Rate for such Owner's policy and is in addition to the Policy premium. The minimum premium in such circumstance shall be $250.00.

b). When there is a risk of loss due to mechanics' lien claims, the premium shall be forty percent (40%) of the Original Rate for such Owner's policy and is in addition to the Policy premium. The minimum premium shall be $500.00.

Commercial Participation Interest (ALTA Form 30.1-06)

This endorsement, subject to the exclusions contained in the endorsement and the Exclusions, Exceptions and Conditions contained in the Policy, insures against loss or damage sustained by the Insured by reason of: (a) the invalidity or unenforceability of the lien of the Insured Mortgage resulting from the provisions in the Insured Mortgage or the Loan Documents which provide for Participation Interest, and (b) lack of priority of the lien of the Insured Mortgage at Date of Policy as security for the unpaid principal balance of the loan and the interest on the loan, including the Participation Interest, if any, which lack of priority is caused by the provisions in the Loan Documents for payment or allocation to the Insured of any Participation Interest.

The rate for this endorsement is ten percent (10%) of the Original Rate for the Loan Policy for the policy to which it is attached and is in addition to the policy premium. The minimum rate for this endorsement is $250.00.

 

Founded in 1996, Precision Title Agency Inc. is a leading commercial and residential real estate title and escrow agency serving Ohio and surrounding states.  Mr. Cweiber, president of Precision Title Agency Inc. is a respected real estate attorney, licensed insurance agent and civic leader in Cleveland's business and professional communities. Mr. Cweiber can be reached at   bec@precisiontitle.com  if you have any questions regarding this article, or the title services provided by Precision Title Agency Inc.

 

Lenders Beware: Mortgage Errors Can Really Cost You

One consequence of a struggling economy is property owners, both residential and commercial, facing financial difficulties and filing for bankruptcy.  Typically, a secured lender has additional protections in bankruptcy, but a bankruptcy trustee may try to avoid the mortgage, freeing up more potential cash for the other creditors, if he or she believes there exists grounds to do so.  When a mortgage is avoided, the secured lender is not longer ahead of the other creditors, and instead is lumped in with the other unsecured creditors and sharing any assets of the bankruptcy on a pro rata basis. I bring up the bankruptcy context because the options for protecting a secured lender are more limited. Outside of the bankruptcy context, a court would find against a bona fide purchaser of real property if the purchaser had actual knowledge of the mortgage, regardless of whether the mortgage was recorded correctly or not. Bankruptcy situations are different and for this reason, lenders and their legal counsel need to take care to protect their interests.

Last year I posted an article regarding the ability of a bankruptcy trustee to avoid a mortgage if it was not properly executed.  A mortgage may also be avoided if the legal description is insufficient so that a court could find that the mortgage was not properly in the chain of title for the real property. 

Mistakes happen, and typically, if caught soon enough, are fixable. What matters is to fix the mistake correctly.  If a mortgage is recorded and the description of property is missing a parcel or is otherwise incomplete, the safest course of action is to re-record the mortgage with the complete legal description. However, some may chose to address the error by recording a corrective affidavit. The law varies from state to state regarding the use of corrective affidavits. If your state allows this option, make sure it is followed to the letter. A failure to dot the i's and cross the t's can cost a lender dearly.
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FAQ's re: Creating and Terminating Private Easements

The following article was prepared by John Murray, an associate attorney with Kohrman Jackson and Krantz P.L.L.

Following last week’s blog post on creating and terminating a public right-of-way on private property, this week we want to address the creation and termination of easements, or private rights-of-way. The law governing the creation and termination of easements is not as straight forward as one would hope, and so the below FAQ format should be helpful for any real property owner hoping to understand the contours of easements and how they affect property rights and ownership.

First, what is an easement?

Ohio law defines an easement as a grant of use on the land of another. In other words, one land owner has the right to use another landowner’s (typically a neighbor’s) property for some purpose. An easement is only a right to use another’s land for some limited purpose and does not give the easement holder a right to possess the neighbor’s land or use it for any whim and desire. The property on which the easement is located is often called the “servient estate” because it serves, or is burdened by, the neighboring property which holds the easement. The neighboring property which holds the easement, or has the right to use the easement, is called the “dominant estate” because it benefits from the easement.

A classic example of an easement between neighboring business owners is the shared use of a parking lot that is located on one business owner’s land. That business owner, we’ll call him AlphaCo, would grant to the neighboring business owner, we’ll call her BetaCo, a right to use the parking lot for the limited purpose of customer parking. If so limited, the easement would not allow BetaCo to use the parking lot for an outdoor concert, art fair, or a private cookout for her and her friends.

How are easements created?

Under Ohio law, easements are created by one of three general events or actions. First, an easement may be created by an express grant or agreement. In an express grant, the owner of the servient estate conveys to the owner of the dominant estate a right to use his or her land for some limited purpose. Importantly, an express easement grant cannot be an oral agreement; it must be expressed in writing, such as in a deed, lease, or other formal conveyance that is recorded in the office of the county recorder where the servient estate is located.

Second, an easement may be created by implication, which means that it is created by special circumstances that show an easement exists even though an express grant was never made. The key factor in an implied easement is the determination that without the easement, the dominant estate has no beneficial use to the landowner. For example, where one landowner is landlocked by a neighboring landowner and must go through the neighbor’s land to access any public road or street, the landowner may claim an implied easement to cross her neighbor’s land. Without the easement, the landowner could not travel to or from her property, which would render the land valueless.

The third general way an easement can be created under Ohio law is by estoppel. Easement by estoppel exists when one landowner promises a neighbor that the neighbor may use the landowner’s property for some limited purpose, the neighbor spends money or takes other action in reliance on that promise, and then the landowner revokes his promise and the neighbor is consequently harmed. Where such circumstances exist, the courts will not allow the landowner to revoke his promise or deny that he granted an easement.

If I have granted an easement to a neighbor, how can I terminate that easement?

An easement that has been created by an express grant, such as between AlphaCo and BetaCo above, may be terminated in a several ways. The easiest way to terminate such an easement is simply by agreeing with the easement holder to end the easement. The parties to an easement may always agree to terminate the easement. This may be done prospectively by setting a time limit on the easement when the easement is created, say ten years, or may be terminated at any time if the subservient and dominant estate holders mutually agree to end the easement. Similar to the creation of an easement, the termination of an easement also needs to be in writing and recorded in the county recorder’s office so that all future buyers of either the servient or dominant estate know that the easement has been removed.

What if the easement holder has not actually used the easement for a very long time, can an easement be terminated by non-use?

When the holder of an easement completely stops using the easement for an extended period of time, the easement may be extinguished by “abandonment.” Abandonment is proven by showing that the easement holder has not used the easement for an extended period of time (typically twenty-one years or more) and has also demonstrated intent to abandon the easement. Intent can be demonstrated by affirmative and unambiguous actions or statements that the easement holder desires to give up the easement, such as a change of the dominant estate’s property that would render the easement completely inaccessible.

What if there are certain conditions on the use of the easement that have gone unfulfilled?

Where an easement is granted in exchange for an obligation that the easement holder perform some duty or give the servient estate some benefit, the easement may be terminated if the condition is not met, but only if the grant unambiguously gives the servient estate the right to terminate upon the failure of the obligation. For example, if AlphaCo granted an easement to BetaCo on the condition that BetaCo pays a portion of AlphaCo’s property taxes, and the grant gave AlphaCo an explicit termination right upon BetaCo’s non-performance, and BetaCo fails to pay those taxes, AlphaCo may terminate the easement. The key, however, is that the instrument must unambiguously state that the servient estate has the power to terminate the easement if the condition goes unfulfilled. In Gallagher v. Lederer, 102 N.E. 2d 272 (1st Dist. 1950), an Ohio court held that it will not read into the grant a right to terminate upon a failed condition unless the language in the grant clearly states such right. Furthermore, the failure to satisfy a condition must be deliberate and continued in order to trigger a termination right. Occasional inadvertent neglect will not be enough under Ohio law.

But the party that upholds its obligations under the express grant may always sue the non-performing party under a breach of contract theory. Several Ohio courts have held that the breach of an easement is analogous to a breach of a contract, and the non-breaching party may sue for damages or seek an injunction if damages are held to be insufficient.

What if the easement holder uses the easement for a purpose not stated in the grant?

If an easement holder attempts to enlarge, abuse, or misuse an easement, the typical remedy is injunction (i.e., the servient estate owner can get a court order forcing the dominant estate holder to stop misusing the easement). Misuse may also trigger a right to terminate an easement, however, if the misuse is excessive or substantial. Ohio courts have held that a slight change in use is not enough to trigger a right to terminate. See Cleveland v. Clifford, 2003 Ohio 1290 (9th Dist. 2003) (refusing to extinguish a “drive easement” where the easement holder used it to park cars).
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FAQs regarding transfer on death designations for real property

Below are some answers to common questions related to transfer on death designations for real property interests:



What happens if a person owns real property with another person, with each having rights of survivorship, and then records a transfer on death designation affidavit (a “TOD Affidavit”)?

ORC 5302.22(C)(2) provides that if an individual owns real property (or an interests in real property) as a survivorship tenant and recorded a TOD Affidavit, then subsequently dies, the surviving survivorship tenant or tenants takes title to the real property. Upon the death of the last surviving survivorship tenant, title to the real property (or interest in real property) vests in the transfer on death beneficiary designated in the TOD Affidavit only if the last surviving survivorship tenant joined in the designation. In other words, if sisters Ann and Betty owned a house jointly with rights of survivorship and Ann (without joinder by Betty) recorded a TOD Affidavit to her niece Cathy, then title to the house does not vest in Cathy if Ann predeceases Betty. Ann’s death would result in the automatic termination and nullification of transfer on death designation made solely by Ann. Title would vest solely with Betty, and if Betty did not record any TOD Affidavit, then upon Betty’s death, the house would become part of her probate estate.


What happens if the TOD Affidavit designates an individual in his or her capacity as trustee of a trustee as a beneficiary (or contingent beneficiary) and that individual has died, has resigned or has been replaced by a successor trustee of the trust on the date of death of the owner?

The successor trustee of the trust will be considered the beneficiary (or contingent beneficiary) in existence on the owner’s death, regardless of the fact that the affidavit named the prior trustee. (See ORC 5302.22(G))


How does the beneficiary effect the transfer of the real property (or interest in real property) after the owner’s death?

The beneficiary completes and notarizes an Affidavit of Confirmation containing the information required by ORC 5302.222(A) and accompanied by a certified copy of the death certificate for the deceased owner (and for each designated beneficiary, if any, that did not survive the deceased owner). The Affidavit of Confirmation is then presented to the county auditor in which the real property is located and recorded with the county recorder of that county. (Note: if the land is located in a county where title to real property is registered, then the procedure for transferring the land from the deceased owner to the designated beneficiary will be pursuant to ORC 5309.081)


What if more than one beneficiary is designated in the TOD Affidavit?

Unless the TOD Affidavit specifies otherwise, the beneficiaries take title to the interest in equal shares as tenants in common.


Can the TOD Affidavit provide that the beneficiaries take title with rights of survivorship?

Yes, so long as the beneficiaries are natural persons. However, if a natural person is identified as a beneficiary solely in his or her capacity as a trustee of a trust, then that person isn’t considered a natural person for purposes of taking title as survivorship tenants.


Can I name a back up beneficiary in case the individual I name as a transfer on death beneficiary doesn’t survive me?

Yes, a TOD Affidavit may contain a designation or one or more persons as contingent transfer on death beneficiaries, who shall take the interest of the deceased owner in the event that the designated beneficiary does not survive the deceased owner or, in the case of a beneficiary that is not a natural person, does not exist on the date of death of the deceased owner. Note, if the TOD Affidavit names two or more beneficiaries and designated that title be taken by those beneficiaries as survivorship tenants, then no designated contingent transfer on death beneficiaries shall take title unless none of the original beneficiaries survives the deceased owner on the date of death of the deceased owner.


What effect does the existence of a recorded TOD Affidavit have on the real property while I own it?

It has no effect on the present ownership of the real property and the person or persons you designated as a transfer on death beneficiary have no interest in the real property until after your death.


Can I change my mind later after I record the TOD Affidavit?

Yes. You can revoke or change the transfer on death designation at any time without the beneficiary’s consent by executing and recording, prior to your death, a new TOD Affidavit that states the intent to revoke or changes the designation. The new TOD Affidavit automatically supersedes and revokes all prior recorded TOD Affidavits with respect to that real property, so long as the prior recorded TOD Affidavit was also executed prior to the later recorded TOD Affidavit.


What effect does the TOD Affidavit have on my home mortgage?

None. The rights of a mortgagee, or any judgment creditor or other lienholder are not affected by the designation of a transfer on death beneficiary. If a mortgagee takes action to enforce its mortgage on a home, it does not have to join any beneficiary as a defendant in the legal action unless that beneficiary has another interests in the real property separate from the transfer on death designation.
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Caveat Easement Grantor (Grantors of Easements Beware)

An “easement” is the right to use the property of another for a specific purpose. Most common are drive/access easements and utility easements. While there are limited exceptions (e.g. easements by necessity; easements by prescription; and easements by estoppel), the vast majority of easements are created by separate written instruments (or are contained within deeds) and are recorded. Some easements are personal in nature and only apply while the current landowner owns the property, and others are “perpetual” and burden the land forever.


Easements will either spell out the specific rights to use the property granted to the easement “holder” (e.g. right to use the property to place above-ground or below ground electric lines), or be “blanket” in nature and not be limited as to use. Many easements will also contain restrictions which burden the land described as the “easement premises”. Because of the possibility of existing forever, and the severity of restrictions that may be contained within an easement document, one should never agree to an easement without an attorney reviewing same prior to signing.

The recent case of Ohio Edison Co. v. Wilkes, 2012-Ohio-2718 (7th Dist. Ct. of App., Mahoning Cty.) helps to reinforce the need to review easements carefully prior to signing same. The Wilkes case also demonstrates that a court’s interpretation of words in a legal document can be far different from “common meaning”.

The facts of Wilkes are simple enough. In 1949, a landowner prior to Wilkes granted an easement to Ohio Edison over part of his property for building and maintaining a high voltage electric transmission line. In 1977, the Wilkeses purchased the property and in 1993 built an above ground pool and storage shed. Fifteen years later, Ohio Edison demanded the structures be removed due to safety reasons. The Wilkeses refused, and Ohio Edison sued to enforce its written easement.

The Wilkes easement contained a restriction disallowing (and giving the electric co. the right to remove) obstructions to the easement. Typically, when we think of obstructions to an easement, we visualize someone planting a tree in the middle of an access way, or in other words, someone/something physically blocking the use of the easement.

The trial court and the appellate court, however agreed with Ohio Edison in that an obstruction can also be something that hinders or impedes; specifically, something that interferes with Ohio Edison’s right to operate electric lines in a safe and reliable manner. They reasoned that since electric lines may “arc”, within so many feet of the lines, the presence of a pool and structure within the “arc zone” render the easement premises (location of the lines on the property) obstructed.

The Wilkeses also argued that they have enjoyed the use of the pool and shed for over 15 years, and accordingly, Ohio Edison’s claim should be precluded by the legal defenses of “statute of limitations”, “laches” and “estoppel”. The 7th District Court of Appeals, however, applied legal precedent from a Sixth Circuit (federal) Court of Appeals case (Andrews v. Columbia Gas Transmission Corp., 544 F.3d 618) that specifically held that those legal doctrines do not apply to an expressly granted easement.

Moral of this story? If someone comes to you with what they describe as a “simple form easement” or an easement with “typical boiler plate”, and asks you to sign first and ask questions later, turn and run to your friendly lawyer’s office. Easements and accompanying restrictions on the use of your property can live forever and present impediments to your ability to sell your property. While the owner of land that is subject to an easement has the right to use the land in any manner not inconsistent with the easement; that owner has no right to interfere with the reasonable and proper use of the easement or obstruct or interfere with the use of the easement.

CLE Update: Clearing Title to Distressed Real Estate

HalfMoon LLC is sponsoring a seminar titled "Clearing Title to Distressed Real Estate" on Wednesday, May 2, 2012.  The seminar will be held at the Holiday Inn Columbus/Worthington, 7007 North High Street in Worthington, Ohio.  Registration begins at 8:00 am ET, with the seminar beginning at 8:30 am and ending at 4:40 pm.

For more information or to register online, go to http://www.halfmoonseminars.com/.
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Senate Bill 117 Changes Ohio Title Law

Reprinted with Permission from Guardian Title & Guaranty Agency, Inc. and Kim McNally, Esq.

Big changes are on the horizon for some Deeds that would previously have been
deemed a void conveyance.

Governor Kasich signed SB 117 into law in December, 2011 which will take effect on March 22, 2012. Among other things, the greatest impact for title agents and real estate practitioners is providing that a conveyance into a Trust, rather than to a Trustee of a Trust will not be deemed as a void conveyance on its face. In the past, a conveyance into a Trust was deemed to be void ab initio, as if the Deed had no legal effect at all. However, this is no longer the case under the new statute.

In order for the new curative statute to apply and for a Deed into a Trust to be valid, the Trust must have been in existence at the time of the original conveyance into the Trust, and a Memorandum of Trust must be recorded. In addition, the statute will be retroactive in effect to cure previous conveyances that would have otherwise created a title defect. However, the statute will not set aside previous conveyances made subsequent to any defective deed that would otherwise be cured by this statute.

The curative nature of this statute will be codified into ORC 5301.071(E) and will read as follows:

“No instrument conveying real property, or any interest in real property, and of record in the office of the county recorder of the county within this state in which that real property is situated shall be considered defective nor shall the validity of that conveyance be affected because of any of the following:

(E)(1) The grantor or grantee of the instrument is a trust rather than the trustee or trustees of the trust if the trust named as grantor or grantee has been duly created under the laws of the state of its existence at the time of the conveyance and a memorandum of trust that complies with Section 5301.255 of the Revised Code and contains a description of the real property conveyed by that instrument is recorded in the office of the county recorder in which the instrument of conveyance is recorded. Upon compliance with division (E)(1) of this Section, a conveyance to a trust shall be considered to be a conveyance to the trustee or trustees of the trust in furtherance of the manifest intention of the parties.

(2) Except as otherwise provided in division (E)(2) of this Section, division (E)(1) of this
Section shall be given retroactive effect to the fullest extent permitted under Section 28 of Article II, Ohio Constitution. Division (E) of this Section shall not be given retroactive or curative effect if to do so would invalidate or supersede any instrument that conveys real property, or any interest in the real property, recorded in the office of the county recorder in which that real property is situated prior to the date of recording of a curative memorandum of trust or the effective date of this Section, whichever event occurs later.”

Guardian Title & Guaranty Agency, Inc.
Founded in 1962, Guardian Title is a locally owned and operated business offering residential and commercial title and escrow services through Guardian Title and Guaranty Agency Inc. Other separate entities of Guardian Title are Guardian Equity Services and Guardian Exchange Services. Guardian Equity Services provides fast and accurate service to lending institutions for their equity loans and offers limited lien searches, junior loan policies, flood certifications and evaluation products. Guardian Exchange Services, a qualified intermediary providing exchange services to real estate investors, offers 1031 exchanges, construction exchanges and reverse exchanges. Guardian title was recently honored in the “North Coast 99” - Honoring 99 of the Best Places to Work in Northeast Ohio. Contact Guardian Title at: 7550 Lucerne Drive, Suite 310 Middleburg Heights, Ohio 44130-Phone: (216) 898-4925-Fax: (216) 898-4959 -e-mail: contact@guardiantitle.com

The (Cyber) Sky’s the Limit- Preliminary Due Diligence You Can Do On Your Own.

The buyer in a real estate transaction is always at a disadvantage. The seller possesses the property, and usually, all of the requisite information concerning same. More often than not, the buyer has little or no knowledge concerning the property, but must diligently investigate and inspect it or risk understanding, all too well, the still surviving doctrine) of “caveat emptor” (let the buyer beware).

Confirming what property is being received, what condition it is in, what can or cannot be done with the property, and what risks are inherent in its ownership are of critical importance, and warrant due diligence inspection rights in every contract to buy real estate.

Typically, title commitments/policies, surveys, environmental audits, zoning reviews, engineering and building condition reports, and financial and legal reviews are the required tools in any “diligence tool box”.

While certainly not a substitute for professional reports/reviews…there are a number of websites and places one can and should visit to get an early idea of the viability of a particular property and to identify any early warning signs:

Locating the Property- Thanks to “Mr. Google”, you don’t have to hire a pilot to get a decent aerial of a property any more. Just go to www.google.com/earth/index.html, download the program for free and get aerials, street views, 3D imagery and more. More detailed maps with parcel number overlays and other local information can be found on County GIS (Geographical Information System) Maps. Just log on to: www.caao.org/GIS/index.html for an index of all Ohio County Auditor/GIS websites (Note: not available in the following counties: Clinton, Erie, Morrow, Muskingum, Ottawa, Pickaway and Ross). A more direct access to Cuyahoga County’s GIS site is: www.gis.cuyahogacounty.us. Note that some sites will require specific browsers. For example, Cuyahoga’s GIS site requires Mozilla Firefox 3.5.2.

Environmental “Quick Check”- “Envirofacts” at www.epa.gov/enviro provides access to several US EPA databases that provide information about permits and environmental activities. Searches can be initiated by address, facility name, geographic location, classification and pollutant. While Ohio EPA’s databases are not as widely available, www.epa.ohio.gov/dhwm/info_resorces.aspx will let you determine what facilities are in the “Cessation of Regulated Operations (CRO) Program”. Log on to www.comm.ohio.gov/fire/bustMain.aspx and you can check the Bureau of Underground Storage Tank Regulations lists of regulated facilities and active releases.

County Auditor and Recorder Information- www.caao.org will take you to a list of all Ohio’s Counties, with links to their auditor websites. Current valuation (according to the County’s appraisers), taxes, permanent parcel numbers, GIS maps and more are available online and right at your fingertips. Pick up the phone, and you may also (depending on the county) be able to get a copy of the appraiser’s valuation card or full appraisal (called ‘industry report’ for commercial buildings in Cuyahoga County). www.ohiorecorders.com will give you a list of all Ohio’s Counties, with links to their recorder websites. Many of these sites allow you to enter a parcel number or owner’s name, and you can retrieve, on-line, copies of deeds, mortgages and other recorded documents. Some counties (e.g., Hamilton) will only produce an index of recorded documents, requiring you to send a check for a copy of a particular document.

City/Village/Township Information- Most cities/villages/townships have their own websites containing important information from demographics to zoning to codified ordinances. Many of these municipalities publish their ordinances on one of two websites: www.conwaygreene.com and www.amlegal.com. A call to a building/zoning department can usually direct you to zoning information, zoning maps, and answers to simple, but important information such as: “is the property at ___address currently zoned for retail establishments, such as a restaurant. www.city-data.com is another site you may find helpful to locate demographics and other facts about a particular municipality.

Valuation- While more reliable for residential (vs. commercial) real estate, www.zillow.com, www.trulia.com and http://realestate.yahoo.com are often utilized to get a good idea of values and comparable sales. www.loopnet.com is a great commercial real estate site to check asking prices, and what else is “out there” on the market.

General “let your fingers do the walking” Searches- Get lost in cyberspace and do a multitude of search combinations with different browsers, entering the facility name, address, owner’s name, tenants’ name…and you may uncover newspaper articles about a previous or current problem, a prospective two-year construction project, an expected new interchange or other valuable information.

Preliminary due diligence may indeed produce information that discourages a prospective purchaser. “That’s a good thing”, as the time, money and stress inherent in the real estate purchase/sale process can be avoided early on. Alternatively, information can be a good bargaining tool for the buyer, and help to allocate the risk and perhaps negotiate a better deal.

Preliminary due diligence, however, should not be solely relied upon as encouragement to proceed with a real estate purchase, without an extensive, professional, “post-contract” investigation and inspection (diligence) process. While “cash is king” these days, information is, has been and will always be “key” to minimizing real estate risk.

Where Does Your Ohio Lakefront Property End and the Lake Begin?

Where does your Ohio lakefront property end and the lake begin? Or, in other words, how much of the lakeshore belongs to the public? The answers to these questions were recently provided by the Ohio Supreme Court in State ex rel. Merrill v. Ohio Dept. of Natural Resources, Slip Opinion No. 2011-Ohio- 4612.

Merrill and other property owners of Lake Erie lakeshore property filed a class action suit seeking a declaratory judgment regarding the extent of the State of Ohio’s property rights with regard to the lakeshore. Ohio Department of Natural Resources (ODNR) claimed that land extending inward from the lake to a “high water mark” established in 1985 by the Army Corps of Engineers falls under the State’s public trust authority. Based on this position of the ODNR, Merrill, trustee of the Ohio Lakeshore Group claimed the State of Ohio would, in effect be taking non-submerged lands of property owners without compensation (contrary to the Ohio Constitution). Some lakefront property owners had to lease land that was not under water, but under the artificial “high water mark setting”. ODNR claimed that any ruling other than one based on the “high water mark” would make it extremely difficult to maintain Ohio’s authority over narrow strips of land abutting the lake.

The trial court concluded that the public trust neither extended to the ordinary high-water mark nor terminated at a low-water mark argued by some property owners; rather, the trial court determined that the boundary of the public-trust territory is “a moveable boundary consisting of the water’s edge, which means the most landward place where the lake water actually touches the land at any given time.”

The Eleventh District Court of Appeals affirmed the trial court’s determination regarding a moveable water’s edge as the boundary, and also implied that artificial fill could modify that boundary.

In a unanimous decision, the Ohio Supreme Court held that “the territory of Lake Erie held in trust by the State of Ohio for the people of Ohio extends to the ‘natural shoreline,’ which is the line at which the water usually stands when free from disturbing causes” (such as storms or droughts). It reversed the Court of Appeals’ notion of a moving shoreline, and also reversed the appellate court’s implication regarding fill.

Most property owners were pleased with the decision, as well as the Court’s dicta regarding the need to continue its precedent of protecting individual property rights.

CLE Update: Litigating Disputes Over Easements and Restrictive Covenants

National Business Institute is sponsoring a seminar in Cleveland, Ohio on September 15, 2001 titled "Litigating Disputes Over Easements and Restrictive Covenants." The seminar will be held at the Holiday Inn Independence on 6001 Rockside Road, in Independence, Ohio (216-524-8050).  Registration is from 8:30 - 9:00 am, with the seminar beginning at 9:00 am and ending at 4:30 pm.

For more information, go to http://www.nbi-sems.com/ or call 1-800-930-6182.