Ny Title Insurance

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LAW OF TITLES IN NEW YORK AND
COMPENDIUM OF REAL PROPERTY TITLE LAW

by William C. Hart

Electronic Format Copyright © 2001 William C. Hart Title Law Associates™ 215.379.3195 (Home Office Library) fax: 215.379.2214 e-mail: whart@tatitle.com or [email protected] www.titlelawannotated.com®

TABLE OF CONTENTS Click on the link of choice below to move to that area of the document.

TEXT TITLE COPYRIGHT DISCLAIMER PREFACE DETAILED TABLE OF CONTENTS SUMMARY OF CONTENTS BIOGRAPHY

SUMMARY OF CONTENTS In order to expeditiously move through this document, click on the section below that you are interested in and it will move you to that section.
CHAPTER AIR RIGHTS 1A. ABUTTING WALLS 1. 2. 3. ACCRETION & AVULSION ACKNOWLEDGMENT ADVERSE POSSESSION CHAPTER 17 REAL ESTATE TITLES CHAPTER 15 REAL ESTATE TITLES SEE ALSO CHAPTER 22 REAL ESTATE TITLES

3A. BANKRUPTCY 4. 5. 6. 7.

BUILDING LOAN AGREEMENTS & MORTGAGES CEMETERIES COMMUNITY PROPERTY CONCURRENT ESTATES CONDOMINIUMS CHAPTER 25 REAL ESTATE TITLES CHAPTER 25 REAL ESTATE TITLES

7A COOPERATIVES 8. 9. 10. 10A 11. CORPORATIONS CREDITORS RIGHTS DECEDANTS ESTATES DEEDS IN LIEU OF FORECLOSURE DEEDS OF CONVEYANCE

CHAPTER 5 REAL ESTATE TITLES

CHAPTER 7 REAL ESTATE TITLES

SEE ALSO CHAPTER 12. 13. 14. TITLE CHAPTER 6 REAL ESTATE TITLES DESCRIPTIONS DIVORCE EASEMENTS EMINENT DOMAIN 15. ENCROACHMENTS CHAPTER 16 REAL ESTATE TITLES

15A. EQUITY SECURITIZATION 16. 17. 18. ESTATES IN LAND EXECUTION EXECUTORY CONTRACTS FDIC and RTC 18A. FEDERAL LIENS 19. FORECLOSURE CHAPTER 14 REAL ESTATE TITLES CHAPTER 4 REAL ESTATE TITLES

19A. FORFEITURE 19B. HEIRS AT LAW 20. 21. 22. 23. 24. 25. HOMESTEAD IDENTITY INHERITANCE TAXES JOINT TENANTS JUDGMENTS LEASES

CHAPTER 15 & 26 REAL ESTATE TITLES

25A. LETTERS OF INDEMNITY 26. 27. LIENS & ENCUMBRANCES LIS PENDENS CHAPTER 9 REAL ESTATE TITLES

27A 28.

MARKETABILITY OF TITLE MECHANICS LIENS MINES AND MINERALS

CHAPTER 24 REAL ESTATE TITLES

CHAPTER 20 REAL ESTATE TITLE CHAPTER 8 REAL ESTATE TITLES

29.

MORTGAGES

29A. OPTIONS 30. PARTNERSHIPS CHAPTER 27 REAL ESTATE TITLES

30B. POLICIES AND ENDORSEMENTS 31. POWER OF ATTORNEY

31A. PUBLIC LANDS RAILROADS 32. 33. RECORDING ACTS RESTRICTIVE COVENANTS CHAPTER 21 REAL ESTATE TITLES

33A. SALE-LEASEBACK 33B. SALE-LEASEBACK-SEVERANCE 34. 35. 36. 37. 38. 39. STREETS SUBORDINATIONS SURVEY COVERAGE TAXES TENANCY BY THE ENTIRETY TENANTS IN COMMON CHAPTER 12 REAL ESTATE TITLES CHAPTER 19 REAL ESTATE TITLES

40A. TRUSTS 41. 42. WATER AND WATER COURSES WILL CHAPTER 18 REAL ESTATE TITLES

Biography William C. Hart
Mr. Hart is the Chief Underwriter of T.A. Title Insurance Company. His principal responsibility is to develop and monitor all underwriting policies and procedures for the company. Prior to joining T.A. Title he was the Chief Title Officer of American Title Insurance Company of Miami, Florida 1985-92 and Chief Title Officer of Meridian Title Insurance Company, 1988-92. He is the author of Standard Title Underwriting Practices, 1991; Creditors Rights and Title Insurance, Questionable Titles, Remedies & Extrahazardous Risks, 1991; Title Insurance Underwriting Principles and Exception Language, 1992; Instructions as to the Use of Title Insurance Endorsements, 1992; The Title Insurance Underwriting Process, 1994. He is the editor of the T.A. Title Insurance Company Florida Underwriting Manual and editor and contributing author to the T.A. Title Insurance Company Pennsylvania Title Insurance Manual. He is a prior instructor at the New Jersey Lawyers Title Institute, 1983-84; past Chairman of the NJLTA Legislative Committee, 1988-89; prior instructor at the New Jersey Land Title Institute, 1987 through 1989; prior instructor and Seminar Speaker at The Land Title Institute of Virginia, 1990 and 1991; member of the PLTA Forms Committee, 1989-92 and 1994-95; past member of NYSLTA Education Committee 1993-94; present member of the ALTA Reinsurance Section 1994-95. Mr. Hart is a graduate of Florida Southern College, 1969 and New York University, 1975. Mr. Hart is the recipient of Certificates of Recognition from American Title Insurance Company, The New Jersey Land Title Association and New York University. He was presented with the designation of "Certified Land Title Insurance Professional" [CLTIP] by the Land Title Institute of Virginia in 1991. Mr. Hart is an author, lecturer and course planner of numerous title insurance seminars. He was elected to Who's Who in the East", 25th Anniversary Edition, 1995-96

Copyright
Copyright©1978 by William C. Hart. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced, stored in an electronic retrieval system, or transmitted in any form by any means whatsoever, without the prior written permission of the author or T.A. Title Ins. Co. Library of Congress Copyright Registration No.

DISCLAIMER
This publication is designed to provide our employees, officers, agents and approved attorneys general information prepared by professionals with regard to the subject matter covered. Its primary function is to serve as a reference manual. it is distributed to our policy writing offices and agents with the express understanding that the company and the author are not engaged in rendering legal opinions or advice or other professional services. Although prepared by a title professional, this publication under no circumstances shoud be utilized as a substitute for specific legal services in situations where the individual using the information is not an attorney at law licensed to practice in New York. Under NO circumstances should any individual not licensed to practice law in the State of New York disseminate any of this information to any customer or client. As circumstances warrant, if legal advise or other expert assistance is required, the services of a lawyer should be sought.

PREFACE
The purpose of this manual is to satisfy the need for a convenient reference source dealing with the subject of title examination, underwriting and closing of title to real estate within the State of New York. Traditionally, guidance in this area required reference to a number of Treatises written on the subject of real estate and conveyancing law by some very distinguished authors. Those include Real Property Law and Practice, by Joseph Rasch of the New York Bar; Harvey Law of Real Property and Title Closings, by David C.B. Harvey of the New York Bar, as expanded and recompiled by Elloit L. Biskind, of the New York Bar; Real Estate Closings, by Raymond J. Werner of the Chicago, Illinois Bar, The Law of Titles, by Eugene Sackman, of the New York Bar; Contracts and Conveyances of Real Property, by Milton R. Friedman of the New York Bar; Real Estate Law, by Robert Kratovil of the Chicago,Illinois Bar; Marketable Title to Real Estate, by Maupin; Guaranteeing Marketability of Titles to Real Estate, by Harold L. Reeve; Clearing Land Titles, by Paul E. Bayse, of the California and Missouri Bars; Modern Mortgage Law and Practice, By Robert Kratovil; Modern Real Estate Documentation, by Robert Kratovil; Warren's Weed New York Real Property and Real Estate Titles, Published by the New York State Bar Association, James M. Pedowitz, of the New York Bar, Editor-in-Chief. All of these texts are useful and should be referred to by the serious student when undertaking to address a particular title issue. Each of these texts reflects the individual experience and prejudice of the authors. Diversity of authorship and expertise will frequently disclose alternative solutions to title problems. As Professor Pedowitz has stated, "the law of real estate titles is quite complex" and "there is less than unanimity of thinking" as to the best way to resolve a controversy. What to do when a title controversy arises. While we don't want to refuse to issue a policy until we have determined that it is impossible to write the coverage within our guidelines as to what constitutes a safe and proper risk, our expertise as title underwriters lies in the field of what can be done with a title insurance policy. This adds an additional element to the traditional mix of our understanding of contract and real property law. That is our understanding of what the customer wants and why. Then, if our customers request that we do something which we can't do, such as providing a particular coverage, we ought to be able to explain to them not only why we can't do it but also, if we truly understand what they are trying to accomplish, what we can do which may address their concerns or serve that purpose and then ask whether this alternative would be a satisfactory substitute for that which they have requested.

With this thought in mind I felt there was a need to consolidate the substantive law relating to the examination and underwriting of title within the State of New York and have attempted to address within this manual all those situations which routinely arise in the course of the examination of title. There are no plans at this time to prepare annual revisions to the body of this text. Any supplements deemed necessary will appear as separate UNDERWRITING SUPPLEMENTS by chapter. For a more thorough in-depth analysis of New York title underwriting issues, the reader and underwriter are encouraged to refer to the second edition of Real Estate Titles published by the New York State Bar Association in 1994. That text will serve as the successor to this manual. For those matters that arise which are not addressed in this manual or Real Estate Titles, Second Edition, the examiner and underwriter are encouraged to refer to either Title Insurance Underwriting Principals and Exception Language [Underwriting Menu C. TI Underwriting Principals (F:\TIMANUAL\PRINCIPL)] or The Title Insurance Underwriting Process [Underwriting Menu G. TI Underwriting Process (F:\TIMANUAL\UPROCESS)]. The proper use of endorsements within the State of New York is addressed in the Tirsa Rate Manual and Instructions as to the Use of Title Insurance Endorsements [Underwriting Menu E. TI Endorsement Manual (F:\TIMANUAL\ENDORSE)]. A word of caution. The examiner and underwriter alike are reminded that the underwriting of title and the analysis required thereby must include both a thorough understanding of our contractual obligations to our insured and a thorough review of relevant case law. This necessarily implies that we recognize, at the time an underwriting decision is made, the potential cost to the insurer of the fulfillment of its contractual obligation to defend title against adverse claims, even if the legal analysis shows that the title insurer would ultimately prevail. Professor Pedowitz' first rule in underwriting was "don't make the company go to the Court of Appeals to prove you're right". A corollary to that rule is, "charge a premium commensurate with the risk". William C. Hart, Chief Underwriter Cheltenham, Pennsylvania December, 1995

FOREWARD
The principal function of an author's foreword is the justification of the text itself. This text is designed as an educational supplement to be used by title attorneys and related professionals in the examination and insuring of real estate titles within the State of New York. Preparation of this manual began 18 years ago. At that time I followed the advice of my mentor, Robert J. Hartlaub, and crossed over the river to New York City in search of a job in order to broaden my knowledge of the title insurance industry. I was fortunate to find work with Title Guarantee-New York, now part of the Chicago Title Family of title insurers. At first I worked as a closer and later in the title clearance department. Working as a title closer in New York City is a mixed blessing. You can make a good living. You cannot make a mistake. There is no one to call for help at 2 a.m. in the morning. I remember saying at the end of one closing "wouldn't it be great to have all the answers to title questions available in a computer which you could put in your briefcase and rely upon when you couldn't reach counsel?" I never forgot that idea. The technology wasn't available then. It is now. My stay in New York was brief but well spent. I have said that I was fortunate to find work at Title Guarantee because the educational resources available there at that time were tremendous. I read everything I could lay my hands on. Reader's Manuals, Exception Manuals, Law Bulletins, Closer's Manuals and Board of Counsel Minutes. I bought and read all the texts referenced in the Preface to this manual. I made copious notes and organized them alphabetically. Those notes formed the foundation for this manual. Over the next 18 years I worked in many places but I continued to return to New York City annually to attend the various Practicing Law Institute title insurance seminars. The speakers at those seminars were the best the industry had to offer. The PLI Publications accompanying the seminar material always contained updated reference to changes in New York law as it affected title. Prior to my present position there was never a need to organize, consolidate and formally present the material I had gathered over the years. This manual is the result of that undertaking. I want to acknowledge and thank all the PLI authors and all the New York title counsel who over the years prepared the materials contained within my title notes. They exemplify the finest tradition of our industry by sharing their expertise. I particularly want to thank James M. Pedowitz Esq. for calling me down to his office late one afternoon and explaining very bluntly exactly what he meant when he said "don't make the company go to the Court of Appeals to prove you're right". I also want to thank Edward P. Scharfenberger Esq. for his time, patience and guidance during my stay at Title Guarantee under his direction. He provided much needed direction and encouragement. He had the patience of a saint. Lastly, I want to thank my present Administrative Assistant, Diane Carpenter for her hard work in the typing of the entire manual.

DETAILED SUMMARY OF CONTENTS
CHAPTER 1 CHAPTER 1A

ABUTTING WALLS ACCRETION & AVULSION

LEGAL BULLETIN TITLE PAGE PAGE 1 PAGE 1 PAGE 2 PAGE 2 TITLE PAGE LEGAL BULLETIN DATE

ACCRETION AND AVULSION ACCRETION AVULSION EROSION CHAPTER 2

ACKNOWLEDGMENT ACKNOWLEDGMENTSCLEARANCE

CHAPTER 3

ADVERSE POSSESSION

GENERAL

PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE PAGE 1

ACQUISITION OF TITLE COLOR OF TITLE ADVERSE POSSESSION WITHOUT JUDICIAL DETERMINATION GENERALLY NOT INSURABLE SPECIAL CIRCUMSTANCES: REQUIREMENTS GOVERNMENT ENTITIES ADVERSE POSSESSION ADVERSE POSSESSION AND PRESCRIPTION ADVERSE POSSESSION IN GENERAL (R.P.A. & P.L. 501 ET SEQ.) ELEMENTS (R.P.A. & P.L. 511, 512, 521, 522) TIME REQUIRED LEGAL TITLE

PAGE PAGE 1 PAGE 1 PAGE 1

CHAPTER 3

ADVERSE POSSESSION

LEGAL

PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE DATE 1 2 3 3 3 4 4

DEFINITION OWNERS AFFECTED BY ADVERSE POSSESSION COMMON-LAW REQUIREMENTS STATUTORY REQUIREMENTS CONSTRUCTIVE ADVERSE POSSESSION TACKING MISCELLANEOUS ADVERSE POSSESSION LEGAL BULLETIN AGAINST THE CITY AND STATE CHAPTER 3A

PAGE 1 GENERAL PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE TITLE PRACTICE PAGE PAGE 1 PAGE 3 PAGE 3 PAGE 4 4 PAGE 5 PAGE 5 1 1 2 2 3 3 4 4 4 5 6

BANKRUPTCY

INTRODUCTION DEFINITIONS APPLICABLE STATUTES GENERAL DISCUSSION FILING OF THE PETITION IN BANKRUPTCY TITLE TO THE PROPERTY OF THE DEBTOR AUTOMATIC STAY TITLE PROBLEMS CREATED BY BANKRUPTCY FRAUDULENT TRANSFERS PREFERENCES EXEMPT PROPERTY BANKRUPTCY

TITLE PRACTICE/BANKRUPTCY PREPARATION OF SCHEDULE "A" OF THE COMMITMENT WHEN INSURING OUT OF TRUSTEE IN BANKRUPTCY OR DEBTOR IN POSSESSION WHEN BANKRUPT WANTS TO SELL PREMISES AFTER MORTGAGE FORECLOSURE PROCEEDINGS HAVE BEEN INSTITUTED IF PROPERTY IS TO BE SOLD FREE AND CLEAR OF LIENS AND ENCUMBRANCES, THE FOLLOWING ITEMS SHOULD BE LOOKED FOR THE PAPERS PAGE IF THERE WAS A FORECLOSURE OR TAX SALE IN CHAIN OF TITLE AND BANKRUPTCY COURT WAS NOT NOTIFIED, CERTIFY THE FOLLOWING GENERAL BANKRUPTCY RECITAL AND ADD THE FOLLOWING BANKRUPTCY-ABANDONMENT UNDERWRITING GENERAL ABANDONMENT OF PROPERTY TITLE RULE PAGE

PAGE 1 PAGE 1 PAGE 1

COMMENT

PAGE 1

CHAPTER 3A

BANKRUPTCY-ABANDONMENT UNDERWRITING

PAGE PAGE 2 PAGE 2 PAGE 2 PAGE PAGE 1 PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 2 1 2 3 4 5

ACTUAL ABANDONMENT CONSTRUCTIVE ABANDONMENT TITLE RULE BANKRUPTCY-AUTOMATIC STAY AFFECT UPON JUDGMENT LIEN TEN YEAR PERIOD TOLLED BANKRUPTCY-CHAPTER REQUIREMENTS UNDERWRITING

CHAPTER 13 TITLE RULE CHAPTER 7 FREE AND CLEAR SITUATION - NO ORDER OBTAINED CHAPTER 11 BANKRUPTCY-CREDITORS RIGHTS CREDITORS' RIGHTS EXCEPTIONS BANKRUTPCY - DISCHARGES UNDERWRITING UNDERWRITING

PAGE 1 PAGE 2 PAGE 3 PAGE 4 PAGE PAGE 1

IN GENERAL PAGE EFFECT OF DISCHARGE PROPERTY ACQUIRED AFTER DISCHARGE - THE AFFECT UPON PRE-PETITION JUDGMENTS AGAINST THE DEBTOR THE AFFECT OF A DISCHARGE IN BANKRUPTCY UPON PRE-PETITION DOCKETED JUDGMENTS EXEMPT PROPERTY EXEMPT PROPERTY BANKRUPTCY - FRAUD FRAUDULENT TRANSFERS (11 U.S.C. 548) BANKRUPTCY - FREE & CLEAR UNDERWRITING SALES OF PROPERTY OF THE BANKRUPTCY ESTATE WHY DO WE WANT AN ORDER? TITLE RULE BANKRUPTCY - ORDER CONTENT UNDERWRITING PAGE UNDERWRITING UNDERWRITING

PAGE PAGE 1

PAGE 1 PAGE 1 PAGE 2 PAGE

WHAT SHOULD WE LOOK FOR IN A COURT ORDER? PAGE 1 SALES FREE AND CLEAR OF LIENS, TAXES AND TRANSFER TAXES PAGE 2

COMMENT

PAGE 2

CHAPTER 3A

BANKRUPTCY - MORTGAGES

UNDERWRITING

PAGE 1 2 2 2

IN GENERAL APPLICABLE SECTIONS OF THE CODE ADEQUATE PROTECTION REQUIREMENT PROCEDURAL MATTERS AND BANKRUPTCY RULES RULES OF TITLE PRACTICE BANKRUPTCY-TAX LIENS CHAPTER 4

PAGE 1 PAGE PAGE PAGE PAGE PAGE PAGE

UNDERWRITING

BUILDING LOAN AGREEMENTS
& MORTGAGES

GENERAL

BUILDING LOAN AGREEMENTS AND MORTGAGES SECTION 22 LIEN LAW AMENDMENTS TO BUILDING LOAN AGREEMENT

PAGE 1 PAGE 1 PAGE 2 DATE LEGAL BULLETIN 10/79

BUILDING LOANS

BUILDING LOANS-SURVEY EXCEPTIONS

DATE LEGAL BULLETIN 8/79

CHAPTER 5

CEMETERIES

GENERAL

PAGE PAGE 5

ABANDONED CEMETERIES CHAPTER 6

COMMUNITY PROPERTY

TITLE

PAGE PAGE 1 TITLE PAGE PAGE 1 PAGE 2 PAGE 4

COMMUNITY PROPERTY CHAPTER 7

CONCURRENT ESTATES

JOINT TENANCY TENANCY BY THE ENTIRETY TENANCY IN COMMON CHAPTER 7A

COOPERATIVES

GENERAL

PAGE PAGE 1 PAGE 2

COOPERATIVES DEFINED THE NEW YORK MODEL COOPERATIVES TENANTS INTEREST INSURABLE GUIDELINES TITLE

PAGE PAGE 1 PAGE 1

TITLE REQUIREMENTS

PAGE 3

CHAPTER 7A

COOPERATIVES

TITLE

PAGE PAGE 5 PAGE 5 DATE

FEE EXCEPTIONS LEASEHOLD COOPERATIVES EXCEPTION WHERE LEASE IS NOT DELIVERED AT CLOSING CHAPTER 8

LEGAL BULLETIN 6/79

CORPORATIONS

GENERAL

PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 3 PAGE PAGE PAGE PAGE PAGE PAGE 1 PAGE 1 1 PAGE 1 PAGE PAGE PAGE PAGE 1 2 2 2 3 4 4 4 1 1 1 1 2 2 2 3

DEFINITIONS FOREIGN CORPORATIONS DOMESTIC CORPORATIONS JUDICIAL DISSOLUTION CORPORATE AUTHORITY-EXECUTION OF INSTRUMENTS TRANSFER OF ALL ASSETS - SALE OR MORTGAGE NON-PROFIT CORPORATION PUBLIC UTILITIES CHAPTER 8 CORPORATIONS GENERAL

CREDIT UNION - STATE TRANSACTIONS BETWEEN CORPORATIONS AND OFFICERS OR DIRECTORS TRANSACTIONS DURING DISSOLUTION TAXES RESULTING IN SUSPENSION OF CORPORATE POWERS MERGER AND CONSOLIDATION CORPORATE REQUIREMENTS TITLE

BOARD OF DIRECTORS RESOLUTION - REGARDING MORTGAGE TO BE MADE WHERE CERTIFICATE OF INCORPORATION REQUIRES CONSENT OF STOCKHOLDERS TO MORTGAGE STOCKHOLDERS CONSENT - REGARDING CONVEYANCE TO AN OFFICER HERETOFORE MADE PAGE LIQUIDATION OR DISSOLUTION TAX ON CONVEYANCES TO STOCKHOLDERS PRIOR TO JANUARY 1, 1962 SHAREHOLDERS CONSENT ON CORPORATE CONVEYANCE OR LEASE CORPORATE CONVEYANCE TO OFFICER EXECUTING DEED. CORPORATION NOT TIMELY ORGANIZED WHERE CERTIFICATE OF INCORPORATION NEEDED WHERE CERTIFICATE OF INCORPORATION OF A FOREIGN CORPORATION NEEDED STATUS OF FOREIGN CORPORATION - STATE OF INCORPORATION FOREIGN CORPORATION STATUS - NEW YORK STATE

PAGE 2 PAGE 2 PAGE 2

CERTIFICATION OF TITLE IN A CORPORATION

PAGE 3

CHAPTER 8

CORPORATE REQUIREMENTS

TITLE

PAGE

SALE, LEASE, EXCHANGE OR MORTGAGE OF PROPERTY BY A CORPORATION GOVERNED BY THE NO-FOR-PROFIT CORPORATION LAW (FORMERLY GOVERNED BY THE MEMBERSHIP CORPORATION LAW PAGE 3 SALE BY A RELIGIOUS CORPORATION PAGE 3 MORTGAGE BY A RELIGIOUS CORPORATION PAGE 3 CORPORATE CONVEYANCE TO ITS OFFICER PAGE 3 CORPORATIONS 1 SALES & MORTGAGE CONSENT REQUIRED DATE

LEGAL BULLETIN 8/79 CHAPTER 8 CORPORATIONS 2 NOT-FOR PROFIT CORP.LAW APPLICABILITY TYPES OF CORPORATIONS DETERMINATION OF TYPE OF CORPORATION DISSOLUTION PURCHASE, SALE, MORTGAGE OR LEASE OF REAL PROPERTY SERVICE OF PROCESS DIGEST ONLY DATE LEGAL BULLETIN 8/79 PAGE PAGE PAGE PAGE 1 1 2 2

PAGE 3 PAGE 4 PAGE 4

CORPORATIONS 3 RELIGIOUS CORPORATIONS LAW

DATE LEGAL BULLETIN 8/79

CORPORATIONS 3.1 RELIGIOUS CORPORATIONS DISPOSITIONS RESEARCH OPINION

DATE

LEGAL BULLETIN 7/72 RELIGIOUS CORPORATIONS DISPOSITIONS CORPORATIONS 4 & 5 CORPORATIONS TAXES PAGE 1 DATE

LEGAL BULLETIN 8/79 FRANCHISE AND LICENSE FEE TAXES - NEW YORK STATE ARTICLE 9A, TAX LAW PAGE 1 NEW YORK CITY GENERAL CORPORATION TAX PAGE 1

CHAPTER 8

CORPORATIONS 4 NEW YORK CITY CORPORATION TAX

DATE

LEGAL BULLETIN 8/79 NEW YORK CITY CORPORATION TAX LIEN DATE EXAMPLES PROOF OF PAYMENT DEPOSIT - RATE OF TAX CORPORATIONS 4.1 BUSINESS CORPORATION TAX CLEARANCE (NYC) PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 2 DATE

LEGAL BULLETIN 5/79 CHAPTER 8 CORPORATIONS 5 FRANCHISE TAX NEW YORK STATE DATE LEGAL BULLETIN 8/79 ANNUAL FRANCHISE TAX ON REAL ESTATE CORPORATIONS TRANSITION TAX ON REAL ESTATE CORPORATIONS LIQUIDATION TAX ON REAL ESTATE CORPORATIONS ANNUAL FRANCHISE TAX ON BUSINESS CORPORATIONS NEW CORPORATIONS FOREIGN CORPORATIONS AUDIT OF RETURNS DEPOSITS DURATION OF LIEN CHAPTER 9 PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 1 PAGE 1 UNDERWRITING PAGE PAGE 2 PAGE 2 PAGE 5 PAGE 6 PAGE 8 PAGE 12 PAGE 14 PAGE 20 PAGE 22 1 1 1 1 2 2 2 2 2

CREDITOR'S RIGHTS

TITLE

PREFERENCES FRAUDULENT CONVEYANCES CREDITOR'S RIGHTS

CREDITOR'S RIGHTS EXCEPTIONS CREDITORS' RIGHTS EXCLUSION INTRODUCTION FRAUDULENT CONVEYANCE ISSUES TITLE RULE LOAN POLICY - NEW YORK ENDORSEMENT ENDORSEMENT HOW TO CLEAR THE TITLE EXCEPTION SUPREME COURT RESOLVES CONFLICTING RULES RELATING TO WHEN A MORTGAGE FORECLOSURE IS A FRAUDULENT CONVEYANCE

TITLE RULE

PAGE 23

CHAPTER 9

CREDITOR'S RIGHTS

UNDERWRITING

PAGE PAGE 23 PAGE 27 PAGE 28 PAGE PAGE PAGE PAGE 28 29 30 30

DEED IN LIEU OF FORECLOSURE ALTERNATIVE PRESENTATION OF TITLE CONSIDERATIONS FROM THE BORROWER YOU WANT THE FOLLOWING REPRESENTATIONS FROM THE LENDER YOU WANT THE FOLLOWING REPRESENTATIONS PARCEL ASSEMBLAGE - THE LEASE TERMINATION PROBLEM OPTION AGREEMENTS CONTRACT FOR SALE EQUITY PARTICIPATION TRANSACTIONS BETWEEN A GENERAL PARTNER AND PARTNERSHIP CORPORATE UPSTREAM OR CROSS-STREAM TRANSACTIONS MORTGAGEE'S OPTION TO PURCHASE MORTGAGES TO SECURE ANTECEDENT INDEBTEDNESS CHAPTER 10

PAGE 30 PAGE 31 PAGE 31 PAGE 32 PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2 PAGE 2

DECEDENTS' ESTATES

GENERAL

GENERALLY PRESUMPTION OF DEATH CREDITORS LIFE ESTATES JUDGMENTS AGAINST HEIRS EXAMINATION OF PROBATE PROCEEDINGS DECEDENTS ESTATE DIGEST

PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 1 PAGE 1 PAGE 2 PAGE 3 PAGE 3 PAGE 4 PAGE 5 PAGE5 1 1 1 1 2 2 3

ABBREVIATIONS SIMULTANEOUS DEATH (E.P.T.L. 2-1.6) TRANSFER OF DECEDENT'S TITLE (S.C.P.A. 1907, 2505) INTESTATE SUCCESSION (E.P.T.L. 4-1.1) TESTATE SUCCESSION-WILLS ESTATE ADMINISTRATION TAXES DECEDENTS ESTATES TITLE

SUCCESSION TO TITLE OF A DECEDENT JURISDICTION POWERS AND DUTIES OF PERSONAL REPRESENTATIVES SPECIAL ADMINSTRATORS, ADMINSTRATORS WITH WILL ANNEXED, MULTIPLE REPRESENTATIVES PROCEDURE IN PROBATE PROCEEDINGS PROCEEDINGS FOR SALE OF PROPERTY RENUNCIATIONS, TRANSFERS, ASSIGNMENTS STATE INHERITANCE TAX

CHAPTER 10

DECEDENT ESTATES 1

UNDERWRITING

PAGE PAGE 1 PAGE 1 PAGE 3 PAGE 3 PAGE 3 PAGE 4 PAGE 5 PAGE 6 PAGE 5 PAGE

EFFECT OF DEATH ON RIGHTS TO DECEDENT'S PROPERTY QUALITY OF TITLE OF DISTRIBUTEES DEVOLUTION BY WILL NECESSITY FOR PROBATE PROBATE OF WILLS QUALITY OF TITLE OF DEVISEES GENERAL POWERS OF DISPOSITION BY A FIDUCIARY WHAT INTEREST MAY BE MORTGAGED? OTHER TITLE CONSIDERATIONS DECEDENTS ESTATES 2 PROBATED UNDERWRITING ESTATES - SALE BY EXECUTOR UNDER POWER CHAPTER 10 DECEDENTS ESTATES 3 ESTATE TAXES UNDERWRITING PAGE

FEDERAL ESTATE TAX NEW YORK ESTATE TAX

PAGE 1 PAGE 1 LEGAL BULLETIN 8/79

NEW YORK ESTATE TAX FEDERAL ESTATE TAX DECEDENTS ESTATES 3.1 ESTATE TAXES - ENTIRETY AND JOINT

PAGE 1 PAGE 2 DATE LEGAL BULLETIN 8/79

DECEDENTS ESTATE 4 FIDUCIARY PURCHASES FIDUCIARY PURCHASES DECEDENT ESTATES 5 FIDUCIARY POWERS

TITLE

PAGE PAGE 1 DATE

LEGAL BULLETIN 8/79 POWERS OF EXECUTORS AND TRUSTEES POWER OF ADMINSTRATORS FIDUCIARIES POWERS - MULTIPLE OF MAJORITY ACTION DECEDENTS ESTATES 6 RENUNCIATION OF DISPOSITIONS AND INTESTATE SHARES DATE PAGE 1 PAGE 2 PAGE 2

CHAPTER 10

DECEDENTS ESTATES 7 WILLS, FOREIGN

LEGAL BULLETIN 8/79 DATE LEGAL BULLETIN 8/79

DECEDENTS ESTATES-WILLS LEGAL BULLETIN ADMINSTRATOR C.T.A. (OLD) AFTER-BORN CHILDREN CHARITABLE BEQUESTS EQUITABLE CONVERSION EXECUTION OF EXECUTORS

PAGE

PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2 PAGE 2

CHAPTER 10

DECEDENTS ESTATES-WILLS
PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 3 3 3 4 4 4 5 5 6 7 7 PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 9 PAGE 10 PAGE 11 DATE LEGAL BULLETIN 10/84

PERPETUITIES POWER OF SALE POWER OF SALE (IMPLIED) TRUSTEES TRUSTEES (FOREIGN TRUST COMPANIES) TRUSTEES (LIFE BENEFICIARY AND SOLE TRUSTEE) TRUSTEES (UNAUTHORIZED PURCHASE) REMAINDERS REMAINDERS - DIVIDE AND PAY OVER RULE REMAINDERS SUSPENSION OF ALIENATION CHAPTER 11

DEED OF CONVEYANCE

TITLE

GENERAL FORM OF DEED PARTS OF A DEED DELIVERY OF DEED KINDS OF DEEDS CAPACITY OF PARTIES DEEDS OF CONVEYANCE CONDITION RELEASE OF CONDITION ADOPTION OF STATUTE BARRING CONDITIONS CHAPTER 11 DEEDS OF CONVEYANCE (FAIR VALUE- CONSIDERATION)

PAGE 1 PAGE 2 DATE

LEGAL BULLETIN 5/79 DEEDS OF CONVEYANCE DELIVERY OF DEEDS DELIVERY OF DEEDS DEEDS OF CONVEYANCE EXECUTION OF DEEDS CHAPTER 11 DEEDS OF CONVEYANCE ESCROW DEEDS- RELOCATION SETTLEMENT TITLE TITLE PAGE PAGE 1 PAGE PAGE 1 PAGE PAGE 1 PAGE 1 SETTLEMENT PAGE PAGE PAGE PAGE PAGE PAGE DATE LEGAL BULLETIN DESCRIPTIONS - OLD STREETS DESCRIPTIONS - MARGINAL STREETS MONUMENTS DEDICATION DRAIN RIGHTS HUSBAND TO WIFE RECITALS (AS TO HEIRSHIP) RECITALS ("BEING THE SAME PREMISES", ETC) RECITALS (OLD DESCRIPTION CONTINUED) CHAPTER 12 PAGE 1 PAGE 1 PAGE 2 PAGE 2 PAGE 2 PAGE 2 PAGE 2 PAGE 2 PAGE 3 TITLE PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 2 2 2 4 5 5

INTRODUCTION FACT SCENARIO CHAPTER 11 DEEDS OF CONVEYANCE ESCROW DEEDS- RELOCATION

GENERAL LAW DEFINABLE GRANTEE DELIVERY CONCLUSION AND THEORY PROBLEMS TO CONSIDER: DELIVERY DEEDS OF CONVEYANCE

DESCRIPTIONS

DESCRIPTION AFFECTED BY A PUBLIC ROAD AREAS COMPUTED TO STREET CENTERS MEMORANDUM AS TO EXCEPTIONS BASED ON LOCATION OF FENCES, HEDGES, RETAINING WALLS, POSSESSION ALONG PERIMTER LINES AS TO FENCES

CHAPTER 12

DESCRIPTIONS

TITLE

PAGE PAGE 3 PAGE 3

AS TO HEDGES AS TO WALLS - POSSESSION WALL, RETAINING WALLS

CHAPTER 13

DIVORCE

TITLE

PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2 DATE

GENERAL PROPERTY SUBJECT TO DISPOSITION IN DIVORCE, SEPARATION, ANNULMENT OR TO DECLARE NULLITY OF A VOID MARRIAGE FOREIGN DIVORCE ALIMONY EXPENSES DIVORCE

LEGAL BULLETIN 9/75 JUDGMENT UNDER SECTION 234 OF DOMESTIC RELATIONS LAW DIVORCE - RESTORATION OF RIGHTS OF FORMER SPOUSE UPON REMARRIAGE TO TESTATOR E.P.T.L. 5-1.4 PAGE 1 DATE

LEGAL BULLETIN 11/79 CHAPTER 14

EASEMENTS

TITLE

PAGE PAGE PAGE PAGE PAGE DATE 1 1 1 4

DEFINED EASEMENTS APPURTENANT AND IN GROSS CREATION OF EASEMENTS EXTINGUISHMENT OF EASEMENTS CHAPTER 14 EASEMENTS - WIRES

LEGAL BULLETIN 8/79 DEFINED DISCONTINUED STREET PUBLIC STREET CHAPTER 15 ENCROACHMENTS GENERAL PAGE 2 PAGE 2 PAGE 2 PAGE PAGE PAGE PAGE PAGE PAGE 1 2 3 3 4

INTRODUCTION CLEARANCE PROCEDURE REQUEST FOR AFFIRMATIVE COVERAGE BUILDING ENCROACHMENTS ON STREET FENCES AND HENGES - OUT OF POSSESSION - CLEARANCE

PRIOR TO BOARD OF COUNSEL MEMORANDUM

PAGE 4

CHAPTER 15

ENCROACHMENTS

LEGAL BULLETIN

PAGE PAGE PAGE PAGE PAGE PAGE PAGE 1 PAGE 2 PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 1 2 2 3 5 6 7 9 1 1 2 2

ON STREET ON ADJOINING PROPERTY (ABUTTING WALLS) ON ADJOINING PROPERTY BY ADJOINING BUILDING CHAPTER 15A

EQUITY SECURITIZATION

GENERAL

EQUITY REAL ESTATE INVESTMENT TRUSTS UMBRELLA PARTNERSHIP REAL ESTATE INVESTMENT TRUSTS EQUITY SECURITIZATION REIT AS PURCHASER REIT AS BORROWER TITLE INSURANCE ISSUES POLICY CONSIDERATIONS OWNER'S POLICY LOAN POLICY SECURITIES ISSUES CREDITORS' RIGHTS CHAPTER 16 TITLE U/W

ESTATES IN LAND

TITLE

PAGE PAGE 1 PAGE 1 PAGE 2 PAGE

FEE SIMPLE ABSOLUTE FEE ON LIMITATION EPTL 6-1.1 (SOMETIMES KNOWN AS A FEE ON SPECIAL LIMITATION OR A FEE SIMPLE DETERMINABLE) FEE ON CONDITION EPTL 6.1-1 (SOMETIMES CALLED A FEE SIMPLE SUBJECT TO A CONDITION SUBSEQUENT. CHAPTER 16 ESTATES IN LAND TITLE

EFFORTS TO MODIFY THE SEVERITY OF BOTH THE FEE SIMPLE ON SPECIAL LIMITATION AND THE FEE SUBJECT TO A CONDITION ENFORCEMENT ESTATES IN FEE TAIL - E.G. "TO A AND THE HEIRS OF HIS BODY LIFE ESTATES COURTESY ABOLISHED R.P.L. ∋189 DOWER ESTATES AT WILL ESTATES AT SUFFERANCE CHAPTER 17

PAGE 4 PAGE 8 PAGE 8 PAGE 8 PAGE 9 PAGE 9 PAGE 10 PAGE 10 PAGE PAGE 1

EXECUTIONS

GENERAL

EXECUTIONS

CHAPTER 18

EXECUTORY CONTRACT FEDERAL LIENS

DATE LEGAL BULLETIN 8/79 PAGE PAGE 1 PAGE 2 PAGE 2 PAGE 3 PAGE 5 PAGE 5 PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2 PAGE 2 PAGE 3 PAGE 4 PAGE 4 PAGE PAGE 1

CHAPTER 18A

FEDERAL TAX LIENS FEDERAL LIENS FOR ESTATE TAXES BANKRUPTCY PETITIONS FEDERAL JUDGMENTS LABOR LAW FEDERAL LIENS UNDER CERCLA FEDERAL TAX LIENS - SEIZURE GENERAL AUTHORITY NOTICE OF SEIZURE NOTICE OF SALE MANNER AND CONDITIONS OF SALE ADDITIONAL RULES APPLICABLE TO SALE REDEMPTION CERTIFICATE OF SALE; DEED OF REAL PROPERTY LEGAL EFFECT OF CERTIFICATE OF SALE COMMENTS FEDERAL TAX LIENS - SEIZURE TITLE INSURABILITY OF TITLE DERIVED FROM FEDERAL TAX DISTRAINT SALE FEDERAL TAX LIENS - SEIZURE DATE

LEGAL BULLETIN 8/91 CHAPTER 19

FORECLOSURE

TITLE

PAGE PAGE 1 PAGE 2 PAGE 2 DATE

GENERAL DEFICIENCY JUDGMENT NON-JUDICIAL SALE FORECLOSURE 1 NOTICE OF SALE NOTICE OF SALE HISTORY IN NEW YORK CITY IN CITIES AND VILLAGES OUTSIDE OF CITIES AND VILLAGES IN WHICH A NEWSPAPER IS PUBLISHED

LEGAL BULLETIN 8/79 PAGE 1 PAGE 1 PAGE 1 PAGE 1

POSTPONEMENT OF SALE IN ALL CASES WHEN THE SALE MUST BE HELD EXECUTION SALE CHAPTER 19 FORECLOSURE 2 SERVICE OF SUMMONS PERSONAL SERVICE ON A NATURAL PERSON

PAGE 2 PAGE 2 PAGE 3 DATE

LEGAL BULLETIN 8/79 FORECLOSURE 3 SERVICE OF SUMMONS ON CORPORATION DATE

LEGAL BULLETIN 8/79 FORMER METHOD OF SERVICE ON DOMESTIC CORPORATION PAGE 1 FORMER METHOD OF SERVICE ON FOREIGN CORPORATION PAGE 1 PRESENT METHOD OF SERVICE ON ALL CORPORATIONS PAGE 1 ABSTRACTING PROOF OF SERVICE PAGE 1 SERVICE ON MANAGING OR GENERAL AGENT PAGE 1 SERVICE ON SECRETARY OF STATE PAGE 1 SPECIAL REQUIREMENTS PAGE 2 CHAPTER 19A FORFEITURE SUPPLEMENT PAGE PAGE PAGE PAGE PAGE PAGE 3 PAGE PAGE PAGE 1 1 1 2 3 4 4 5

INTRODUCTION POLICY INSURING CLAUSES PROCEEDINGS ARE IN REM UNDERWRITING REQUIREMENTS AND CONSIDERATIONS CIVIL FORFEITURE PROCEDURES CRIMINAL FORFEITURE PROCEDURES PAGE DOCUMENTS TO BE RETAINED IN THE TITLE FILE TITLE OBTAINED FROM A CONVICTED FELON THE CRUEL AND UNUSUAL PUNISHMENT ARGUMENT APPEAL OF STATE FORFEITURE STATUTES TO U.S. SUPREME COURT CHAPTER 19A FORFEITURE SUPPLEMENT PAGE

PAGE 5

CONCLUSION CHAPTER 19B HEIRS AT LAW

PAGE 6 PAGE PAGE 1 PAGE 2 GENERAL GENERAL TITLE PAGE PAGE PAGE

AFFIDAVITS OF HEIRSHIP MODEL FORM HEIRSHIP AFFIDAVIT CHAPTER 20 CHAPTER 21 CHAPTER 22

HOMESTEAD IDENTITY INHERITANCE TAXES

CHAPTER 23

JOINT TENANTS

TITLE

PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2

GENERAL DEFINITIONS CREATION SEVERANCE CONVEYANCE BY ONE MARRIED JOINT TENANT TERMINATION OF JOINT TENANCY BY DEATH CHAPTER 24

MONEY JUDGMENTS

GENERAL

PAGE PAGE 1 PAGE

MONEY JUDGMENTS JUDGMENTS 2 CLEARANCE IDENTITY OF DEBTOR JUDGMENTS 2 CLEARANCE USE OF DEPOSITS AND LETTERS OF UNDERTAKING

DATE

LEGAL BULLETIN 6/79 JUDGMENTS 2.1 SIMILIAR NAMES TITLE PAGE PAGE

JUDGMENTS 4 TITLE SATISFACTION OF JUDGMENT IN FACT AGAINST SELLER JUDGMENTS 5 SATISFACTION OF MONEY JUDGMENTS

DATE

LEGAL BULLETIN 8/79 CHAPTER 24 JUDGMENTS 6 DEPOSITS FOREIGN JUDGMENTS CPLR ARTICLE 53 LEGAL BULLETIN RECOGNITION OF FOREIGN COUNTRY MONEY-JUDGMENT SUMMARY OF ARTICLE PAGE 1 CHAPTER 24 FOREIGN JUDGMENTS ENFORCEMENT PAGE CPLR ARTICLE 54 DATE LEGAL BULLETIN 8/79 DATE

ENFORCEMENT OF JUDGMENTS ENTITLED TO FULL FAITH AND CREDIT SUMMARY OF ARTICLE CHAPTER 25

PAGE 1 PAGE PAGE PAGE PAGE PAGE 1 1 1 1

LEASES AND LEASEHOLD ESTATES

GENERAL

POSSESSION AND UNRECORDED LEASES RECORDED LEASES UNRECORDED LEASES INSURING THE LEASEHOLD LEASES TITLE ISSUES

PAGE PAGE 1 PAGE 2 PAGE 2 PAGE 3 PAGE 3 PAGE 4 PAGE 4 PAGE 6 PAGE PAGE 1 PAGE 4 PAGE 5 PAGE 6 PAGE 7 DATE

LEASES - MEMORANDA OF LEASES - MEMORANDUM - SURRENDER OF LEASES - TENANTS RIGHT OF NON-DISTURBANCE LEASES-POSSIBLE USE RESTRICTIONS-OPPOSITION BY LANDLORD TO INTENDED USE BY PROPOSED ASSIGNEE ASSIGNMENT OF RENTS INVESTMENT INCOME PROPERTY INSURING LEASEHOLD MORTGAGES WHERE THE FEE MORTGAGE IS TO BE SUBORDINATED INSURING LEASEHOLD MORTGAGES WITH FEE TITLE TO BE SUBORDINATED LEASE ASSIGNMENT AND SUB-LETTING RENEWALS AND EXTENSIONS ASSIGNMENT OF RENTS HOLD-OVER TENANTS TERMINATION OF LEASES LEASES ESTOPPEL CERTIFICATES AND LEASES AND MORTGAGE ON LEASE LEGAL

LEGAL BULLETIN 8/79 CHAPTER 25A LETTERS OF INDEMNITY TITLE PRACTICE PAGE PAGE 1 PAGE 1 PAGE 2 PAGE 2 PAGE 3 PAGE 4 PAGE 4

IN GENERAL ISSUANCE OF LETTERS OF INDEMNITY AND RELIANCE THEREON RULES OF TITLE PRACTICE PROCEDURE TO FOLLOW REQUESTING LETTER OF INDEMNITY MISUSE OF INDEMNIFICATION POLICY INSURING CLAUSE OBLIGATIONS LEGISLATIVE AND CASE LAW CONCERNS

CHAPTER 25A

LETTERS OF INDEMNITY

TITLE PRACTICE

PAGE PAGE 4

FORMS OF LETTERS OF INDEMNITY LETTERS OF INDEMNITY FORM ALTA FORM PAGE STANDARD ALTA/ATIC FORM TITLE PRACTICE PAGE

PAGE 1

PAGE 1

CHAPTER 26

LIENS & ENCUMBRANCES
REAL ESTATE TITLES NYSBA PUBLICATION

TITLE

PAGE

DEFINITION TYPES OF LIENS MONEY JUDGMENTS ESTATE TAX LIENS FEDERAL ESTATE TAX LIENS NEW YORK STATE INHERITANCE TAX FEDERAL TAX LIENS CHAPTER 26 LIENS & ENCUMBRANCES REAL ESTATE TITLES NYSBA PUBLICATION TITLE

PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE

1 1 2 4 4 5 5

FEDERAL LIENS NEW YORK STATE FRANCHISE TAX AND NEW YORK CITY BUSINESS CORPORATION TAX MECHANIC'S LIEN NEW YORK CITY LIENS EMERGENCY REPAIR LIEN RELOCATION LIEN PEST CONTROL LIEN HOUSING VIOLATIONS AND CIVIL PENALTY LIEN CANOPY LIEN PARKING VIOLATIONS LEAKING TAP LIEN VAULT TAX LIEN BUILDING INSPECTION FEES LIEN SIDEWALK REPAIR LIEN ENVIRONMENTAL CONTROL BOARD LIENS VENDEE'S LIENS VENDOR'S LIENS REAL PROPERTY TAX LIENS ARE TREATED IN CHAPTER 38 BOOK UNDER TAXES

PAGE 6 PAGE 7 PAGE 7 PAGE 11 PAGE 11 PAGE 12 PAGE 12 PAGE 12 PAGE 12 PAGE 12 PAGE 13 PAGE 13 PAGE 13 PAGE 13 PAGE 13 PAGE 13 PAGE 14 PAGE 14

GAINS TAX PAGE 14 NEW YORK STATE DEED TRANSFER TAX PAGE 16 NEW YORK CITY REAL PROPERTY TAX PAGE 17 NEW YORK CITY DEPARTMENT OF HOUSING PRESERVATION & DEVELOPMENT PAGE 17 ATTACHMENT PAGE 17.1 RESTRICTIVE COVENANTS PAGE 19 EASEMENTS PAGE 23 GRANT OR DECLARATION PAGE 24 RESERVATION OR EXCEPTION PAGE 24 PRESCRIPTION PAGE 24 ESTOPPEL PAGE 24 NECESSITY PAGE 24 IMPLICATION PAGE 25 BEAM RIGHTS PAGE 25 PARTY WALLS PAGE 25 LIGHT AND AIR PAGE 26 TERMINATION OF EASEMENTS PAGE 26 RELEASE PAGE 26 CHAPTER 26 LIENS & ENCUMBRANCES TITLE PAGE REAL ESTATE TITLES NYSBA PUBLICATION ABANDONMENT MERGER ADVERSE USE SUPERIOR TITLE OVERBURDENING ENCROACHMENTS FUTURE SALES AND LIMITATIONS INTRODUCTION ESTATES IN POSSESSION COMPARED WITH FUTURE ESTATES ESTATS IN POSSESSION PAGE FEE SIMPLE ABSOLUTE FEE ON CONDITION FEE ON LIMITATION LIFE ESTATES FUTURE ESTATES - ESTATES IN THE GRANTOR (REVERSIONS) PAGE FUTURE INTERESTS - ESTATES IN THIRD PERSON (REMAINDERS) LIENS AND ENCUMBRANCES CLEARING TITLE DEFECTS MISUSE OF INDEMNIFICATION POLICY INSURING CLAUSE OBLIGATIONS LEGISLATIVE AND CASE LAW CONCERNS LIENS TO BE RELEASED DISPOSITION TITLE PAGE CLEARANCE PAGE PAGE PAGE PAGE PAGE 1 1 2 2 PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 30 PAGE PAGE PAGE PAGE 31 PAGE 26 26 27 27 27 27 29 29 29 30 30 30 31 32

STATUTORY REFERENCES TO NEW YORK CITY, STATE AND FEDERAL LIENS AND CHARGES ON REAL ESTATE LIENS AND ENCUMBRANCES

PAGE 1

DATE LEGAL BULLETIN 4/78 PAGE PAGE PAGE 5 PAGE PAGE PAGE PAGE PAGE 1 5 6 7 7 7 9

MORTGAGES RESTRICTIVE COVENANTS AS ENCUMBRANCES EASEMENTS LEASES JUDGMENT LIENS FEDERAL TAX LIENS OTHER INCUMBRANCES AFFECTING MARKETABILITY REAL ESTATE TAXES CHAPTER 26 LIENS FEDERAL TAX LIENS

DATE LEGAL BULLETIN 8/79

PURCHASERS PAGE 1 MECHANIC'S LIENS PAGE 1 TAXES PAGE 1 FILING PAGE 1 FORECLOSURE OF PRIOR LIEN, REDEMPTION PAGE 2 LIS PENDENS PAGE 2 SEARCHES AGAINST TENANTS BY THE ENTIRETY, JOINT TENANTS TENANTS IN COMMON AND PARTNERS PAGE 2 DEPOSITS ON FEDERAL LIENS PAGE 3 CHAPTER 27

LIS PENDENS

DATE LEGAL BULLETIN 8/79 PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2 PAGE PAGE 1 PAGE PAGE PAGE PAGE 2 3 4 4

FEDERAL COURTS INDEXING COMPLAINT VERIFICATION TIME FOR SERVICE EFFECT ON NOTICE AS TO DEFENDANT NOT SERVED TERM & RENEWAL SEARCHES CHAPTER 27A

MARKETABILITY OF TITLE

GENERAL

VIOLATIONS OF BUILDING RESTRICTIONS AND ZONING ORDINANCES CASES INVOLVING VIOLATIONS OF BUILDING RESTRICTIONS WHERE TITLE HAS BEEN HELD MARKETABLE WHERE TITLE HAS BEEN HELD UNMARKETABLE POLICY EXCLUSION FOR MATTERS OF ZONING RECORDED ZONING ORDINANCE

VIOLATIONS OF ZONING ORDINANCES ZONING VIOLATIONS WHERE TITLE HAS BEEN HELD UNMARKETABLE ZONING VIOLATIONS WHERE TITLE HAS BEEN MARKETABLE CHAPTER 28

PAGE 4 PAGE 5 PAGE 7 PAGE PAGE 1 PAGE 1 PAGE 2 PAGE 3 PAGE 3 PAGE 5 PAGE 5 PAGE 5 PAGE 6 PAGE PAGE 1

MECHANICS LIENS

GENERAL

DEFINITION PERSONS ENTITLED TO MECHANIC'S LIENS PROPERTY SUBJECT TO MECHANIC'S LIENS PUBLIC IMPROVEMENTS PERFECTING AND ENFORCING A LIEN CLAIM PRIORITY OF MECHANICS' LIENS WAIVER OF MECHANICS LIEN RIGHTS DEVICES WHICH PRECLUDE OR LIMIT MECHANICS' LIENS BONDS MECHANICS LEIN CLEARANCE TITLE CHAPTER 28 MECHANIC'S LIEN MECHANICS' LIENS 1 CONSTRUCTION COMPLETELIEN PERIOD EXPIRED TITLE

PAGE

CONSTRUCTION COMPLETE - LIEN PERIOD EXPIRED MECHANICS' LIENS 2 CONSTRUCTION COMPLETED LIEN PERIOD NOT EXPIRED TITLE

PAGE 1 PAGE

CONSTRUCTION COMPLETED - LIEN PERIOD NOT EXPIRED MECHANCIS' LIENS 3 DURING CONSTRUCTION OWNERS POLICY DURING CONSTRUCTION - OWNERS POLICY MECHANICS' LIEN 4 DURING CONSTRUCTION LOAN POLICY DURING CONSTRUCTION - LOAN POLICY CASES CITED MECHANICS' LIEN 4 EXHIBIT B TITLE TITLE

PAGE 1 PAGE

PAGE 1 PAGE

PAGE 1 PAGE 4 PAGE PAGE 1

MATTERS TO BE REVIEWED AND COMPLETED WITH THE LENDER

MECHANICS' LIENS 4 DURING CONSTRUCTION LOAN POLICY DURING CONSTRUCTION - LOAN POLICY MECHANICS' LIENS 4 RESEARCH OPINION ISSUE QUESTIONS AND CONCLUSIONS STATUTES CASES COMMENTARIES REASONING CONCLUSION CHAPTER 28 MECHANICS' LIENS

LEGAL SUPPLEMENT

PAGE

PAGE 1 LEGAL PAGE

PAGE 1 PAGE 1 PAGE 2 PAGE 3 PAGE 3 PAGE 3 PAGE 6 UNDERWRITING PAGE PAGE PAGE PAGE PAGE PAGE 1 1 1 1 1

STANDARD EXCEPTIONS EXISTING IMPROVEMENTS NEWLY COMPLETED CONSTRUCTION UNIMPROVED PROPERTY CONSTRUCTION LOANS CONSTRUCTION MORTGAGES: PENDING DISBURSEMENTS CLAUSE CONSTRUCTION MORTGAGES - LOSS OF PRIORITY - CREDIT CONTROL OWNERS POLICIES: PENDING IMPROVEMENTS CLAUSE MECHANICS' LIENS CHAPTER 29

PAGE 1 PAGE 2 PAGE 4

DATE LEGAL BULLETIN 8/79 GENERAL PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2 PAGE 3 PAGE 3 PAGE 3 PAGE 3 PAGE 3 PAGE 4 PAGE 4 PAGE 5 PAGE 5 PAGE 6

MORTGAGES

DEFINITION AND DISTINCTIONS FROM OTHER FORM OF SECURITY TRUST DEEDS PROPERTY AND INTERESTS SUBJECT TO MORTGAGE DEBT OF OBLIGATION SECURED FUTURE ADVANCES SUPPORT AND MAINTENANCE INDEMNITY MORTGAGES EXTENSION OF SECURITY TO OTHER DEBTS OR LIABILITIES INTEREST BONUS TO MORTGAGE PARTIES CONTENTS EXECUTION ASSIGNMENT OF OBLIGATION CAPACITY OF PARTIES

CONSENT CONSIDERATION DELIVERY NOTICE RECORDATION TRANSFER OF A DEBT AS ASSIGNMENT OF MORTGAGE OPERATION AND EFFECT OF A VALID ASSIGNMENT PRIORITIES OF ASSIGNEE RIGHTS OF ASSIGNEE LIABILITIES OF ASSIGNOR PRIORITIES SATISFACTION AND DISCHARGE DISCHARGE IN GENERAL PAYMENT OF THE SECURED DEBT WHAT CONSTITUTES PAYMENT IN GENERAL PAYMENT'S EFFECT PERFORMANCE OF PARTICULAR CONDITIONS CHAPTER 29 MORTGAGES GENERAL

PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 9 PAGE PAGE PAGE PAGE PAGE

6 6 6 6 7 7 7 7 8 8 8 9 9 10 10 10

TENDER OF PERFORMANCE PAGE 11 COMPROMISE AND SETTLEMENT PAGE 11 CHANGE IN FORM IN DEBT PAGE 11 ENTRY OF SATISFACTION; SATISFACTION OF RECORD PAGE 11 ENFORCEMENT & FORECLOSURE PAGE 12 FORECLOSURE PAGE 12 STEPS IN ACTION TO FORECLOSE PAGE 12 NOTICE OF SALE PAGE 14 SALE PAGE 14 MORTGAGES - CLEARANCE PAGE 15 MORTGAGES AND OTHER LIENS PAGE 15 MORTGAGES - ACCOMMODATIONS MORTGAGES MADE BY CORPORATION PAGE 16 MORTGAGES - AFTER ACQUIRED PROPERTY CLAUSE PAGE 16 MORTGAGES - ASSIGNMENTS OF MORTGAGE - PROCEDURE PAGE 17 MORTGAGE - DOCTRINE OF MERGER PAGE 17 MORTGAGES - MOTOR FREIGHT CARRIERS - ICC APPROVAL REQUIRED PAGE 18 MORTGAGES - PARTICIPATION AGREEMENTS PAGE 18 MORTGAGES - PARITY CLAUSE PAGE 19 MORTGAGE - PARI PASSU PAGE 19 MORTGAGES - SPREADER AGREEMENT PAGE 19 MORTGAGES MORTGAGE DEFINED LEGAL LIEN MORTGAGE THE STATUTE OF FRAUDS EQUITABLE MORTGAGES ABSOLUTE DEEDS AS MORTGAGES TITLE PAGE PAGE PAGE PAGE PAGE PAGE 1 1 1 1 2

THE OBLIGATION SECURED THE MORTGAGED PROPERTY THE MORTGAGEE'S INTEREST TRANSFER OF MORTGAGEE'S INTEREST MORTGAGOR'S INTEREST PRIORITIES REMEDIES OF MORTGAGEE OR HOLDER OF MORTGAGE WHEN MORTGAGE DEBT IS DUE TERMINATION OF MORTGAGE MORTGAGES UNDERWRITING

PAGE PAGE PAGE PAGE PAGE PAGE

3 7 7 8 9 12

PAGE 13 PAGE 16 PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE PAGE PAGE PAGE PAGE 4 PAGE PAGE PAGE PAGE PAGE PAGE 2 3 4 4 5 5 6 6 7 7

SIMULTANEOUS ISSUE INSURING SIMULTANEOUS MORTGAGES ASSIGNMENT OF MORTGAGE FINANCING STATEMENTS AND ASSIGNMENTS OF LEASES/ RENTALS ASSIGNMENT OF MORTGAGE PREVIOUSLY INSURED CHAPTER 29 MORTGAGES UNDERWRITING CONSTRUCTION MORTGAGE FUTURE ADVANCE - OPEN-END MORTGAGES ALLOCATION OF PORTION OF LOAN AMOUNT EXISTING MORTGAGE BALANCE ADD ON INTEREST PAGE MORTGAGE ALSO PARTNER IN OWNERSHIP WRAP-AROUND MORTGAGE REGULATORY AGREEMENTS MORTGAGE RELEASE OR PAY-OFF VARIABLE RATE MORTGAGES REVOLVING CREDIT MORTGAGES MORTGAGES GIVEN BY PARTIES NOT RECEIVING THE LOAN PROCEEDS PAGE FORECLOSURE OF MORTGAGES CREDITORS' RIGHTS WAIVER OR EXCLUSION - RESIDENTIAL PROPERTY SUCCESSFUL BIDDER AS PROPOSED INSURED - DETERMINED OF REASONABLY EQUIVALENT VALUE FAIR MARKET VALUE DETERMINATION PURCHASER FROM SUCCESSFUL BIDDER - RESIDENTIAL PROPERTY PRIOR APPROVAL NECESSARY TO DELETE CREDITORS' RIGHTS EXCEPTION MORTGAGES 1 COLLATERAL MORTGAGES MORTGAGES 2 ESTOPPEL CERTIFICATES ASSIGNMENT

8 PAGE 8 PAGE 9 PAGE 10 PAGE 11 PAGE 11 PAGE 11 PAGE 11 DATE

LEGAL BULLETIN 8/79 DATE

OF MORTGAGES LEGAL BULLETIN 8/79 MORTGAGE AND MORTGAGE POLICIES 3 (B) EXOTIC FINANCING FACTORAGE FINANCING AMOUNT OF MORTGAGEE POLICY LESS THAN PRINCIPAL AMOUNT SECURE BY MORTGAGE (DEED OF TRUST) MORTGAGES 4 MORTGAGE REDUCTION CERTIFICATES CHAPTER 29 MORTGAGES 5 MORTGAGE SATISFACTION MORTGAGES 6 MORTGAGE-SATISFACTION INFANTS MORTGAGES 7 SUBORDINATION AGREEMENT MORTGAGES 8 WRAP-AROUND MORTGAGE CHAPTER 29A DATE LEGAL BULLETIN 8/79 PAGE 2 PAGE 3 DATE

LEGAL BULLETIN 8/79 DATE LEGAL BULLETIN 8/79 DATE LEGAL BULLETIN 8/79 DATE LEGAL BULLETIN 8/79 DATE LEGAL BULLETIN 8/79

OPTIONS

GENERAL

PAGE PAGE PAGE PAGE PAGE PAGE 1 2 2 4 4

INTRODUCTION EXCEPTION FOR OPTIONS INSURING OPTIONS CLOGGING OF THE EQUITY OF REDEMPTION ENDORSEMENT COVERAGE OPTIONS CHAPTER 30

LEGAL BULLETIN DATE GENERAL PAGE PAGE PAGE PAGE PAGE 1 1 2 2

PARTNERSHIPS

DEFINITION WHO MAY BE PARTNERS TYPES OF PARTNERSHIPS RISK

PATNERSHIPS

TITLE

PAGE PAGE PAGE PAGE PAGE PAGE PAGE 1 PAGE 2 PAGE PAGE 1 PAGE 1 1 2 3

REQUIREMENTS INSURING INCOMING PARTNERSHIP INTERESTS WHEN INSURING AN INCOMING STOCKHOLDER OR PARTNER WHEN INSURING AN INCOMING PARTNER PARTNERSHIPS UNDERWRITING

CHANGE OF PARTNERS - REQUEST FOR FAIRWAY ENDORSEMENT REQUESTS FOR NON-IMPUTATION COVERAGE PARTNERSHIPS BANKRUPTCY - RULES OF TITLE PRACTICE CHAPTER 30 BANKRUPTCY

PARTNERSHIPS

COMPENDIUM OF NEW YORK LAW
DEFINITION WHO MAY BE PARTNERS GENERAL PARTNERSHIPS - FORMATION LIMITED PARTNERSHIP - FORMATION PARTNERSHIP - ACQUISITION AND CONVEYANCE PARTNERSHIP - DISSOLUTION PARTNERSHIPS GENERAL PARTNERSHIPS LIMITED PARTNERSHIP (DOMESTIC) FOREIGN LIMITED PARTNERSHIPS CAPACITY TO BUY AND SELL REAL PROPERTY PARTNERSHIPS - CLOSERS MEMO PARTNERSHIPS PARTNERSHIPS FOREIGN LIMITED PARTNERSHIP CHAP. 519, LAWS 1979 LAW MEMO 8/79 PARTNERSHIPS DATE CHAPTER 519 OF THE LAWS OF 1979 LEGAL BULLETIN 8/79 PARTNERSHIPS DATE SETTLEMENT REQUIREMENTS PAGE PAGE PAGE PAGE 2 PAGE 2 PAGE UNDERWRITING PAGE PAGE PAGE PAGE PAGE PAGE 1 2 3 4 1 1 1 3

FEDERAL LIENS DATE LAW MEMO 4/73 DATE

LIMITED PARTNERSHIPS (FOREIGN) LAW NOTE CHAPTER 30B POLICIES AND ENDORSEMENTS GENERAL 9/79 PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 1 1 1 1 2 2 2 3 4 4 7 8

HISTORY GENERAL NATURE OF INSURANCE BRIEF DESCRIPTION OF ALTA LOAN POLICY BACKGROUND POLICY FORMAT POLICY COVERAGE WHO IS COVERED UNDER THE POLICY DURATION OF COVERAGE MATTERS EXCLUDED FROM COVERAGE UNDER THE POLICY CONDITIONS AND STIPULATIONS SCHEDULE A - ALTA LOAN POLICY 1992

CHAPTER 30B

POLICIES AND ENDORSEMENTS GENERAL

PAGE PAGE 9 PAGE 10 PAGE 11

SCHEDULE A SCHEDULE B I, ALTA LOAN POLICY SCHEDULE B 1992 POLICIES NYBTU AND POLICY FORM 100 1992 POLICY FORMS 1992 POLICIES ELEMENTS HISTORY

PAGE PAGE 1 PAGE 1 PAGE PAGE 1 PAGE 2 PAGE 2 PAGE 3 PAGE 3 PAGE PAGE 1 PAGE 4

SIX ELEMENTS OF A TITLE INSURANCE POLICY THE IDENTITY & NATURE OF THE INSURED AS AFFECTING THE ISSUANCE OF A POLICY - SCHEDULE A (OWNERS) THE IDENTITY & NATURE OF THE INSURED AS AFFECTING THE ISSUANCE OF A POLICY - SCHEDULE A (LOAN) MATTERS WHICH SHOULD BE SHOWN IN SCHEDULE B (MATTERS WHICH THE INSURED INTENDS TO TAKE SUBJECT TO) ENDORSEMENTS 1992 POLICIES EXCLUSIONS FROM COVERAGE - OWNERS 1992 EXCLUSIONS FROM COVERAGE - LOAN 1992 POLICIES AND ENDORSEMENTS UNDERWRITING EXCLUSIONS

PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE 1 1 1.1 1.1 2 3 4 4 5 6 13

THE NYBTU FORM 100 THE ALTA POLICY FORMS - INTRODUCTION 1970 ALTA LOAN POLICY 1984 REVISION OF THE 1970 ALTA LOAN POLICY 1970 AND 1984 REVISION OF THE 1970 ALTA LOAN POLICIES 1987 ALTA LOAN POLICY 1987 ALTA POLICIES CHANGES IN INSURING PROVISIONS 1987 ALTA LOAN POLICY EXCLUSIONS THE ALTA 1990 & 1992 POLICIES POLICIES AND ENDORSEMENTS ENDORSEMENT INSTRUCTIONS CHAPTER 31 SETTLEMENT & EXAMINATION

POWERS OF ATTORNEY

GENERAL

PAGE

GENERALLY REQUIREMENTS: THE EXAMINER MUST DETERMINE

PAGE 1 PAGE 1

EVIDENCE OF VALIDITY CHAPTER 31 POWERS OF ATTORNEY

GENERAL

PAGE 2 PAGE PAGE PAGE PAGE PAGE 4 PAGE PAGE PAGE 2 3 3 3 4 5 5

EXECUTION OF DOCUMENTS UNDER POWER OF ATTORNEY RECORDING OF POWER OF ATTORNEY POWERS GIVEN BY TRUSTEES AND PERSONAL REPRESENTATIVES POWERS GIVEN BY PARTNERSHIPS POWERS OF ATTORNEY TO PARTNERSHIPS PAGE POWERS OF ATTORNEY TO CORPORATIONS POWERS OF ATTORNEY FROM CORPORATIONS CAVEAT-ALL POWERS POWERS OF ATTORNEY POWERS OF ATTORNEY CAVEAT PARTNERSHIP POWER OF ATTORNEY PUBLICATION CHAPTER 31A

DATE LEGAL BULLETIN 5/78 PAGE PAGE PAGE PAGE PAGE GENERAL PAGE PAGE 1 GENERAL PAGE 1 1 1 1 1

PUBLIC LANDS

STATE OWNERSHIP CHAPTER 32

RECORDING ACTS
RECORDING ACT

DATE LEGAL BULLETIN 8/79 PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2 PAGE PAGE PAGE PAGE PAGE PAGE PAGE UNDERWRITING PAGE 1 1 1 2 2 3

DEFINITIONS NOTICE TO AGENT RECORDATION OF INSTRUMENT PRIOR TO GRANTOR ACQUIRING RECORD TITLE NOT CONSTRUCTIVE NOTICE NOTICE FROM RECITALS IN INSTRUMENTS IN THE CHAIN OF TITLE INSTRUMENTS RECITING THAT A GRANTEE HOLDS "IN TRUST", OR "AS TRUSTEE" CHAPTER 33

RESTRICTIVE COVENANTS

GENERAL

EXCEPTION FOR RESTRICTIONS VIOLATION OF RESTRICTIONS - REVERTERS INSURING AS TO VIOLATIONS RACIAL RESTRICTIONS ASSESSMENTS CONTAINED IN RESTRICTIONS RESTRICTIONS OF USE RESTRICTIVE COVENANTS

CHAPTER 33

RESTRICTIVE COVENANTS

CASE LAW

PAGE PAGE 1

COVENANTS AND RESTRICTIONS - DISPOSITION BY RESTRICTIVE COVENANTS APARTMENT HOUSE FAMILY RESIDENCE DWELING HOUSE PRIVATE DWELLING COVENANTS AGAINST NUISANCES CHANGE OF NEIGHBORHOOD GARAGE FIRST BUILDING NEARLY EXPIRED ON ADJOINING PROPERTY ON SINGLE LOT WHERE PARTLY RESTRICTED CONSTITUTIONALITY - NEGRO RACE DISPOSITION OF CHAPTER 33A

DATE LEGAL BULLETIN 3/62 PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2 PAGE 2 PAGE 3 PAGE 3 PAGE 3 PAGE 3 PAGE 3 GENERAL PAGE PAGE PAGE PAGE PAGE PAGE 1 1 2 2 3

SALE-LEASEBACK

FEE AND LEASEHOLD INTERESTS MAY BE INSURED NATURE OF TRANSACTIONS - POSSIBLE SECURITY DEVICE RED FLAGS EVIDENCE TO BE OBTAINED EXCEPTIONS TO BE MADE

CHAPTER 33B

SALE-LEASEBACK SEVERANCE GENERAL

PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 3 PAGE 3 PAGE PAGE

GENERALLY INSURING THE LAND (ONLY) INSURING THE LANDLORD'S REVERSIONARY INTEREST IN THE BUILDINGS INSURING THE BUILDING ACCESS AND SUPPORT LOAN POLICIES CHAPTER 34 CHAPTER 35

STREETS - ABUTTING

TITLE

SUBORDINATION AGREEMENTS GENERAL

AUTOMATIC SUBORDINATION AGREEMENT FOR FUTUER SUBORDINATION SPECIFIC SUBORDINATION AGREEMENT CHAPTER 35 SUBORDINATION AGREEMENTS

PAGE 1 PAGE 1 PAGE 1 DATE LEGAL BULLETIN 8/79

CHAPTER 36

SURVEY COVERAGE
SURVEY-CONTACT LANGUAGE SURVEY SURVEY EXCEPTIONS

GENERAL TITLE

PAGE PAGE

DATE LEGAL BULLETIN 4/60 UNDERWRITING PAGE PAGE 2 PAGE 3 PAGE PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 1 PAGE 1 TITLE PAGE PAGE 1 PAGE 1 PAGE 3 PAGE 3 DATE LEGAL BULLETIN 8/79

EXAMPLES OF SURVEY EXCEPTION & THE USE OF CASE LAW TO RESOLVE THEM ADDITIONAL SURVEY NOTES CHAPTER 37

TAXES AND ASSESSMENTS

GENERAL

EXCEPTION NECESSARY PROOF OF PAYMENT PUBLIC IMPROVEMENTS SEARCH: SPECIAL ASSESSMENTS DRAINAGE DISTRICTS PUD AND CONDO ASSESSMENTS TAXES

GENERAL - DEFINED DELINQUENCY OF TAXES AND ENFORCEMENT OF TAX LIENS AND SALE OF TAX DEED PROPERTY BY STATE PROPERTY SUBJECT TO TAXATION AND EXEMPTIONS REDEMPTION OF REAL PROPERTY FROM TAX DELINQUENCY TAXES 1 TAX EXEMPTIONS TAXES 2 TAX, REAL ESTATE TRANSFER NEW YORK STATE CHAPTER 38 TITLE

DATE LEGAL BULLETIN 8/79

TENANCY BY THE ENTIRETIES

PAGE PAGE 1 PAGE 1 1 PAGE 2 2 PAGE

DEFINITION CREATION SEVERANCE OF THE TENANCY BY THE ENTIRETY OTHER THAN BY DEATH PAGE TERMINATION OF THE TENANCY BY DEATH GENERAL INFORMATION PAGE CHAPTER 39 TENANTS IN COMMON TITLE

DEFINITION REQUISITES AND CHARACTERISTICS RIGHTS OF THE TENANTS IN COMMON TERMINATION OF TENANTS IN COMMON HUSBAND AND WIFE AS TENANTS IN COMMON CHAPTER 40A

PAGE 1 PAGE 1 PAGE 1 PAGE 2 PAGE 2 GENERAL PAGE

TRUSTS

PRIVATE EXPRESS TRUST DEFINED PAGE 1 METHODS OF CREATION PAGE 1 TRUST ELEMENTS PAGE 3 A. THE TRUSTEE PAGE 3 B. THE TRUST PROPERTY PAGE 4 C. THE BENEFICIARY PAGE 4 TRUST PURPOSE PAGE 5 A. PASSIVE TRUSTS PAGE 5 B. EXPRESS TRUSTS PAGE 5 C. RESTRICTIONS ON TRUST PURPOSE PAGE 5 D. CHARITABLE TRUSTS PAGE 6 TENTATIVE OR TOTTEN TRUSTS PAGE 7 RESULTING TRUSTS PAGE 8 CONSTRUCTIVE TRUST PAGE 9 A. [DEFINED] PAGE 9 B. [EXAMPLES OF CREATION] PAGE 9 C. THE STATUTE OF FRAUDS PAGE 10 D. THE STATUTE OF WILLS PAGE 11 TRUST ADMINISTRATION PAGE 11 A. DUTIES OF TRUSTEE PAGE 11 B. POWERS OF TRUSTEE PAGE 12 C. ALLOCATION TO PRINCIPAL OR INCOME PAGE 14 CHARGES ENFORCEABLE AGAINST THE TRUST PAGE 15 REMEDIES OF BENEFICIARY PAGE 16 TRANSFERABILITY OF BENEFICIARY'S INTEREST PAGE 17 A. ASSIGNMENT OF PRINCIPAL PAGE 17 B. ASSIGNMENT OF INCOME PAGE 17 C. RIGTHS OF CREDITOR OF BENEFICIARY PAGE 18 D. APPLICATION OF PRINCIPAL TO INCOME BENEFICIARY PAGE 19 E. APPLICATION OF TAXES PAGE 20 REVOCATION AND AMENDMENT PAGE 20 ACCUMULATIONS PAGE 20 PERPETUITIES PAGE 22 FUTURE INTERESTS PAGE 26 POWERS OF APPOINTMENT PAGE 28 ESTATES, POWERS AND TRUSTS LAW PAGE 33 TRUSTS DATE LEGAL BULLETIN 9/74

CHAPTER 41

WATER & WATER RIGHTS
WATER & WATER RIGHTS

GENERAL TITLE

PAGE PAGE PAGE 1 PAGE 1 PAGE 2 PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE PAGE DATE 1 2 3 3 4 2 2 3 4 4 4 4 5 5

INTRODUCTION NAVIGABLE WATERS-TIDAL-NORMAL EXCEPTION (NO INSURANCE BELOW HIGH WATER MARK) NAVIGABLE WATERS - TIDAL- INSURANCE TO LOW WATER MARK NAVIGABLE WATERS - NON-TIDAL- NORMAL EXCEPTION (NO INSURANCE) NAVIGABLE WATERS - FILLED - IN LANDS NON-NAVIGABLE STREAMS PONDS, NON-NAVIGABLE LAKES RIPARIAN RIGHTS - NORMAL EXCEPTIONS (NO INSURANCE) RIPARIAN RIGHTS - NATURE AND EXTENT OF NOT INSURED DRAINS AND DITCHES INSURING BEACH AND SHORE AREAS WETLANDS CHAPTER 41 WATER & WATER RIGHTS TITLE CASE LAW

RIPARIAN RIGHTS WATER RIGHTS SUBTERRANEAN AND PERCOLATING WATERS NATURAL LAKES AND PONDS WATER BOUNDARIES WATER & WATER RIGHTS COVERAGE LEGAL BULLETIN EXCEPTIONS AFFIRMATIVE INSURANCE CHAPTER 42

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WILLS

WILL DEFINED WILL CHARACTERISTICS WILL SUBSTITUTES TESTAMENTARY CAPACITY FRAUD, DURESS, UNDUE INFLUENCE MISTAKE EXECUTION OF WILLS INTEGRATION INCORPORATION BY REFERENCE NUNCUPATIVE AND HOLOGRAPHIC WILLS - EPTL 3-2.2 FOREIGN WILLS CONDITIONAL WILLS

JOINT AND MUTUAL WILLS CHAPTER 42 WILLS GENERAL PAGE

PAGE 17

CONTRACTS TO MAKE A WILL PAGE 17 REVOCATION OF WILLS PAGE 18 DUPLICATE WILLS - LOST AND DESTROYED WILLS PAGE 23 REVIVAL AND REPUBLICATION PAGE 24 GIFTS TO CHARITY - EPTL 5-3.3 PAGE 25 RIGHT OF ELECTION - WILLS EXECUTED PRIOR TO SEPTEMBER 1, 1966 PAGE 26 RIGHT OF ELECTION - AS OF SEPT. 1, 1966 PAGE 29 ILLUSTRATIONS PAGE 31 ILLUSTRATIONS PAGE 32 DISQUALIFICATION AS SURVIVING SPOUSE - EPTL 5-1.2 PAGE 33 DEATH IN A COMMON DISASTER - EPTL 2-1.6 PAGE 34 LAPSED DISPOSITIONS PAGE 34 RESIDUE OF RESIDUE: EPTL 3-3.4 EFFECTIVE SEPTEMBER 1, 1967 PAGE 35 UNWORTHY HEIRS PAGE 35 CLASSIFICATION OF TESTAMENTARY DISPOSITIONS PAGE 36 ADVANCEMENTS AND ADEMPTION BY SATISFACTION EPTL 2-1.5 PAGE 38 CONDITIONAL DISPOSITIONS PAGE 38 RENUNCIATION PAGE 39 MISCELLANEOUS PAGE 40 INTESTATE SUCCESSION PAGE 40

WILLS CONSTRUCTION
FACTS QUERY QUESTION OPINION

JOINT WILL MEMO

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Chapter 1 - Page1 ABUTTING WALLS Law Bulletin

ABUTTING WALLS
Where a building in any city encroaches not more than six inches in width upon adjoining land and a building has been erected on such adjoining land abutting said wall, no action may be maintained to remove said wall if the wall has been up for one year, but an action for damages may be brought during an additional year under Section 992 of the Civil Practice Act. Such walls need not abut throughout, but must abut at some point [Volz v. Steiner, 67 AD 504].

ACCESS General

ACCESS
1. ACCESS INSURED:

The ALTA and CLTA policies currently in use include, among their insuring provisions, insurance against "loss or damage sustained or incurred by the insured by reason of lack of a right of access" to the insured premises. The term "lack of a right of access" as used in the policies has been interpreted to mean that the insured has legal, not necessarily physical access to and from the land. It is the responsibility of the office issuing the policy to determine that a right of access does exist as to the land being insured. If the right of access is by other than a legally established public right-of-way abutting the property or by a private easement of record (see paragraph 4, below) or if the right of access is limited in any way, the Commitment and Schedule B of the policy must contain an exception for the lack of a right of access or the limitation on the right of access. Access by prescriptive right, way of necessity or means other than by a public right-of-way or private easement of record should not be insured without approval of the Regional Office. 2. PLAT DEDICATION:

Where a right-of-way is created by a dedication on a recorded plat or subdivision it is necessary that the plat complies with all statutory requirements since failure to so comply may void the plat dedications. However, roads and alleys shown on an "invalid" plat should not be ignored. Lot owners who purchased in reliance on the plat may still have prescriptive rights to utilize the roads and alleys. An exception should be made in Schedule B for the possible invalidity of the plat and lack of access resulting therefrom. 3. ACCESS TO NAMED STREET:

An insured may request that the policy insure access to and from a named right-of-way. Prior to providing this coverage, you should obtain a proper survey specifically certifying such access. Coverage can be provided either by an endorsement to the policy or as a note in Schedule B of the policy. Coverage should be worded as follows: "The Company insures that the land described in Schedule A of this policy abuts upon a public street known as (name of street)." Where permissible a CLTA 103.7 Endorsement may be used. Instructions for use of this endorsement may be found in the TI Endorsement manual, Instructions as to the use of Title Insurance Endorsements.

ACCESS General

4.

ACCESS VIA PRIVATE EASEMENT:

In the examination of title you may find that access to a public right-of-way is established by a private easement. When insuring access by a private easement the following requirements apply: a) b) c) The easement must be recorded in the public records. The easement grant must sufficiently identify the easement parcel. The easement parcel must be searched and examined to determine that the easement was validly granted. All matters affecting the title to the easement parcel must be set forth as exceptions in Schedule B of the policy. Schedule B of the Policy should set forth an exception for any terms, provisions and conditions set forth in the easement grant. It should be determined that there is no overburdening of the easement; that is, use of an easement beyond its intended purpose. As an example, if an easement for ingress and egress was granted for a parcel improved with a single family dwelling and an apartment complex is now to be constructed on the parcel with the easement to be used by the tenants, this could constitute an overburdening of the easement. It should be determined by an inspection of the property or by a proper survey that the easement is unobstructed and in use at the date of the policy.

d) e)

f)

A recommended method of insuring access by a private easement is to set forth the primary insured parcel as Parcel 1 and the easement parcel as Parcel 2. Suggested language is as follows: "Parcel 2: Easement for ingress and egress for the benefit of Parcel 1 as created by (the form of instrument creating the easement) dated in Book _______________ Page over and across the land describe as follows: (legal description of the easement parcel)." and recorded of the Public Records of County

ACCESS General

Alternatively, following the description of the insured premises add the following: "Together with the benefits but subject to the burdens of an easement of appurtenant benefit, over and across the following described land, for the purposes of ingress, egress and regress to and from (name the public street). Then describe the easement area by metes and bounds description. Note: For a general discussion of Easements - Propriety of Schedule "A" Coverage see article prepared by Michael E. Mirrington, Underwriting Counsel, Attorneys' Title Insurance Fund, Inc. appearing in Florida Land Title News [appearing in the Florida Title Insurance Underwriting Guidelines]. Note: for General discussion on the Effect on Appurtenant Easements see section 9.11 in The Law of Easements and Licenses in Land. NOTE: See Also: Easements and Right of Way

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Chapter 1A - Page 1 ACCRETION & AVULSION Title

ACCRETION AND AVULSION
The riparian owner is entitled to newly made soil which is caused by the gradual and imperceptible deposit of alluvion. The standard of accretion as gradual and imperceptible is met when witnesses may see from time to time that progress has been made, but they could not perceive it while that progress was going on. It makes no difference whether the deposit is the effect of natural or artificial causes. (In re Hutchinson River Parkway Extention in City of New York, 14 N.Y.S. 2d 692 (1939)). The labor of other persons changing the current of the river and causing deposits of alluvion upon the land of riparian owners cannot deprive the owners of a right to the newly made soil. (ID.) Where owners have lost lands bordering on the seashore due to avulsion, such owners would, if submerged land once more emerged, continue to have title thereto regardless of the intervening length of time and regardless of whether the land had emerged by reason of art, industry or forces of nature. (Town of Hempstead v. Little, 245 N.Y.S. 2d 407, 20 App. Div. 2d 539 (1963)). When lands bordering on the seashore are lost by reason of avulsion, which is a sudden or violent action of the elements which is perceptible when in progress, the loss does not change the boundaries, nor does the owner lose his title, where the extent and quantity of his land is apparent and he endeavors as best he might to protect or reclaim his property. (In re Point Lookout, Town of Hempstead, Nassau County, 144 N.Y.S. 2d 440, 208 Misc. 84, affirmed in part 156 N.Y.S. 2d 219, 2 App. Div. 2d 865 (1955)). ACCRETION The slow, gradual, imperceptible addition to riparian lands by the action of water. 1. Land formed by accretion belongs to the riparian owner. Cramer v. Perine, 251 N.Y. 177 (1929) a. The filling in of land under water by the riparian owner does not constitute an accretion. Sanders v. N.Y.C. & H.R.R.R. Co., 144 N.Y. 75 (1984) The burden of proof is on the person who asserts a title by accretion. Land acquired by accretion is subject to the burdens borne by the land to which it was added, such as a mortgage.

b. c.

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Chapter 1A - Page 2 ACCRETION & AVULSION Title

AVULSION
The sudden or violent action of the elements, perceptible while in progress, which tears away or adds to riparian land. Matter of Point Lookout, Town of Hempstead, 144 N.Y.S.2d 440 (1954) 1. Boundaries do not change, nor is a riparian owner divested even temporarily of title to land submerged by avulsion. Matter of City of N.Y. (Realty Associates), 256 N.Y.

EROSION The gradual and imperceptible wearing away of riparian land by the natural action of the elements. Matter of the City of Buffalo 206 N.Y. 319 (1912) 1. 2. Erosion results in a transfer of title to the owner of land under water. Matter of City of Buffalo, supra The owner of land lost by erosion has no right of reclamation.

See also Waters and Water Courses this manual

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Chapter - page 1 AIR RIGHTS General

AIR RIGHTS AND AIR SPACE
1. IN GENERAL

One who acquires a fee simple estate in realty owns the surface of the ground, the earth beneath it and the sky above it. All three estates in land are recognized under English Common Law. That is the origin of both the "mineral estate" and the "doctrine of ancient lights and air". When a title insurer is called upon to insure title to property above or below the surface estate more stringent title standards and parcel descriptions are mandated. One of the additional prerequisite title requirements is the division of title by horizontal plane. Provided that an accurate description with reference to a horizontal plane is established, title to estates in land created above ground or below ground level, may themselves be the separate subjects of title insurance. This concept has broad application to large urban centers where it is necessary to utilize available air space and subsurface areas as well as the land surface itself in order to combine varied activities and uses within a limited geographical area. As noted in The Title Underwriting Process, the identity and nature of the insured affects the issuance of the policy. The literature on the subject of air space is plentiful. See Air Rights, Air Space, and Transferable Development Rights, PLI Seminar Text 269. For a comprehensive listing of the references see, Kratovil, Modern Real Estate Documentation, Chapter 44. 2. DESCRIPTIONS OF AIR SPACE

Descriptions of air space should be as precise as possible. The basic requirement of the division of title by horizontal planes is the additional engineering and survey data necessary to adequately describe the area to be insured. In some cases the outer perimeter lines of the airspace and the subsurface are drawn at right angles to the surface. Another common method requires a reference to mean datum plane elevations, usually triangulated and determined from mean high tide which itself is determined from the U.S. Coast and Geodetic Surveys. 3. SPECIAL PROBLEMS

In addition to the requirement of more sophisticated engineering standards the title insured should bear in mind that the creation of "air rights" or similar estates above the surface of the ground gives rise to the requirement of an easement or other appurtenant rights in the neighboring land surface to support the structure to be erected over the surface of the land. These may include rights of subjacent and lateral support.

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Chapter - page 2 AIR RIGHTS General

Consideration should also be given as to whether existing case law may hold that the party attempting to reserve the "air rights" has created (i) an easement in gross, which is not favored in law or (ii) an unwarranted restraint on the right of alienation. The title examiner must also exercise care when examining the title to air space since this estate may be burdened by existing mortgages which must be disposed of or subject to numerous types of easements in favor of the neighboring land surface. 4. METHODS OF TRANSFERRING AIRSPACE OR AIR RIGHTS

The most common methods used are more particularly set forth and described in the Kratovil and PLI Texts above set forth. You should also refer to Pedowitz, Real Estate Titles, Chapter Sixteen and Fineberg, Real Estate Titles in New Jersey, Chapter 24. 5. INSURING AIR RIGHTS

The following title exceptions should be included unless otherwise instructed: "Rights to surface support and easements below the surface are excepted unless specifically granted in the insured instrument" "Easement in favor of the surface owners" You must also require satisfaction or other disposition of all the various mortgages which burden the estate from which the air space is created.

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Chapter 2 - Page 1 ACKNOWLEDGMENT Title

ACKNOWLEDGMENT
Acknowledgments on an instrument executed outside the State of New York may be acknowledged according to the laws of the State or Country where such acknowledgment is taken. However, such acknowledgment, if in accordance with the law of the State or Country where taken, must be accompanied by a certificate to the effect that it so conforms. (Real Property Law Sec. 301 subdiv. (a)). Instruments on which acknowledgments were taken outside the State by a notary qualified in the place where said acknowledgment is taken, may not be recorded in New York until a certificate or authentication is obtained from: (1) The clerk of a court in the district in which such acknowledgment was taken, which said proof should be in the form of a certificate under the seal of said court. The clerk or register of the district in which such acknowledgment was taken. The officer having charge of the official records of appointment of such notary or having a record of the signature of such notary.

(2) (3)

NB Partially repealed. See Real Property Law (RPL) 310-311 over. Acknowledgments taken without the State, but within the United States may be taken by (1) (2) (3) (4) (5) Judge or Clerk of a court having a seal Mayor or other civil officer of any City or political subdivision Notary Public Commissioner of Deeds of New York State A person authorized under the law of the place where taken. (Real Property Law Sec. 299).

Acknowledgments within the State may be taken by: (1) (2) (3) Justice of the Supreme Court Official examiner of title Official referee

(4)

Notary Public

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Chapter 2 - Page 2 ACKNOWLEDGMENT Title

Or within the district where the following officials are authorized to act: (a) (b) (c) (d) (e) Judge or Clerk of any Court of Record Commissioner of Deed outside the City of New York The Mayor or Recorder of a City A Surrogate, Special Surrogate or Special County Judge A County Clerk. (Real Property Law Se. 298)

Section 310 and 311 of the Real Property Law, eliminates the requirement for authentication of acknowledgments taken before a notary public of the State of New York or of any other State and the District of Columbia. The requirement for authentication still remains if the acknowledgment is taken in any territory, possession or dependency or if the acknowledgment is made within the state before a commissioner of deeds, justice, except that authentication is not required for an acknowledgment taken before a commissioner of deeds within the City of New York where the document is to be recorded in the Office of the Register of the City of New York. The requirement of authentication of acknowledgments made by a notary public in a foreign country must be authenticated by an official designated in Section 311(2) of the Real Property Law which includes a consular officer of the United States resident in such country.

Chapter 2 - Page 1 ACKNOWLEDGMENTS CLEARANCE Legal Bulletin

Real Property Law, Sec 243 requires that in order for a deed to take effect against a subsequent purchaser or encumbrancer, it must be duly acknowledged before its delivery or its execution and delivery must be attested to by at least one witness. A deed is also required to be acknowledged in order to be recorded under the provisions of the RPL, Sec 291. A recorded deed will not constitute constructive notice if the acknowledgment is missing or defective. Any conveyance which has been of record for 15 years or more is deemed to have been duly acknowledged or proved and properly authenticated. RPL Sec 306 RPL Sec 309 sets forth certificates of acknowledgments - it is not necessary that such forms be followed. Sec 142-a of the Executive Law validates the acts of notaries public and commissioners of deeds where certain defects, therein specified exist with respect to the acts of these officers. (1) Essential requirements Real Property Law - 303, 306 - not necessary to use exact words of statute Signature of office taking acknowledgment - RPL 306 USA - Sec 308 R.P.L. Acknowledgments in foreign countries See R.P.L. Sec 301 Acknowledgments without the state RPL Sec 308 and 311 Officers commission expires - usually shown, but not required by statute See RPL Sec 306 and 309 No certificate of authentication required when acknowledged or proved before any officer designated in Sec 298 RPL Acknowledgment before commissioner of deeds of the City of New York Sec 310 RPL

ASSET SWAPS General

ASSET SWAPS
The underlying reason for an asset swap is, for the most part, the need by a bank or prime lender to either collateralize unsecured loans or to liquidate such loans, in part, by taking assets for partial or total liquidation of antecedent debt. This antecedent debt is usually established by giving a line of credit to the debtor, itself a lender. This debtor uses these funds to make secured loans to developers. Thereafter, the debtor (lender) may acquire the property in question by means of a deed in lieu of foreclosure or by foreclosure and conveys the property or reassigns the mortgage to the prime lender. Where we become aware of such a transaction the usual creditors rights exceptions should be raised with respect to the grantor. In addition, where appropriate, especially if there is an uncompleted structure, exception must be taken to the possible rights of mechanics lienors. We must also call for the consent of all shareholders of the grantor or assignor to the conveyance or assignment. It is not always easy to ascertain a transaction that involves an asset swap. What follows is, at best, a guideline to give some clues to such a possible transaction: 1) 2) 3) 4) Where proposed conveyance or assignment recites consideration in terms other than dollars or recites past consideration, in whole or in part. Where a major conveyance transaction does not involve any new financing. A conveyance made by a lender. Many of the asset swaps involved REITS which makes conveyances or assignments of mortgages. Transactions by such entities involving conveyances or assignments of mortgage should be looked at with great care.

ANTECEDENT DEBT TRANSACTIONS General

ANTECEDENT DEBT TRANSACTIONS
A mortgage given in consideration of satisfying a prior unsecured indebtedness is referred to as an antecedent debt problem. It is a problem which is frequently overlooked by the insurer of title or its agent. The purpose of this chapter is to explain the risk more fully so that when you encounter the situation you will both recognize the risk and have some understanding of how to address the issue. An "antecedent debt" problem relates directly to the question of consideration. The standard Pre-printed Schedule B-l Requirement appearing in all ALTA Commitments is for the "Payment of the full consideration to or for the account of the mortgagor". The question as to whether an antecedent debt problem exists arises whenever we are put on notice of either of the following: l. 2. a lender seeks to obtain additional security for monies already advanced; or no new loan funds are being disbursed and, therefore, no additional consideration passes from the lender to the borrower.

In either case, the new lien is subject to being set aside in its entirety because no new value is being given, i.e., the borrower puts up additional land as security but receives little or no additional funds. Stated another way, if the value of the previously unencumbered land is substantially in excess of the new debt given to secure monies previously advanced, such action may at a later date render the mortgage or deed of trust void, as an attempt to effect a preference. This risk is frequently undisclosed and is often overlooked or missed when disclosed. Pay careful attention to what is disclosed both in correspondence or conversation. Where transfers are apparently made to secure or satisfy an antecedent debt, prudent and knowledgeable title underwriters will raise a creditors rights exception in all cases where the l990 ALTA Policy Form is not being used, which form contains a creditors' rights exclusion. The creditors' rights exception basically states that the title company is taking exception to the possible future application of bankruptcy law, state insolvency laws or similar creditors' rights laws in the event the transaction is later challenged or collaterally attacked by an aggrieved junior creditors as a voidable preference. Such an exception will be omitted only in extremely rare situations when facts can be clearly and convincingly established negating the elements of a voidable preference, the very least requirement of which would be to furnish evidence for our review which would indicate the borrower was not insolvent or in any

ANTECEDENT DEBT TRANSACTIONS General

financial difficulty. Such proof would of necessity require a review of current certified financial statements prepared by a reputable CPA. When you determine that the facts indicate the transaction is not a new loan but related to a prior antecedent debt and that no new loan funds are to be disbursed and, that the entire objective is for the lender to obtain additional security for monies paid out under a previous unsecured loan transaction, the underwriting risk is substantial. The lien is subject to being set aside in its entirety under both the federal Bankruptcy Code and the Uniform Fraudulent Conveyances Act. Section 547 of the Bankruptcy Code provides, in pertinent part, as follows: (b) the trustee may avoid any transfer of property of the debtor . . . (l) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent . . . unless the transfer was "a contemporaneous exchange for new value given to the debtor" [sec. 547 (c)(l)(A)]. Section 548 of the Code is also potentially applicable to the such a transaction, providing that: (a) the trustee may avoid any transfer of an interest of the debtor in property . . .that was made or incurred within one year of the date of the filing of the petition, if the debtor . . . (2)(A) received less than a reasonably equivalent value in exchange for such transfers; and (B)(i) was insolvent on the date that such transfer was made. If you have any questions regarding this matter please contact the Home Office Underwriting Department.

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Chapter 4 - Page 1 BUILDING LOAN AGREEMENTS & MORTGAGES General

BUILDING LOAN AGREEMENTS AND MORTGAGES
SECTION 22 LIEN LAW In connection with every building loan a building loan contract must be filed on or before the date of recording of the building loan mortgage in order to protect a mortgagee form the effect of subsequently filed mechanics liens which may otherwise gain priority over the mortgage. The building loan agreement must contain affidavit to be made by the borrower showing: 1) * 2) 3) the consideration of the loan; the expenses in connection with obtaining the loan; and the net sum available for the "improvement" (defined in Section 2 subd. 4 of the Lien Law). This is sometimes described as the "hard" costs of construction.

Among the items customarily included in expenses ("cost of improvement" as distinguished from "improvement") and properly included in the affidavit are: -Broker's commission -Examination and insurance of title and recording fees, (for mortgage only) -Mortgage tax, -Architect's, engineer's & Surveyor's fees, -Internal revenue stamp taxes, -Inspections, -Appraisals, -Conveyancing, -Building loan service fees, $ Sums paid to take by assignment prior existing mortgages which are consolidated with building loan mortgages and also the interest charges on such mortgages,

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Chapter 4 - Page 1 BUILDING LOAN AGREEMENTS & MORTGAGES General

$ $ $

Sums paid to discharge or reduce the indebtedness under mortgages and accrued interest thereon and other prior existing encumbrances, Sums paid to discharge building loan mortgages whenever recorded, Taxes, assessments, water rents and sewer rents paid (existing prior to commencement of improvement).

In addition to the foregoing it is permissible to include as an item of expense, reimbursement to the mortgagor for costs of improvement which were previously advanced and made subsequent to the commencement of the improvement, which are fully itemized and set forth in the building loan agreement and mortgage. It is also permissible to include reasonable counsel fees for lenders attorney. It is not clear that attorneys fees for the borrower is a permissible cost of improvement and preferably should not be included. Counsel should be consulted only if there is any doubt about the amount or propriety of any charge. This list is by no means complete. One item that is clearly not a permissible cost of improvement is the cost of land acquisition. Furthermore, if it appears during the course of the closing the funds are used for purposes not set forth above, such facts should be communicated to counsel. The closer should as unobtrusively as possible do the arithmetic to see that all the expenses plus the amount available for the "improvement" equals the amount of the building loan contract and the building loan mortgage. NOTE: On rare occasions a building loan mortgage is also combined with an ordinary mortgage. In such case the closer should obtain additional guidance and instruction from office counsel.

AMENDMENTS TO BUILDING LOAN AGREEMENT The amended building loan agreement must be filed within 10 days of its execution. Where this amendment is in conjunction with an additional or amended building loan mortgage we insist on both documents being delivered to the closer at the same time. In the foregoing cases consents are required from present mechanics and materialmen and those who have present contracts with respect to providing material or work for the subject premises. Proof must also be obtained that the requisite consent has been obtained from all persons and firms in the foregoing categories. When office counsel has not approved the compliance with the requirements as aforesaid, the following exception must be taken: "Rights of others by reason of non-compliance with Section 22 of the Lien Law"

NB

See Mechanics Liens this manual.

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Chapter 4 - Page 1 BUILDING LOANS Legal Bulletin

The Court of Appeals has recently held in the case of Nanuet National Bank v. Eckerson Terrace, Inc. (N.Y.L.J.) 6/7/79 page 1 col. 6, that under Section 22 of the Lien Law, the filing by a lender of a Building Loan Contract which is known by the lender to contain statements that materially misinterpret the amount available to the borrower for "improvement" (cost of improvement defined under Section 2 (5) of the Lien Law) will result in the lien of its mortgage being subordinated to present or future mechanics' liens. In the instant case, the amount set forth in the affidavit as the net sum available for "improvement" was substantially greater than the amount actually available. Closers and clearance personnel should consider this ruling when handling Building Loan transactions. Counsel must be consulted if there is reason to believe that the total amount to be advanced in connection with the loan will be less than the amount shown in the Building Loan Agreement as the sum available for the improvement as defined above. CLOSERS AND CLEARANCE OFFICERS ARE NOT TO MAKE SPECIFIC INQUIRIES ON THIS POINT, BUT RATHER SHOULD SIMPLY BE ON GUARD FOR ANY INFORMATION INDICATING A POSSIBLE PROBLEM IN THIS AREA. NOTE: When handling a Building Loan transaction, consult the Title Guarantee Company-Closer's Guide-Section 9E. The requirement and procedures as set forth therein must be complied with. A copy of Section 9E is attached hereto.

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Chapter 4 - Page 1 BUILDING LOANS SURVEY EXCEPTION Legal Bulletin

1.

In all reports where the transaction is a building loan transaction the survey exception will include a clause in the following form with appropriate changes to fit the facts: This is a building loan transaction. As of this date the premises described in Schedule "A" are improved as to foundations only (or, with a building under story), and as of this date there are no construction, up to the survey variations (except as set forth above). Before any further advances are made the mortgagor should arrange to have the survey brought up to date; thereupon this company will advise the insured of any (further) variations. The policy should read substantially as follows: This is a building loan transaction. As of this date there are no survey variations (except as set forth above). Before any further advances are made, this company will advise the insured of any (further) variations.

2.

If the survey is dated or redated within ten days of the date of any advance, no exception will be made as to any state of facts a new or redated survey may disclose

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Chapter 3A - Page 1 BANKRUPTCY General

BANKRUPTCY
INTRODUCTION The filing of a petition in bankruptcy is a caveat to all the world, and in effect an attachment and injunction, and on adjudication and qualification of the trustee, the bankrupt's property is placed in the custody of the Bankruptcy Court, and title becomes vested in the trustee [Mueller v. Nugent, 184 U.S. Rep. 1]. Bankruptcy is the process in which an insolvent debtor's assets are gathered together and distributed fairly among his creditors. An ancillary function of bankruptcy is to enable the debtor to emerge with a "fresh start" so that he might henceforth make useful contributions to the economy. A person, by bankruptcy, wipes out his personal debts in order to give that person an opportunity to reinstate himself in the business world. DEFINITIONS 1. 2. 3. 4. Debtor/Bankrupt - The person or entity who files a voluntary or involuntary bankruptcy petition for protection under the Federal Bankruptcy Act. Bankruptcy Estate - Assets of the bankrupt which come under the control and jurisdiction of the Bankruptcy Court. Bankruptcy Judge - A judge appointed by the Federal District Court to supervise bankruptcy proceedings. Automatic Stay - Relief granted upon the filing of a Bankruptcy petition in which all State or Federal civil proceedings against the debtor are stopped/stayed. Trustee - The person appointed by Bankruptcy Court to marshal the assets of the debtor, control the assets of the debtor and make appropriate distribution of same. Debtor-in-Possession - Situation in Bankruptcy in which a Trustee is not appointed and the debtor is allowed to retain possession of his/her/its assets and to administer same. Order for Discharge - Bankruptcy Court order which discharges/releases the debtor from all personal liability except for certain specified obligations. Abandoned Property - Property removed from the bankruptcy proceeding by the Trustee petitioning the Court to have it abandoned due to the inconsequential value of the property.

5.

6.

7. 8.

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Chapter 3A - Page 2 BANKRUPTCY General

APPLICABLE STATUTES A. B. Bankruptcy cases field before October 1, 1979 were governed by the Bankruptcy Act of 1898 and amendments thereto. Bankruptcy cases filed after October 1, 1979 are governed by the Bankruptcy Reform Act of 1978 and amendments thereto (Title II of the United States Code).

GENERAL DISCUSSION Bankruptcy is a procedure in federal court designed to reconcile the problem created when a person owes more than he/she can pay. Bankruptcy law is very complex and was further complicated in 1979, when major changes occurred in the law. A new bankruptcy law took effect in October 1979 and in 1983 a court decision created a great deal of uncertainty in the new law. There are two (2) types of Bankruptcy Petitions: 1. 2. Voluntary (the debtor files the petition) Involuntary (a group of creditors begin the proceedings)

Generally, there are three (3) types of Bankruptcy proceedings with which we are concerned, each being designated by the Chapter of the Bankruptcy Act in which they appear: 1. 2. 3. Chapter 7 Chapter 11 Chapter 13

[Note: There is a fourth type of bankruptcy proceeding. Chapter 12 provides for agricultural reorganization of the family farm. This plan is relatively new. Any requests for insurance with respect to Chapter 12 should be referred to Home Office counsel.] Chapter 7 proceedings are the ones with which the public is most familiar. Sometimes referred to as a "liquidation," under Chapter 7 the debtor's property is sold and the creditors are each paid a portion of the amounts owed. The debtor is left with certain exempt property, but more importantly, he/she gets a "fresh start". Chapters 11 and 13 are more in the nature of aid to the debtor so that he/she can put his/her financial affairs in such a state that he/she can begin paying his creditors again.

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Chapter 3A - Page 3 BANKRUPTCY General

FILING OF THE PETITION IN BANKRUPTCY Upon the filing of the petition for relief in bankruptcy, a bankrupt estate is created. This "Bankrupt Estate" consists of the following: 1. All property owned by the debtor, whether real or personal. It includes all property in which he/she owns an interest, legal or equitable. This can include the interest his/her spouse has in their community property. In Chapter 7 cases, the estate includes interests acquired by the debtor within 180 days after filing the petition. In Chapter 11 and 13, earnings and property acquired after the petition are included in the estate.) TITLE TO THE PROPERTY OF THE DEBTOR Presently under the Bankruptcy law there is some question as to where title is vested after filing of the petition. For the purpose of title commitments, title should be shown as being in the debtor, subject to the bankruptcy proceedings. Example: The last deed of record places title in John Doe. Subsequent to the deed, John Doe files a petition in bankruptcy and notice of the filing is recorded in the land records. The commitment should show title as follows: John Doe, subject to proceedings in the U.S. Bankruptcy Court for the District of (state), entitled: In Re: John Doe, Debtor, Case No. , wherein a , 19 . petition for relief was filed on the day of Also, an exception should be taken in Schedule B as follows: Proceedings pending in the U.S. Bankruptcy Court for the District of (state) entitled: In Re: John Doe, Debtor, Case No. , wherein a petition for relief was filed on the day of 19 . Generally, it is the trustee who deals with the property and not and debtor. Deeds from the trustee should be executed by the trustee in his capacity as trustee of the bankrupt estate. A debtor in possession generally has the same authority as the trustee.

2.

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AUTOMATIC STAY Upon the filing of the petition, all creditors must cease taking or continuing any action against the debtor or his/her property. The creditors cannot file suits, continue to prosecute a suit, foreclose on the property of the debtor, or seek, to enforce any existing liens against the debtor's property. The creditor has no recourse outside of the bankruptcy unless he/she can get the court to "lift" or modify the stay. TITLE PROBLEMS CREATED BY BANKRUPTCY Generally, title problems arise in the following areas: 1. Transactions occurring prior to the petition (prepetition) that are later attacked by the bankruptcy trustee as being fraudulent transfers or preferences Sale of property out of the bankrupt estate The effect of bankruptcy on judgments against the debtor

2. 3. 1.

Pre-petition transactions

As would be expected, the court will look very carefully at any transaction the debtor entered into prior to the bankruptcy. This is done to be sure that the bankrupt debtor did not convey or transfer property so as to hinder or defraud creditors in their collection efforts or to give preferential treatment to one creditor over other creditors. FRAUDULENT TRANSFERS The bankruptcy court can set aside any transfer made within 1 year prior to the filing of the petition in bankruptcy if the transfer: A. B. was made with intent to hinder, delay or defraud creditors; or was made for less than a reasonably equivalent value and the debtor was insolvent on the date that such transfer was made or became insolvent as a result of such transfer.

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Even if a year has expired since the transfer, a trustee may still exercise its avoidance power under state law. Therefore, a conveyance that is within 1 year prior to the filing of a petition in bankruptcy is potentially subject to attack by the bankruptcy trustee under bankruptcy law and transfers more than a year prior to the petition may be subject to attack under state law. You should consult Company counsel for the state in which the land is located as to the time limit under state law. Probably the most common kind of transfer that is subject to being attacked by a trustee is a foreclosure deed in a non-judicial foreclosure. Decrees in judicial foreclosures are subject to the same type of attack. For a discussion of foreclosure deeds and this problem see the section on FORECLOSURES in this manual. PREFERENCES A trustee may avoid a transfer if it constitutes a preference and the transfer was made within 90 days of the commencement of the bankruptcy case or within one year of the commencement if the party receiving the transfer is an "insider". A transfer is a preference if it prefers one creditor over other creditors. The most common type of transfer that will be attacked as a preference is a mortgage given to a creditor to secure a prior debt. In order for the trustee to avoid the transfer as being a preference, it must have been made when the debtor was insolvent. For a discussion of conveyances or transfers that are likely to be attacked either as preferences or fraudulent transfers see the section on CREDITORS' RIGHTS PROBLEMS in this manual. 2. Sale of property out of the bankrupt estate

Under certain circumstances property can be sold by the trustee or even the debtor. The sale can have various consequences from a title standpoint. Title in the purchaser may or may not be subject to liens and encumbrances. Questions involving sales out of bankruptcy should be addressed to Company counsel. For a discussion of the underwriting guidelines in this area consult The Bankruptcy Handbook. 3. The effect of bankruptcy on judgments against the debtor

A judgment against a party who has been discharged in bankruptcy can be disregarded in insuring title to property that is acquired after the discharge when the following exist:

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a. b.

The judgment was "scheduled" in the bankruptcy proceedings (i.e., the debtor disclosed it to the court), and The judgment was based on a debt that is "dischargeable" in bankruptcy.

Judgments based on debts that are not scheduled or debts that are not dischargeable must be shown as liens on property acquired by the debtor after discharge and, as discussed below, on property that the debtor owned prior to the discharge. Nondischargeable debts are such things as alimony, child support, certain kinds of tax liens and debts based on wrongful conduct on the part of the debtor such as fraud or causing malicious injury to others. Judgments against the debtor continue to be liens on property that the debtor owned prior to the discharge. In other words, the discharge does not eliminate the lien of the judgment. This is true even though it is scheduled and is based on a dischargeable debt. It continues to be a lien on property owned by the debtor, even as to property that was claimed as exempt by the debtor. A judgment based on a scheduled dischargeable debt does not become a lien on property acquired by the debtor after the discharge. EXEMPT PROPERTY Under the bankruptcy law, the debtor is allowed certain exemptions. In most jurisdictions the debtor gets to choose between the exemptions under state law or federal law. Usually, the debtor will claim his residence as exempt. If the court allows certain property to be exempt from the bankruptcy proceedings this does not mean that the property is now "free and clear" of liens. For the purposes of insuring title to this property, we would show as exceptions all matters that we would show if there were no petition in bankruptcy. Company counsel should be consulted for a determination as to whether or not the bankruptcy proceedings should be referenced in the commitment or policy.

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Chapter 3A - Page 1 BANKRUPTCY Title Practice

TITLE PRACTICE/BANKRUPTCY: A. Relief from Liens by Order of Bankruptcy Court - When our search indicates that the property was or is a part of a Bankruptcy Estate and was sold or is to be sold by the trustee or the debtor in possession, we must review the Bankruptcy Court proceeding in the applicable Federal District Courthouse to ascertain the following: 1. Bankruptcy Petition Schedules - Check to see that the property in question was properly listed and that all lienholders are properly listed on the creditors schedule. Notice of Proposed Sale of Property - Check to see whether or not the sale of the property is to be free and clear of all liens affecting it. Check to see that there was a notice of proposed sale of the property. Proof of Service of the Notice to All Creditors - Check that all lienholders were served with the notice of the proposed sale of the property free and clear of all liens. No Objection to the Proposed Sale - Check to see if there were any objections by creditors as to the proposed sale of the real estate; and if there were objections, how were those objections disposed of by the Bankruptcy Court. Order of Sale Free and Clear of All Liens - Check to see whether or not the Bankruptcy Court issued an Order authorizing the sale of the property free and clear of all liens.

2.

3.

4.

5.

B.

Provided that the foregoing review establishes that all creditors have been given notice and an opportunity to be heard, and that all objections, if any, were disposed of in the bankruptcy proceeding and that an Order for Sale of the property was duly entered authorizing the sale free and clear of all liens, then the property can be insured without exception taken as to liens of record. Good title practices dictates that a certified copy of the Bankruptcy Court Order be filed of record with the Recorder of Deeds.

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C.

Property Claimed as Exempt - The Bankruptcy Code provides that a debtor is allowed to claim certain property within certain monetary limits, as exempt property. Exempt property is not included in the bankruptcy estate and accordingly may be transferred by the debtor without court approval. Because there is a value limit imposed upon the exemption that may be claimed, it will be rare to find that the total value of real property is fully exempt. If only a partial exemption is allowed as to real property, the remaining equity will be subject to the Bankruptcy Code. Abandonment Property - The Bankruptcy Code provides that any property of the estate which is of inconsequential value and of little benefit to the estate may be abandoned by appropriate Bankruptcy Court proceeding. Abandonment may only be allowed after all creditors are given notice of such proposed act and given an opportunity to object to same. Generally, where no objection is filed by creditors, no court order will be entered and the property will be considered abandoned and title to the property will revert to the debtor. Abandonment removes the property from the Bankruptcy Estate but it does not alter any valid liens affecting the real estate. Title Practice Subsequent to Order for Discharge - Because the goal of the Bankruptcy Code is to provide the debtor with a "fresh start" property acquired by the debtor after discharge is treated differently from the property acquired prior to discharge. A valid lien prior to discharge affects only pre-discharge property and does not attach to property acquired by the debtor after discharge.

D.

E.

F.

Property acquired by the debtor within one year of discharge should be strictly scrutinized as to the source of assets used to acquire the property. If these assets were fraudulently concealed from the trustee and creditors by the debtor during the pendency of the bankruptcy case and later used to acquire other property, the Trustee may petition the court for revocation of discharge. If revocation is granted, the property may be brought back into the estate and administered by the Bankruptcy Court. If at all possible, debtor and trustee should execute the deed and/or the mortgage.

G.

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BANKRUPTCY GUIDE TO TITLE DEPARTMENT As insurers of title we are expected to have a thorough understanding of both the Law of Real Property and the Law of Contracts as they apply to a title insurance policy. The courts have determined that we have certain contractual obligations of disclosure to our insured of anything of record which may put the insured in a position of peril or otherwise subject them to litigation or serious financial loss. The filing of a petition in bankruptcy is such an event. The Bankruptcy Court has exclusive jurisdiction of the debtor's estate [11 U.S.C 523]. Moreover, the title agent, examiner or closer must also understand that the Bankruptcy Code may change the rights and priorities that normally exist under substantive law. The introduction of a bankruptcy to the title requires knowledge of both bankruptcy court procedures and the substantive law and rules. For example there is a preference statute. This may alter the normal respective priorities of liens under real property law alone. All parties to the transactions should know this and be aware of the implications. Other illustrations will follow. PREPARATION OF SCHEDULE "A" OF THE COMMITMENT Schedule A-3 of the title insurance commitment requires the title insurer or his agent to identify in whom the fee simple title is vested. Normally this is the record owner. However, that is not the case in a bankruptcy situation. As stated elsewhere, upon the filing of a petition in bankruptcy the Bankrupts property is placed in the custody of the Bankruptcy Court and a "Bankruptcy Estate" is created which consists of all the property, real or personal, owned by the debtor. This estate must be identified within Schedule A-3. The preferable way to do this is by placing the Schedule on a separate page where the record owner is identified by name, having acquired title under deed from [grantors name] dated [date] and recorded [date] in Deed Book [identify] page [identify]. Following this you should state that "examination of title discloses the recorded owner filed a petition in bankruptcy [date], Chapter [ ] docket no._______________." You should also "white out" the first four words appearing in Schedule A-3 and in their place state "Title to . . .". When the debtor files a petition in bankruptcy he no longer holds title as "fee simple". This practice is in conjunction with the suggested "recital practice" set forth on page 4. Failure to disclose and properly identify a bankruptcy estate which appears of record can subject the company to unwarranted liability and claim. WHEN INSURING OUT OF TRUSTEE IN BANKRUPTCY OR DEBTOR IN POSSESSION "In re: Bankrupt Estate of , Cause No.

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1. 2.

"Certified copy of Petition for leave to sell and convey premises insured hereunder to be produced and filed with the company." "Certified copy of Order & Decree approving and directing sale to be produced and filed with the company." Must contain judge's signature.

WHEN BANKRUPT WANTS TO SELL PREMISES AFTER MORTGAGE FORECLOSURE PROCEEDINGS HAVE BEEN INSTITUTED. "In re: Bankrupt Estate of 1. , Cause No. "

"Certified copies of any and all Bankruptcy Court Orders affecting premises insured hereunder, including but not limited to Order authorizing sale and conveyance of premises and Decree had thereon, to be produced and filed with the company." Order must contain judge's signature. NOTE: Above objection may be used when we have knowledge that seller is in Bankruptcy and the bankruptcy information is not currently available . . . by adding the following:

2.

"Possible additional searches to be made and objections noted hereon upon production thereof." NOTE: This should be done ONLY in EXTREME cases, due to time constraints. It is always best to wait until all information on bankruptcy is made available.

IF PROPERTY IS TO BE SOLD FREE AND CLEAR OF LIENS AND ENCUMBRANCES, THE FOLLOWING ITEMS SHOULD BE LOOKED FOR IN THE PAPERS: A. B. Petition by Trustee to the Court for an Order to sell free and clear and a Decree signed by a judge authorizing same. Proof of Notice to All lienholders of record of the Petition to Sell free and clear. If any lienholders were not notified, then those particular liens MUST be certified on report. Order to sell free and clear MUST SPECIFICALLY vest power in Trustee to sell premises free and clear AND to distribute proceeds generated by sale stating what lienholders will receive.

C.

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Chapter 3A - Page 5 BANKRUPTCY Title Practice

IF THERE WAS A FORECLOSURE OR TAX SALE IN CHAIN OF TITLE AND BANKRUPTCY COURT WAS NOT NOTIFIED, CERTIFY THE FOLLOWING: 1. "Validity of title derived by (Foreclosure/Tax Sale) , as of C.P. # of , vs. by reason of failure to obtain leave from U.S. District Court in Bankrupt Estate of , Cause No. , to issue such execution." ,

GENERAL BANKRUPTCY RECITAL AND ADD THE FOLLOWING: 1. "AND by Proceedings duly had; in the United States District Court, for the , the Eastern District of Pennsylvania, as of Cause No. said (Individual or Corporation) was declared a Bankrupt under Chapter , and by Decree dated / /19 , was appointed Trustee of the Bankrupt Estate."

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Chapter 3A - Page 1 BANKRUPTCY ABANDONMENT Underwriting

ABANDONED PROPERTY GENERAL Upon the filing of a petition in bankruptcy the property of the estate is in custodial legis of the bankruptcy court. However, a trustee in bankruptcy is not obliged to accept onerous or unprofitable property when surrendered as part of the estate and he/she has a reasonable time in which to determine what to do. Land in the bankruptcy estate may be abandoned. If the trustee abandons the property, title re-vests in the bankrupt party individually and is treated just as if no proceedings were commenced. In order to be abandoned the property must be scheduled as an asset. Unscheduled property is an unadministered asset. If the trustee has no knowledge of the fact that the property is an asset of the estate of the bankrupt, there can be no abandonment. ABANDONMENT OF PROPERTY Pursuant to Section 554, a trustee may, after notice and a hearing, abandon property that is either burdensome or of inconsequential value to the bankruptcy estate. Rule 6007 prescribes the notice requirements of abandonment. In essence, the creditors have 15 days from the mailing of the notice to object to the trustees proposed abandonment. If an objection is made, the court must hold a hearing to determine whether or not the property is to be abandoned. Rule 7062 does not apply to abandonment. TITLE RULE: Unscheduled assets are unadministered assets. As such they do not revest in the bankrupt upon the bankrupt's discharge. Such property remains subject to the jurisdiction of the bankruptcy court in which case the proceedings are subject to petition to be reopened for further administration of the unscheduled property. COMMENT: In the absence of a specific order of abandonment or a renunciation of the title by the trustee, property neither abandoned nor administered remains property of the estate and title will remain in the jurisdiction of the court pending a reopening of the proceeding and the appointment of a new trustee (see Section 554(d)). The manner in which abandonment takes place will vary. There are two types of abandonment: actual and constructive.

Chapter 3A - page 2 ABANDONMENT Underwriting

ACTUAL ABANDONMENT: Section 554 (a) of the Code provides for a specific order of abandonment. To effect abandonment thereunder the trustee should cause to be sent to creditors a notice of his intent to abandon the property therein described. if no creditor objects or requests a hearing, the trustee may abandon property of the estate that is burdensome or is of inconsequential value without further order of the court. Property not previously abandoned by the trustee, ultimately determined by him to be burdensome or of inconsequential value, should be described in the Final Report and Account of the Trustee and the Trustee should set forth his intention to abandon such property. Parties in interest should receive notice of this intent to abandon along with notice of the Trustees Final Report and Accounting. Where there has been a specific order of abandonment, or a renunciation of title by the trustee, title will be considered as never having vested in the trustee, and as having remained, uninterrupted, in the bankrupt (Rosenblum vs. Dingfelder) 111 Fed. 2d 406). CONSTRUCTIVE ABANDONMENT: Section 554 (c) provides that property which is duly scheduled but not otherwise administered at the time of the debtors discharge and case closing is deemed abandoned to the debtor and fully administered property abandoned under this section reverts to the debtor and is irrevocable (see Collier, Bankruptcy Manual, 3rd Ed Section 554.06). TITLE RULE: In order to avoid "The doctrine of Standard Oil and Gas Company v. Logan," 5 Cir., 92 F. 2d 28 and "Tuffy v. Nichols, 2 Cir., 120 F. 2d 906, while the proceedings are pending, you should undertake to obtain a specific order of abandonment; if the bankruptcy court grants such an order, and not otherwise, the asset should be regarded as abandonment by the creditors. The filing of a "No Asset report by bankruptcy trustee is not tantamount to an abandonment from the bankruptcy estate [In re Morton Reed, 940 F2d 1317 (9th Cir. 1991)].

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Chapter 3A - Page 3 BANKRUPTCY ABANDONMENT Underwriting

ABANDONED PROPERTY - TITLE GUIDELINES 1. Case Pending: If you are asked to insure a title on the basis of a deed from the debtor while the case is still open, review the court file for satisfactory evidence of abandonment. You should find one of two courses of action as follows: a. After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value to the estate. On a request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value to the estate. Comment: You should require a court order approving the abandonment whether the action was initialed by the trustee or a party in interest. With such an order you may insure the title conveyed without a bankruptcy exception. Do not waive any liens of the property. 2. Case Closed: If you are asked to insure a title on the basis of a conveyance from the discharged debtor, as to bankruptcy estate property, review the court file for satisfactory evidence of abandonment. You should find one of two fact situations: a. The land to be conveyed was scheduled or listed in the bankruptcy estate and was not administered before the case was closed. This land is deemed abandoned.

b.

The owner may convey without court approval and you do not need to take, any specific exceptions as to bankruptcy. However, if the facts are not sufficiently clear, approval of the court should be required. b. If the land conveyed was not scheduled or listed in the bankruptcy estate, but should have been so shown, and consequently was not administered before the case was closed, it remains property of the estate. Such land is not abandoned.

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You must require a court order for abandonment as follows: "The Company must be provided with a satisfactory order of the Bankruptcy Court for abandonment of the land to be insured. This land was property of the estate, but was unscheduled, and not administered in the bankruptcy of John Doe, Debtor in Case No. in the U.S. District Court for the District of ". Comment: If the property is of inconsequential value, the court may order the property abandoned without reopening the case. If the property is not of inconsequential value, the court will reopen the case to administer or abandon the land. With a court order for abandonment you should insure the title conveyed without a bankruptcy exception. Court orders should be final and no longer subject to appeal. Do not waive any liens on the property.

Chapter 3A - Page 1 BANKRUPTCY AUTOMATIC STAY Effect upon Judgment Lien Ten year period tolled

New York law provides that a judgment lien on real property expires after ten years unless it is extended by the lienholder on a motion to a state court with notice to the debtor. A question arose about the effect of a debtors bankruptcy filing upon New York's lien period. The court held: the automatic stay under section 362(a) does not limit the lien enforcement requirement. However, section 108(c) tolls New York's lien period until the automatic stay is terminated. There is no conflict between New Yorks lien law and ∋ 362 (a). An action to extend the lien does not enlarge it or threathen property of the estate. It merely allows the lienholder to maintain the status quo - a policy not adverse to bankruptcy law [Note: this is also consistent with the tax provisions contained within the The Bankruptcy Reform Act of 1994]. However, ∋ 108(c) makes application for an extension unnecessary. This section of the Code protects secured creditors from unfair advantage. This section tolls the statutes normal limitation period. [In re Morton, 866 F2d 561 (2d Cir. 1989)]

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Chapter 3A - Page 1 BANKRUPTCY - CHAPTER REQUIREMENTS Title

CHAPTER RELATED ISSUES CHAPTER 13 A Chapter 13 proceeding seeks to provide debtors with an opportunity to make payments to creditors out of future earnings. Commencement stays creditor collection activity. The automatic stay may be lifted by motion (Rules 4001a and 9014). This Chapter was named the "Wage Earner" Chapter under the prior Bankruptcy Act. Under the Code it has been renamed "Adjustment of Debts of an Individual with Regular Income". There are various requirements for filing pursuant to Chapter 13 which in general are similar to Chapter 11. The following are some of the differences: 1. Only a debtor with unsecured debts of less than $100,000 and secured debts of less than $350,000 may a debtor be under Chapter 13 (Section 190(e)). A Trustee is appointed in each case. (Section 1302). However, unless otherwise provided for in the plan, the code provides that the property of the estate automatically vests in the debtor, free and clear of any claim or interest of any creditor provided for by the plan (see p. 4-99, Consumer Bankruptcy Manual). 11 USC 1327 (b) and (c) Upon Petition the debtor shall file the plan (Section 1321). The usual notice and hearing provisions apply. The plan may not provide for payments for a period longer than 3 years. The three year period may be extended to 5 years under unusual circumstances (Section 1322 (c)). The plan must be confirmed by order of the court. The provisions of a confirmed plan bind both the debtor and each creditor, whether or not the creditor's claim is provided for by the plan and regardless of whether the creditor objected to, accepted or rejected the plan. The debtor has certain exclusive rights not a part of the other Chapters: (a) (b) including the right to sell property granted in Section 363(b) through (f) and 363(1); the right to discriminate in favor of certain general creditors:

2.

3.

4.

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Chapter 13 permits the debtor to formulate a plan specifically designed to accommodate his needs and interests. Many debtors, for example, desire to repay some of their creditors while having little regard for other creditors. The debtor's financial condition and prospects may not permit him to repay all of his creditors in full. Thus, the only way for full restitution to be made to preferred creditors is for the debtor to pay less to other creditors. Many Bankruptcy Courts have permitted Chapter 13 plans to be confirmed even when large disparities in treatment have provided for different types of general creditors. (c) Avoid or postpone real estate mortgage foreclosure by arrearages and reinstating the mortgage term (not provided for under Chapter 7) by paying off arrearages during the term of the plan. Modifying the rights of secured creditors to reformulate installment payment obligations. However, secured creditors are entitled to recover 100% of the secured portions of their claims. Refinancing: The debtor is not permitted to borrow funds from a third party to make his chapter 13 payments. This on the theory that condoning a substitution of a new creditor for existing creditors would not provide the debtor with the fresh economic start that underlies the bankruptcy system. However, rejecting a debt substitution scheme does not preclude the debtor from borrowing against equity that he has in his home or other property, since this borrowing merely serves as a change in the form of the debtors interest. (Where the plan contemplates that repayment will be made through refinancing of the property see In re Washington, 6BR226, 230, 6BCD1094 (Bankruptcy Ed Va 1980). Contra: In re Whitten, 11BR333, 7 BCD902, holding that a plan funded solely by refinancing may not be confirmed.) TITLE RULE: Refinancing must be contemplated in the plan and confirmed. Where we are asked to insure a refinance and the plan does not contemplate such actions either originally or as modified require a court order (very unusual) since the sale of property of the estate is subject to court approval unless the court has ordered otherwise. The code permits an existing mortgagee to obtain a court order that requires the debtor to provide the mortgagee with adequate protection of its interests when the debtor wishes to continue using his real property (see Cohen, p. 9-19 note 45).

(d)

(e)

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Chapter 3A - Page 3 BANKRUPTCY- CHAPTER Title

When the debtor completes all payments under his confirmed plan the Bankruptcy Court is directed to grant him a discharge from all debts provided for by the plan including claim of all creditors (rule 5009).

Chapter 3A - Page 3.1 BANKRUPTCY SALE OF PROPERTY CHAPTER 13 SALES UNDER PLANS SUBJECT TO LIENS Title

TITLE PRACTICE 1. 2. 3. 4. 5. 6. An order for relief must be in effect throughout the proceedings, and Bankruptcy petition must be reviewed to determine if all lien holders of record have been properly scheduled and the property to be sold was properly scheduled. The plan must be reviewed to determine if the sale was or will be conducted in strict accordance with the terms of the sale provided for in the plan. The court order approving the plan must be reviewed as to regularity. The deed of conveyance must be properly executed by the trustee or debtor in possession. Exceptions should be taken as to all mortgages, judgments, and other liens affecting the property. The sale out of the bankruptcy court will have no effect on the lien status of such matters.

The above examinations must be conducted in all matters where a sale out of the bankrupt estate under a plan occurred within one year of the transactions to be insured. If the property has been subsequently sold to a bona fide purchaser for fair market value by the purchaser at such sale the bankruptcy proceedings need not be reviewed. COURT ORDER REQUIRED Orders are necessary to preserve a record of the existence of jurisdictional facts and are important for the following reasons: a) b) c) It evidences that appropriate "Notice and Hearing" were granted to approve the sale of property; The Order authorizing sale provides evidence of the property passage of the real property through the Bankruptcy Estate; The order serves as a deterrent to second guessing trustees or creditors committees in Chapter 7 proceedings.

The title insurance industry is oriented around the concept of establishing marketable titles through transactions and we, in fact, guarantee the marketability of title on the facing page of the policy. Therefore, from a title insurance company's perspective, it is necessary to evidence in the real property records the fact of the bankruptcy and the passage of the real property through the bankruptcy estate.

Chapter 3A - Page 3.1.1 BANKRUPTCY SALE OF PROPERTY CHAPTER 13 SALES UNDER PLANS SUBJECT TO LIENS Title

TITLE REQUIREMENTS Schedule B I Requirement: If a report or commitment is issued prior to review of the bankruptcy proceedings in the chain of title, the following exception must be shown: "Title to the estate to be insured herein, was derived in whole or part through a Bankruptcy proceeding. The Company is in the process of reviewing said proceedings. This Commitment is issued subject to the results of the examination of said proceedings and the Company hereby reserves the right to amend this Commitment as may be warranted by said examination." If title is to be insured out of a current bankruptcy case: "Sale must be conducted in accordance with terms and provisions of the "Plan" (or court order)." "Deed of conveyance must be properly executed by the Trustee (or debtor in possessions) and make reference to the "Plan" (or court order) under which the sale was conducted." SCHEDULE B EXCEPTIONS If title is to be insured out of a current bankruptcy case, the following exception will be shown: Before adjudication the bankruptcy should be shown as: 1. "Subject to proceedings in Bankruptcy Court Name of Alleged Debtor: Name of Court: Date of Filing: Case No:" After adjudication before appointment of trustee the bankruptcy should be shown as: 2. "Subject to proceedings in Bankruptcy Court Name of Debtor: Name of Court: Date of Filing: Date of Adjudication: Case No:" After adjudication and appointment of trustee the bankruptcy should be shown as:

Chapter 3A - Page 3.1.2 BANKRUPTCY SALE OF PROPERTY CHAPTER 13 SALES UNDER PLANS SUBJECT TO LIENS Title

3.

"Subject to proceedings in Bankruptcy Court Name of Debtor: Name of Court: Date of Filing: Case No: Date of Adjudication: Name of Trustee:"

TITLE PRACTICE 1. 2. 3.

Chapter 3A - Page 3.2 BANKRUPTCY SALE OF PROPERTY CHAPTER 13 SALES UNDER PLANS "FREE AND CLEAR" OF LIENS Title

An order for relief must be effect throughout the proceedings, and Bankruptcy petition must be reviewed to determine if all lien holders of record have been properly scheduled and the property to be sold was properly scheduled, and The plan must be reviewed to determine if sale was conducted in strict accordance with terms of sale provided for in the plan, (CAUTION, often certain liens, such as real estate taxes, first mortgage/deed of trust, or other matters might be specifically excepted in the plan, i.e., that the sale be free and clear of all liens except specified liens) and Clerk's certification to the court must be reviewed to determine if all known lien holders received a copy of the notice at least ten days prior to the date for filing objections to the plan (Rule 6004), and If an objection was made, a court order adjudicating the merits of the objection and approving the plan must have been entered and the appeal period of ten days after the entry of the order must have elapsed without a notice of appeal having been filed (Rule 8003), and Any federal tax lien extinguished by sale was duly scheduled in the bankruptcy, and Any order authorizing sale, which may be incorporated in the Plan, was entered containing all the following: a. b. c. d. A finding that due notice of proposed sale was given, and a finding that the court has jurisdiction of the matter, and A finding that a hearing has been duly had; or, in the alternative, that there was adequate opportunity for a hearing, A list of the specific liens to be divested by sale, together with an itemization of the amount each lien secures, and A finding that for each specific lien sold free and clear of the court specifies one of the five reasons for selling free and clear of a lien (or interest) set forth in section 363(f) as follows: 1. 2. Applicable non-bankruptcy law permits sale of such property free and clear or liens, or The owner(s) of the lien(s) to be eliminated by the sale consent(s), or

4.

5.

6. 7.

Chapter 3A - Page 3.3 BANKRUPTCY SALE OF PROPERTY CHAPTER 13 SALES UNDER PLANS "FREE AND CLEAR" OF LIENS Title

3.

The price at which such property is sold free and clear of lien so is greater than the aggregate value of all liens on such property, or 4. 5. e. The lien(s) is (are) in bona fide dispute, or The owner(s) of the lien(s) could be compelled in a legal or equitable proceeding to accept a money satisfaction of the lien(s).

A direction to transfer the divested liens to proceeds of sale, and

8. 9.

The sale is for a price in excess of the total of the liens divested by the sale, and No court order enjoining consummation of the sale was filed.

The above examinations must be conducted in all matters where the purchaser at the sale out of the bankruptcy estate is still in title. If the property has been sold to a bona fide purchaser for fair market value by the purchaser out of the bankruptcy estate the bankruptcy proceedings need not be reviewed. SCHEDULE B I REQUIREMENT: If a report or commitment is issued prior to review of the bankruptcy proceedings in the chain of title, the following exception must be shown: "Title to the estate to be insured herein, was derived in while or part through a bankruptcy proceeding. The Company is in the process of reviewing said proceedings. This Commitment is issued subject to the results of the examination of said proceedings and the Company hereby reserves the right to amend this Commitment as may be warranted by said examination." If title is to be insured out of a current bankruptcy case: "Sale must be conducted in accordance with terms and provisions of the Plan (or court order) authorizing sale." "Deed of conveyance must be properly executed by the Trustee and make reference to the Plan (or court order) under which the sale was conducted." If the review of the proceedings finds one or more of the above title practice requirements have not been met, a special title exception requiring compliance must be made in the commitment or report.

Chapter 3A - Page 3.4 BANKRUPTCY SALE OF PROPERTY CHAPTER 13 SALES UNDER PLANS "FREE AND CLEAR" OF LIENS Title

SCHEDULE B EXCEPTIONS If title is to be insured out of a current bankruptcy case, the following exception will be shown: Before adjudication the bankruptcy should be shown as: 1. "Subject to proceedings in Bankruptcy Court Name of Alleged Debtor: Name of Court: Date of Filing: Case No:" After adjudication before appointment of trustee the bankruptcy should be shown as: 2. "Subject to proceedings in Bankruptcy Court Name of Debtor: Name of Court: Date of Filing: Date of Adjudication: Case NO:" After adjudication and appointment of trustee the bankruptcy should be shown as: 3. "Subject to proceedings in Bankruptcy Court Name of Debtor: Name of Court: Date of Filing: Case No: Date of Adjudication: Name of Trustee:" SALES PRIOR TO PLAN BEING ADOPTED After the filing of the petition, the property of the debtor becomes subject to the jurisdiction of the court. Such property may only be sold as provided by the Code. Accordingly, property sold after the filing of the petition without such sale being approved by an order of the court or without being approved by the court as part of an approved plan may not be insure. Such property must be properly administered before if may be insured.

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CHAPTER 7 Title to the bankrupt's real property vests in the Trustee upon the Trustee's appointment and qualification as of the date of the filing of the petition in bankruptcy. Only the Trustee can convey title to the debtors interest in the real estate. When we are called upon to insure title out of the Trustee of a Chapter 7 debtor follow the procedures set forth under BANKRUPTCY - EXAMINATION REQUIREMENTS, I.E. (1) (2) require and obtain a copy of the petition together with the schedule of assets and schedule of creditors; proof to be provided that all parties entitled to notice and hearing (not just interested parties) were fully notified. This includes all creditors. This may be accomplished by obtaining one or more of the following: (a) (b) (c) (d) Trustees certification that all parties entitled to notice and hearing were fully notified; Certificate of Service of and/or Notice of Private Sale from Bankruptcy Court Clerk with list of creditors to whom said notice was furnished attached obtaining an affidavit of mailing of service of notice and hearing upon all creditors, together with the Bankruptcy Court's certification that there were no objections to the sale, or a statement from the trustee that, as of the date of closing, notice was uncontested. The former preferable.

NOTE: with reference to the copy of the notice, it should carefully spell out the terms and conditions of the sale and all particulars. We would prefer to obtain a Court Order authorizing the sale of the subject lands. The title insurance industry is oriented around the concept of establishing marketable title through transactions. Orders are necessary to preserve a record of the existence of jurisdictional facts. The Order is important for the following reasons:

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a) b)

It evidences that appropriate "Notice and Hearing" were granted to approve the sale of property; The Order authorizing sale provides evidence of the proper passage of the real property through the Bankruptcy Estate;

Where we are able to obtain an Order for sale free and clear it is recommended that there be attached to the trustees deed a copy of (a) the Order appointing the Trustee (b) the order authorizing the sale free and clear of all liens and encumbrances We also recommend you obtain for the file a copy of the motion filed by the Trustee to allow the real estate to be sold free and clear. Specimen copies of the above forms of documents are attached to the rear of this section. As you can see, they are obtainable. The problem most frequently encountered in Chapter 7 proceedings is where a recalcitrant trustee refuses to obtain a court order. The Bankruptcy Act of 1978, as amended does not require a court order. Notwithstanding the fact that, pursuant to the amendment to the Bankruptcy Rules effective August 1, 1987, sales free and clear of an interest are an adversary proceeding and no longer strictly administrative, some trustees refuse to obtain orders. We cannot insist upon a court order where the trustee refuses to do more than is required of him under the act. Thus, if we choose to insure absent an order the following procedures shall apply: FREE AND CLEAR SITUATION - NO ORDER OBTAINED In each instance we are relying on the form, sufficiency and degree of detail set forth in the "Notice" to creditors. Each transaction requires a special risk review of the sufficiency of notice. Consideration of insurability will be done on a case by case basis only. (A) if the notice does not provide for the sale "free and clear" of all taxes, liens and encumbrances and the property is sold subject to same, we will treat the notice, in effect as an order to sell and go forward, raising no further questions than above. (B) If the notice provides that the property is to be sold free and clear of all taxes, liens and encumbrances we will not insure unless they are discharged or canceled of record. Accordingly, you should further require:

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(i) a statement from the trustee that the existing liens will be satisfied from the proceeds of sale (unusual but possible), or (ii) entry of Default, Final Judgment of Default and Request to Clerk to Enter Default in the adversary matters regarding the captioned debtor, which entitle the Trustees to sell "free and clear". There is to be no deviation from these procedures unless specifically approved by the CEO or a senior underwriter.

Chapter 3A - Page 6.1 BANKRUPTCY - CHAPTER Title

CHAPTER 11 Chapter 11 reorganization proceedings contemplate a plan of reorganization. The first thing to do is obtain a copy of the plan. Also you should follow the procedures set forth in BANKRUPTCY - EXAMINATION REQUIREMENTS, i.e.: A) B) We shall require an Abstract of the Docket Entries entered in the proceedings. We shall require (i) a copy of the confirmation of the Plan of Reorganization;(ii) proof the Plan was not thereafter modified; (iii) a copy of the Court Order confirming the sale. We strongly recommend a Court Order be obtained in this proceeding to be attached as an Exhibit to the deed for the purposes of clearing paper title.

NOTE:

C) D)

We shall require a copy of the Schedule of Assets and Schedule of Creditors in the proceeding. Proof that notice was served upon all creditors. This may be satisfied upon production of a copy of the Certificate of Service.

The Order of Sale or Confirmation of Plan approving sale is to specifically identify the property to be sold by metes and bounds description and approve the sale by the person authorized under the code to transfer title. We further suggest that if the Order authorizes the sale free and clear of liens, it should identify specifically the liens which are to be divested by the sale. This procedure gets the "liens" off record. Require that title not close until the time period for appeal of the Order authorizing sale has expired with no appeal having been taken. (NOTE: Under Rule 802, the appeal period is ten days from the date of the entry of the Order of Sale.)

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Please be aware that no court order approving the sale is required where (i) the sale is in the normal course of business and/or (ii) the sale is pursuant to a confirmed plan. Since our main concern is with the contemplated sale of the real property in order to insure title under the plan without the benefit of further order the following requirements should be complied with: 1. 2. 3. 4. 5. 6. 7. determine that a hearing was held; determine there was no opposition to the plan; determine the plan is sufficiently clear as to the terms of the sale; determine that the "notice" rules were complied with; determine that the plan was confirmed and not thereafter modified; require proof of compliance with the plan through closing; require all liens be paid and/or release procured as provided for in the sales contract or the plan.

NOTE: see Section 1142 of the Code. The foregoing should only be approved upon review with counsel.

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Chapter 3A - Page 1 BANKRUPTCY - CREDITORS RIGHTS Underwriting

CREDITORS' RIGHTS PROBLEMS A transfer of an interest in real property may be considered fraudulent if the grantor transfers the interest with the intent, either actual or constructive, to obstruct the right of creditors of the grantor to reach the grantor's assets. Some common examples of transfers which a court might under certain circumstances hold to be fraudulent are: 1. 2. 3. A transfer of title to property without consideration at the time a suit is pending against the grantor. A conveyance by a debtor to himself and his wife as tenants by the entireties to shield the property from the debtor's creditors. The mortgaging of a subsidiary company's land to secure the subsidiary's guarantee of the parent's debt. A parent company's guarantee of the debt of a subsidiary company is usually not considered to be fraudulent. However, before insuring, consent of State counsel should be obtained. 4. Mortgages of a corporation's property where the mortgage funds are used to purchase the stock of the corporation by another entity. These types of transactions are commonly referred to as LBO's (leveraged buyouts). In such cases, the corporation does not receive the mortgage funds but has encumbered its property to secure payment. Generally speaking, the mortgaging of property for purposes of purchasing the assets of another corporation, as distinct from purchasing the stock, will not be considered fraudulent. However, if all of the assets of a corporation are being purchased, the mortgage should not be insured without the consent of State counsel. 5. The mortgaging of a debtor's property to secure an antecedent debt. Although not technically considered a fraudulent transfer, it might be deemed to be a preference under the bankruptcy code and thus voidable by a subsequent trustee in bankruptcy. The mortgaging of partnership property to provide funds to pay a withdrawing partner. Any transfer of partnership property either by way of grant or mortgage to general partner.

6. 7.

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Other types of transactions that create creditors' rights problems but are not thought of as transfers of property are: 1. 2. A release or renunciation by a debtor of an inheritance. The release of a valuable long-term lease by a debtor lessee.

Of course, not every transfer of the types described above will be deemed to be fraudulent. If a transfer is made for the specific purpose of defrauding a creditor, there is little question that it will be voided. There are many situations, however, where there may not be an intent to defraud creditors, but based on the factual situation, a court would find a constructive fraud. The Bankruptcy Code, the Uniform Fraudulent Transfer Act and the Uniform Fraudulent Conveyance Act set out in some detail the situations where transfers will be considered a constructive fraud. Generally speaking, a transfer will be voided based on constructive fraud where the transfer was made either without consideration or reasonably equivalent consideration if the transferor was insolvent or would be made insolvent due to the transfer. State counsel should always be consulted where: 1. 2. 3. land is conveyed either without consideration or with inadequate consideration, or land is mortgaged and it appears the mortgagor will not receive the mortgage funds, and in any of the factual situations described above.

CREDITORS' RIGHTS EXCEPTIONS Where a possible fraudulent transfer or preference question exists with respect to the insurance of a mortgage, the following exception should be added to the policy: "The effect of an attack on the validity or priority of the lien of the insured mortgage based on the avoidance provisions of the federal Bankruptcy Code or similar state insolvency or creditors' rights laws."

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Where a possible fraudulent transfer or preference exists with respect to the conveyance of land, the following exception should be taken: "The effect of an attack on the validity of the insured title based on the avoidance provisions of the federal Bankruptcy Code or similar state insolvency or creditors' rights laws."

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Chapter 3A - Page 1 BANKRUPTCY - DISCHARGE Underwriting

DISCHARGE IN BANKRUPTCY IN GENERAL Most of the individual debtors in bankruptcy cases seek to be discharged from their debts. Unlike former law, the Code does not provide for the discharge of a corporate debtor or of a partnership debtor in Chapter 7 liquidation cases. The word "discharge" is viewed by the title insurers in the context of forgiveness of some debts; not as the extinguishment of all debts. If a debt is discharged it becomes unenforceable against the debtor but this does not mean the debt no longer exists or that it cannot be enforced against the property of the debtor's estate. There have always been, and there will continue to be, some debts a bankrupt debtor cannot shed liability for even if a discharge in bankruptcy is obtained. RULE 409 sets forth the procedure by which the debtor or any creditor may obtain a judicial determination of the dischargeability of a debt. Non Dischargeable Debts (11 USC 523) Included within the debts a debtor cannot be discharged from a bankruptcy case are the following: 1. Certain Taxes and Customs a. b. A tax on income or a tax measured by income on gross receipts due within 3 years before the date of filing the petition. A property tax assessed before commencement of the case and payable without penalty within 1 year of the date of the filing of the petition. Taxes the debtor is required to collect or withhold from others. Employment tax on wages, salary, and commission for which a return was due within 3 years of the date of the filing of the petition. Excise tax due on a transaction prior to but within 3 years of the date of filing the petition. Custom duty arising out of importation of merchandise within 1 year before date of filing the petition.

c. d.

e. f.

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g. h. i. 2. 3. 4. 5. 6. 7. 8. 9.

Tax debts for which no tax return was filed. Tax debts for which a late return was filed within 2 years of the date of the filing of the petition. Tax debts for which debtor made a fraudulent return or wilfully attempted to evade or defeat the tax.

Those arising from obtaining money, property, services, or credit by false pretenses or fraud, including the use of false financial statement. Unlisted, unfilled, and unscheduled debts. Those debts incurred by fraud or defalcation while acting in a fiduciary capacity, by embezzlement, or by larceny. Those for alimony, spousal support, child support and maintenance. Those arising through wilful and malicious injury to others or to the property of others. Fines, penalties, or forfeitures due governmental units. Certain of the educational loan. Those arising in prior bankruptcies but not listed or claimed.

EFFECT OF DISCHARGE (11 USC 524) An individual debtor's discharge under a Chapter 7, 11 or 13 case is: 1. Conclusive as to the personal liability of the debtor for all pre-petition debts duly discharged therein. A judgment subsequently obtained to the contrary is void. Effective to enjoin any act, action, or proceeding to collect, recover, or offset duly discharged debts as personal liability of the debtor or from property acquired by debtor subsequent to the commencement of the case.

2.

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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3.

Effective to enjoin any act, action, or proceeding to collect, recover, or offset against community property acquired by debtor after commencement of the case on account of an allowed community claim not excepted from discharge; or except as otherwise provided in 11 USC 524 (a)(3), any debt that would be excepted in the case commenced by debtor's spouse on the same date the case of debtor was filed, whether a discharge based on the community claim was waived or not.

The administration of debtor's estate continues after discharge. But, the debtor is left free to embark upon a "fresh start." Property which the debtor acquires after the discharge, absent fraud, is not subject to the jurisdiction of the bankruptcy court; and, a title insurer's usual inquiry into a debtor's discharge is significant only in connection with property debtor acquires after the petition in bankruptcy was filed. PROPERTY ACQUIRED AFTER DISCHARGE - THE AFFECT UPON PRE-PETITION JUDGMENTS AGAINST THE DEBTOR A judgment against a party who has been discharged in bankruptcy can be disregarded in insuring title to property that is acquired after the discharge when the following exist: a. b. The judgment was "scheduled" in the bankruptcy proceedings (i.e., the debtor disclosed it to the court), and The judgement was based on a debt that is "dischargeable" in bankruptcy.

Judgments based on debts that are not scheduled or debts that are not dischargeable must be shown as liens on property acquired by the debtor after discharge and, as discussed below, on property that the debtor owned prior to the discharge. Nondischargeable debts are such things as alimony, child support, certain kinds of tax liens and debts based on wrongful conduct on the part of the debtor such as fraud or causing malicious injury to others. Judgments against the debtor continue to be liens on property that the debtor owned prior to the discharge. In other words, the discharge does not eliminate the lien of the judgment. This is true even though it is scheduled and is based on a dischargeable debt. It continues to be a lien on property owned by the debtor, even as to property that was claimed as exempt by the debtor. A judgment based on a scheduled dischargeable debt does not become a lien on property acquired by the debtor after the discharge.

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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DISCHARGE EFFECT UPON LIENS
THE EFFECT OF A DISCHARGE IN BANKRUPTCY UPON PRE-PETITION DOCKETED JUDGMENTS The logical consequence of a bankruptcy proceeding is the discharge of the debtor from his "debts". The purpose of the discharge is to relieve the bankrupt of the personal liability on the obligation. Understand right now that the discharge of one's personal liability is to be distinguished from the discharge of "lien". If the obligation is secured by a valid "lien", including a judgment lien, entered more than four months before the debtors filing of the petition in bankruptcy and adjudication, the discharge does not affect the lien. The "lien" of the judgment is not discharged in bankruptcy; only the personal liability of the bankrupt is. In effect, a discharge extinguished the "debt" but not the "lien". A discharge in bankruptcy does not destroy all judgments recovered against the debtor. Attorneys who do not specialize in bankruptcy law will occasionally suggest that "if the debt is discharged then there is no lien". The "No Debt No Lien" theory does not apply as it would in the law of mortgages. The courts have consistently held that although the underlying debt is discharged, the lien created by the filing of the judgment remains since it attached prior to the filing of the petition in bankruptcy. The discharge of the bankrupt is not a release or discharge of the judgment but acts merely as a bar to the creditors right to collect on the judgment. Therefore, the "lien" must continue to be shown as an exception to title. Under Section 524 the exact language is "a discharge in a case under this title voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor...". Section 524(a) of the Bankruptcy Code effective October 1, 1979, insures that a discharge will operate as an injunction against commencement or continuation of an action to collect or recover a debt as a personal liability of the debtor.

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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However, except in "free and clear" sales, creditors holding judicial liens are entitled to claim a priority status for entitlement to proceeds from sale of a debtor's residence despite debtors having been discharged in bankruptcy from any judgment entered in any other court, in that discharge was only to the personal liability of the debtors, not to property of the estate from which debts may be satisfied (In re Bormes, Bankruptcy S.D. 1981, 14 B.R. 895) Comment: As suggested in the section entitled "Sales free and clear" we recommend that the "order to sell free and clear" include a specific statement setting forth those liens which are to be divested. This procedure does not address the issue of the judicial liens continued effect upon a discharged debtor's unsold "abandoned" residence. Remember, valid "liens" existing at the date of the filing of the petition are unaffected by the discharge unless an action to set them aside is taken in accordance with state law. (Collier, 15th ed., 524.01 (3); USCA 524 n. 128 and cases cited thereunder).

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

Chapter 3A - Page 1 EXEMPT PROPERTY Underwriting

EXEMPT PROPERTY Section 522 of the Bankruptcy Code governs what an individual debtor may keep after filing bankruptcy. Remember, a bankruptcy trustee represents the creditors, not the debtor. Section 522 simply allows the debtor to keep something to begin his or her life after bankruptcy. Section 522 provides a list of "federal exemptions". A debtor may either elect to utilize the federal exemptions or utilize exemptions available under state law. The statute also provides that a state may "opt out" of the federal exemptions, thereby denying its citizens the right to choose between exemptions. In Schedule B-4 of the petition for relief, a debtor may list the home as exempt from the bankruptcy estate if it qualifies as exempt under applicable law. Provided no creditor objects to the claimed exemption within 30 days of the meeting of creditors, the property is deemed exempt. The meeting of creditors must be held within 60 days of the filing of the bankruptcy proceedings. Refer to the abstract of the docket entries to determine if this requirement has been met. If the property is exempt, the property is not part of the bankruptcy estate and may be treated as if the bankruptcy petition had never been filed.

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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FRAUDULENT TRANSFERS AND OBLIGATIONS FRAUDULENT TRANSFERS (11 U.S.C. 548) The bankruptcy court can set aside any transfer made within 1 year prior to the filing of the petition in bankruptcy if the transfer: A. B. was made with intent to hinder, delay or defraud creditors; or was made for less than a reasonably equivalent value and the debtor was insolvent on the date that such transfer was made or became insolvent as a result of such transfer.

Even if a year has expired since the transfer, a trustee may still exercise its avoidance power under state law. Therefore, a conveyance that is within 1 year prior to the filing of a petition in bankruptcy trustee under bankruptcy law and transfers more than a year prior to the petition may be subject to attack under state law. You should consult Company counsel for the state in which the land is located as to the time limit under state law. Probably the most common kind of transfer that is subject to being attacked by a trustee is a foreclosure deed in a non-judicial foreclosure. Decrees in judicial foreclosures are subject to the same type of attack. For a discussion of foreclosure deeds and this problem see the section on FORECLOSURES in this manual. PREFERENCES (11 U.S.C. 547) Any transaction resulting in a debtor's transferee receiving more than he would have received if the transferee had participated in a liquidation of the debtor's bankruptcy estate is suspect as having been a preference. A trustee may avoid a transfer if it constitutes a preference and the transfer was made within 90 days of the commencement of the bankruptcy case or within one year of the commencement if the party receiving the transfer is an "insider". A transfer is a preference if it prefers one creditor over other creditors. The most common type of transfer that will be attacked as a preference is a mortgage given to a creditor to secure a prior debt. In order for the trustee to avoid the transfer as being a preference, it must have been made when the debtor was insolvent. For a discussion of conveyances or transfers that are likely to be attacked either as preferences or fraudulent transfers see the section on CREDITORS' RIGHTS PROBLEMS in this manual.

T.A. TITLE INSURANCE COMPANY 2 Veterans Square, Media, Pennsylvania 19063-3191 (610) 892-8100 Ext. 135 FAX # (610) 892-8834

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Chapter 3A - Page 1 BANKRUPTCY SALES FREE & CLEAR Underwriting

SALES FREE AND CLEAR - COURT ORDER REQUIRED Sales free and clear of liens are governed by Section 363 of the Bankruptcy Code and Rules 6004 and 9014. Pursuant to the amendment to the Bankruptcy Rules effective August 1, 1987, a sale free and clear of an interest is an adversary proceeding and no longer strictly administrative. SALES OF PROPERTY OF THE BANKRUPTCY ESTATE Section 363 (f) states that a trustee may sell property free and clear of third-party interests such as liens or mortgages if one of five requirements are met: 1. 2. 3. 4. Nonbankruptcy law permits a sale free and clear of the interest, such as an unrecorded lien; The interest is a lien and the sale price is greater than the lien; The interest is in a bona fide dispute; or The interest holder could be compelled to take money in substitution of the interest in legal or equitable proceedings.

The rules further require that relief be requested by motion and that summons must be served on all parties whose liens are sought to be affected. The rules also require that a notice contain the date of the hearing. A court order is not legally required in order for property to be sold out of bankruptcy. Section 363(f)(3) provides that the trustee may sell property "free and clear" of any interest if the interest is a lien and if the price at which the property is to be sold is greater that the aggregate value of all liens on such property (emphasis mine). In other words, a lien creditor cannot defeat the trustee in his attempt to sell its collateral as long as the property has equity and above the aggregate value of all liens on such property. It is for this reason that a trustee may, especially in a chapter 7 case, refuse to obtain a court order. If that happens you must comply with the guidelines set forth above in the Chapter 7 requirements section of this manual. WHY DO WE WANT AN ORDER? Since we are dealing with an adversary proceeding and not administrative procedures, a title company insuring title from a sale pursuant to a Section 363 (f) "free and clear sale" will look for an order verifying and confirming that the requirements of the code and the procedures set forth in the rules have been properly complied with. Title insurance company personnel below the level of counsel are not sufficiently well-versed in bankruptcy court procedures and the substantive laws and rules to determined if all the procedural rules were complied with. An order will help the examiner or underwriter to

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determine answers to the following questions: -How do we know adequate notice was given within 20 days to all creditors and creditors listed on the matrix? -How do we know that the notice adequately describes the terms of the sale? -How do we know that no creditor has requested a hearing or otherwise objected to the proposed action? -How do we know the buyer is a good faith purchaser? -How do we know the other legal prerequisites to the trustees proposed action have been met? TITLE RULE Orders are necessary to preserve a record of the existence of jurisdictional facts and are important for the following reasons: a) b) c) It evidences that appropriate "Notice and Hearing" were granted to approve the sale of property; The Order authorizing sale provides evidence of the property passage of the real property through the Bankruptcy Estate; The order serves as a deterrent to second guessing trustees or creditors committees in Chapter 7 proceedings.

The title insurance industry is oriented around the concept of establishing marketable titles through transactions and we, in fact, guarantee the marketability of title on the facing page of the policy. Therefore, from a title insurance company's perspective, it is necessary to evidence in the real property records the fact of the bankruptcy and the passage of the real property through the bankruptcy estate.

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WHAT SHOULD WE LOOK FOR IN A COURT ORDER? Notice of the proposed sale leading up to the order may be as important as the order itself! Don't be lulled to sleep by the mere fact that you have an order. What if the bankruptcy judge doesn't have the authority to give the order? The following will serve to illustrate the question. We are asked to insure the sale after the plan of reorganization has been confirmed, but the sale is not provided for within the plan of reorganization. In reviewing the court order you consider the following: 1. whether or not the order needs to be recorded. It probably does. If so, obtain a certified copy of the order for recording purposes. Alternatively, insist upon a lengthy recital of the facts in the proposed deed and attach as an exhibit to the deed a copy of the order! Is the order signed by the judge? Does it have a filed stamp on it? You must be certain you are not looking at and relying upon a proposed order! Does the order adequately describe the property? Is a legal description attached? Does the order contain specific findings of fact that: a. proper notice of hearing was given? b. a hearing was held or at least opportunity for a hearing was provided? c. that the sale is pursuant to ∋363 and that the purchaser is a good faith purchaser and entitled to the benefits of 363(m) d. if the order is to be free and clear of liens does it state that fact? e. does the order specifically list those liens individually which the sale is to be free and clear of? 5. 6. Is the order a final order and has the appeal period expired under Rule 8002? Does the order allow the bankruptcy trustee to obtain secured financing? If so, a finding should be included in the order to the effect that the trustee was unable to obtain unsecured financing. It should also specify the respective parties priorities of the new lien vis-a-vis existing liens. This issue is discussed at greater length in Bankruptcy - Mortgages, "financing the Debtor-in-Possession".

2 3. 4.

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SALES FREE AND CLEAR OF LIENS, TAXES AND TRANSFER TAXES In the Legal portion of this Bankruptcy section we have previously suggested that in order to absolutely divest the liens from the real estate it is good practice to specifically list in the "free and clear order" those liens to be divested and sold free and clear of. This practice suggestion also applies to the removal of real estate taxes and transfer taxes. Making specific reference to 11 U.S.C. 1146 (c) specifically stating the sale may not be taxed under any law imposing stamp or similar taxes will serve to achieve the desired result. COMMENT: We recommend that the "Order Free and Clear" include the following statements: ORDERED: 1. The debtors are authorized and directed to sell their real property located in Township, County, Pennsylvania ("the Property") to or their nominee for a sale price of not less than $ . The aforesaid sale shall be conducted, and proceeds of sale distributed, in accordance with that certain Stipulation and Order (which granted certain secured creditors relief from the automatic stay) issued by this Court in this matter on (Dates). The aforesaid sale shall be free and clear of all liens, claims, security interest, mortgages, pledges, charges, indentures, loan agreements, options, rights of first refusal, offsets, recoupment, rights of recovery, judgments, orders and decrees of any court or governmental entity, interest, successor, product, environmental tax, and other liabilities and claims against the debtors or their property, including state and local taxes on real estate and transfers thereof of any kind or nature, whether secured or unsecured, choate or inchoate, filed or unfiled, scheduled or unscheduled, noticed or unnoticed, recorded or unrecorded, contingent or noncontingent, liquidated or unliquidated, matured or unmatured, known or unknown (collectively the "Liens and Claims"), pursuant to 11 U.S.C. section 363. Pursuant to 11 U.S.C. section 1146 (c), the making and/or delivery of any instrument or transfer in connection with the above-described sale may not be taxed under any law imposing a stamp tax or similar tax, including real estate transfer taxes.

2.

3.

4.

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5.

A copy of this Order may be recorded in the records of the County Recorder of Deeds as part of the conveyancing documents from the debtors to the purchasers of the Property. The purchase of the Property by or their nominee pursuant to this Order constitutes a purchase in good faith for fair value within the meaning of 11 U.S.C. section 363 (m) and In re Abbot's Dairies of Pennsylvania, Inc. 788 F.2d 142 (3rd Cir. 1986). In the event either of the debtors is unable or refuses to execute documents in accordance with this Order or the Stipulation and Order approving said Stipulation previously entered in this case, the able or non-refusing debtor or the United States Trustee is authorized to execute said documents on behalf of the unable or refusing debtor to carry out the Order approving said Stipulation and this Order.

6.

7.

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FINANCING THE DEBTOR IN POSSESSION IN GENERAL A trustee or a debtor in possession is authorized to borrow funds and to secure repayment thereof by executing a Mortgage or Deed of Trust subject to the provisions of the Bankruptcy Code. The borrowing of money to be secured by liens on bankruptcy estate real property is governed by 11 U.S.C. 364. The statute is applicable to all chapters but is of primary importance in Chapter 11 reorganization cases. There will be few Chapter 11 or Chapter 13 cases which will not require an inflow of additional capital to implement the plan. Mortgages on bankruptcy estate real property can be anticipated in most reorganization and rehabilitation cases where the trustee or debtor in possession is unable to obtain credit on an unsecured basis. When this occurs the examination of title will usually disclose that the property of the bankruptcy estate is already heavily liened and that the debtor has little or no equity in it. For this reason it is of vital importance to the insurer of title that any order of the bankruptcy court authorizing the execution of a mortgage on bankruptcy estate property specify the relative priorities of all existing liens as to their relation to the proposed mortgage to be executed by the trustee or debtor in possession. APPLICABLE SECTIONS OF THE CODE section 364(c) authorizes the trustee, after notice and hearing upon all parties in interest, to incur debt with priority over other administrative claims, to incur debt secured by property presently free of liens; or to incur debt secured by a junior lien on presently encumbered property. Under Section 364(d), the bankruptcy court may authorize the obtaining of credit with a "superpriority" lien on encumbered property that is senior to or equal in priority to existing liens on the property of the bankrupt estate. The court will only authorize lending under section 364(d) if it is established that all reasonable effort to obtain credit under sections 364 (a), (b) and (c) have already been made and either (i) proven unsuccessful or (ii) that "less onerous post-petition financing was unavailable" [In re Reading Tube Industries, 72 B.R. 329 (E.D. Pa. 1987)(citing In re Beker Industrial Corp., 58 B.R. 725 (SDNY 1986), and In re Phoenix Steel Corp., 39 B.R. 218 (D.Del. 1984)]. Before court approval of a section 364(d) financing order will be given, there must be notice and a hearing; the trustee must show he cannot obtain credit otherwise and adequate protection must be given to the displaced lienholder.

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ADEQUATE PROTECTION REQUIREMENT "Adequate protection" is not defined in the Code, but section 361 does state three nonexclusive methods by which adequate protection can be given when required under section 364. Section 361 states that adequate protection may be provided by cash payments to the creditor. Adequate protection can also be afforded by providing the lienholder with an additional or replacement lien or by granting relief that results in the realization by the displaced lienholder of the indubitable equivalent of its interest in the property. For cases citations refer to Real Property Issues In Bankruptcy, section 7.04 PROCEDURAL MATTERS AND BANKRUPTCY RULES Bankruptcy Rule 4001(c) controls the procedures to be followed in requiring approval of the various forms of credit that may be incurred after notice and hearing are given and held under section 364. A motion for approval of a financing arrangement is a contested matter under Bankruptcy Rule 9014. The notice of this motion must be given to any committee appointed under the Code, or if there is no such committee, to the twenty largest creditors of the debtor, and to such other entities as the court directs. RULES OF TITLE PRACTICE 1. You must obtain and review an abstract of the docket entries; 2. the examination of the bankruptcy case must disclose: -notice was served upon all parties in interest or as required by law or as was otherwise directed by the court; -notice of motion must make reference refinancing pursuant to 364; -hearing was held and no objections made or, if objections were made said objections were resolved as directed by the court; 3. the execution of the mortgage must be confirmed by order of the bankruptcy court and the appeal period expired; 4. the court order confirming the execution of the mortgage must contain a determination or a finding by the court as to the relative priorities of all existing liens on the property as well as the priority of the lien of the mortgage to be executed on the bankruptcy estate property;

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5. If the court order confirming execution of the mortgage establishes its priority as superior to or equal to all existing liens, the order must also contain specific recitals or findings to the effect that : a. unsecured credit could not otherwise have been obtained and b. there is adequate protection of the interest or interests of the holder or holders of the other lien or liens on the property 6. Evidence of title issued in reliance upon an order of the bankruptcy court confirming the execution of a mortgage on bankruptcy real estate must be approved by the Home Office Underwriting Department. Cross reference with FATICO CLTA Manual 6.34, TICOR Manual 015.09, CTIC Manual Bankruptcy 13; Bankruptcy Service, Bkr-L Ed sec. 15:88.

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Chapter 3A - Page 1 Bankruptcy-Tax Liens Underwriting

TAX PROVISIONS OF THE 1994 AMENDMENTS The Bankruptcy Reform Act of 1994 [the Act] (effective on October 22, 1994) includes an exception from the automatic stay for postpetition property taxes. Treatment of prepetition property taxes may be found in Bankruptcy Service Lawyers Edition, section 10:69. The new provision changes our underwriting position. Prior to the Act we were of the opinion that the trustee could sell the property free and clear of any interest in such property, including ad valorem real estate taxes, providing he met the requirements of the statute [11 USCA 363(f)] and the "free and clear order" specifically stated that the sale was to be free and clear of such tax liens. Title companies believed this applied to all real estate tax liens, irrespective of when they were created. Several recent decisions held that the automatic stay in bankruptcy prevented attachment of the statutory lien on the debtors property for real property taxes [see In re Paar Meadows, 800 F2d 1540 (2nd Cir. 1989); Makaroof v. City of Lockport, 916 F2d 890 (3rd Cir. 1990) and C.S. Associates, d/b/a University Nursing and Rehabilitation Center, Debtor, United Jersey Bank v. Miller, 29 F3d 903 (3rd Cir. 1994)]. The 1994 Amendment creates a new exception to the automatic stay to benefit local municipalities. New Section 362(b)(18) of the Bankruptcy Code specifically excepts from the automatic stay the creation or perfection of a statutory lien for postpetition property taxes imposed by a political subdivision of the state. This section of the statute is designed to overrule the cases above set forth. Makoroff had held that the automatic stay prevented local governments from perfecting statutory liens to collect property taxes which accrued subsequent to the bankruptcy filing. The concern of Congress was twofold: (i) the circuit courts' decisions had improved the position of secured lenders while (ii) harming the efforts of local governments to collect revenue. Prior to the circuit court decisions property taxes were entitled to a priority status in bankruptcy proceeding and lenders secured liens were subordinated to property tax liens. The amendment overcomes the inversion of priorities and restates the law as it was intended. The new exception to the automatic stay is not intended to lift the stay. The new tax provision does not authorize the commencement of any further collection activity but merely authorizes the liens to be perfected. Thus, while the lien attaches the property remains within the jurisdiction of the bankruptcy court preventing tax sale. A tax sale commenced under state law while the estate is in bankruptcy is void from the outset [In re Shambib, 878 F2d 324 (9th Cir. 1989)].

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As a result of the new law the company will require the payment of all real estate taxes. I do not believe the bankruptcy court can issue an order directing the property be sold free and clear of real estate tax liens. As a practical matter, how could the court order the property be sold "free and clear" of prepetition property tax liens when the 1994 Amendment specifically authorizes postpetition real estate tax liens to be perfected? See also Walz, Real Estate Tax Liens and the Automatic Stay in Chapter 11 Bankruptcy Cases: Off the Highway and into the Jungle, 2 J. Bankr. L. & Prac. 49 (1993)

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Chapter 7A - Page 1 COOPERATIVES General

COOPERATIVES DEFINED A "Cooperative" is defined as a corporate entity which owns land and improvements thereon with the right of each individual member of such entity to the exclusive possession of certain parts of the land and of the improvements thereon. "Cooperative Ownership" is most commonly understood to mean that ownership and title to the land and improvements thereon are vested in a cooperative corporation and each shareholder of the corporation, by virtue of a proprietary lease, is entitled to the exclusive occupancy of an apartment in the building located on the land. The term "cooperative" is also sometimes applied to the situation where title to the land and improvements thereon is vested in a "land trust" and each beneficiary of such trust pursuant to an agreement between the beneficiaries, is entitled to the exclusive occupancy of an apartment in the building located on such land. A typical proprietary lease is generally for a term of 99 years at a rent of $1.00 per year and such additional amounts as are necessary for the payment of all direct and prospective expenditures necessary for the maintenance and operation of the building. These would include general taxes and special assessments; such additional amounts (sometimes called "special rents") which would constitute expenses for the upkeep of the individual apartment versus general expenses for the cooperative and, "mortgage note payments" which are allocated shares for the payments due under a loan secured by a mortgage on the land and improvements thereon. The lessee's interest under the lease is subject to the lien of the mortgage and to any mortgage thereafter placed upon the land and also to a lien in favor of the lessor to secure the payment of any sums due under the terms of the lease. The lease provides that the lessor's approval is necessary for any assignment of the lease or for any subletting and that the ownership of the stock in the corporate lessor cannot be separated from the lease and is transferable only to an assignee of the lessee. This must be stated in public offering statement. An agreement between the beneficiaries of a "land-trust cooperative" contains similar provisions relative to assessments, liens and assignment of the beneficial interest. General real estate taxes are assessed against the cooperative property as a whole and not against each individual unit. The greatest fear of the cooperative owner is the possible defeasance of his interest through a sale of the property for non-payment of the real estate taxes or of a sale of the entire cooperative property through foreclosure or otherwise under the terms of a mortgage on the fee.

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THE NEW YORK MODEL Throughout the country there are quite a number of different forms of cooperative housing projects, but in New York the venture invariably involves a corporation formed under the business corporation law (BCL) and the provisions of that law governs its formation - charter - by laws - issuance of stock, etc. The shares of stock in the corporation are allocated proportionately to value of the units in a multi family residence. Each stock owner by reason of his ownership of his stock is entitled to a proprietary lease generally on a long term basis. Stock and lease if transferred must be transferred together. The basic financing of the venture is of course handled by the cooperative corporation by a blanket mortgage upon the entire project. For Real Estate tax purposes, the entire project is subject to a single real estate tax. The rent payable under the proprietary lease is not truly rent but represents the proprietary tenants proportionate share based upon his ownership of a specific number of shareS of stock, of the mortgage payments, taxes, maintenance costs plus capital improvements, etc. which relate to the project. Despite the fact that it is the corporation which is paying the mortgage interest, interest on other loans for capital improvements and so forth and the real estate taxes, if the venture complies with the provisions of the internal revenue code, the individual tenant stockholder is nevertheless entitled for personal income tax purposes to take as deductions on his return, his proportionate share of mortgage interest, taxes, and any other interests payable by the corporation for the operation of the project.

Chapter 7A - Page 1 COOPERATIVES Title

COOPERATIVES - TENANTS INTEREST INSURABLE
Generally, the leasehold interest of a cooperative owner is an insurable interest in land. There has been a resurgence in interest in cooperatives by virtue of a 1974 amendment to the National Housing Act which authorizes the Secretary under certain conditions to insure mortgages involving dwelling units in a cooperative housing development which is covered by a blanket mortgage insured under the National Housing Act. Prior to the mid1970's financing was not generally available to a purchaser of a proprietary lease and its accompanying stock. Until that time the leasehold interest was not mortgageable and the priority of such a loan was therefore uninsurable. Today, limited coverage is available for lenders on a cooperative leasehold interest. Under the 1974 amendment the Federal Home Loan Bank Board amended its regulations to allow federal savings and loan associations to make 90 and 95% permanent and conventional mortgage loans on cooperative housing projects and recent legislation in many states authorizes state banks and savings and loan associations to make loans secured by cooperative interests. GUIDELINES The leasehold estate of a cooperative owner is unique in several respects from the leasehold estates that we ordinarily insure and therefore requires guidelines in addition to those specified in the LEASEHOLD section of this Guide. 1. 2. Where possible the ALTA Leasehold policy forms should be used to insure the cooperative leasehold interest. A properly executed proprietary lease or, where state law permits, a memorandum of lease, notice of lease or short form lease must be recorded in the county where the land is located. See LEASES 2 - Recording of ShortForm Leases. The legal description should describe the underlying lands setforth the apartment number and its location within the building and its boundaries. Wherever possible the apartment should be described by reference to a recorded survey or floor plans. Where the legal description of the apartment in the lease is totally indefinite then we should refuse to insure unless and until the legals are corrected to sufficiently describe and locate the apartment we are asked to insure. Where the memorandum of lease, notice of lease or short-form lease is recorded in lieu of the full proprietary lease, a certified copy of the proprietary lease must be requested to be retained in our files. The lease should be examined and all provisions that may affect the title or the lien of an insured mortgage should be reflected in Schedule B of the commitment/policy. The lease provisions that generally affect title and/or

3.

4.

mortgage liens are those relating to: (a) assignment of lease, (b) default, (c) assessments, (d) authority of lessor to mortgage the fee, (e) that ownership

Chapter 7A - Page 2 COOPERATIVES Title

of the corporate shares of stock is a prerequisite to a leasehold interest and (f) that ownership of stock cannot be separated from the leasehold interest. 5. The charter and by-laws of the cooperative corporation must be requested and retained in our files. They must be examined and all provisions that may affect the title or the lien of an insured mortgage should be reflected in Schedule B of the commitment/policy. The provisions relating to: (a) lease, (b) share of stock and (c) officers authorized to execute leases or other instruments should be particularly noted. You should determine that the lease or assignment and the mortgage, if any, that we are to insure were properly executed according to and in compliance with the provisions of the charter, by-laws and the lease. Necessary consents should be obtained and kept in our files. Non-conformance should be set-forth as exceptions in Schedule B of the commitment/policy and the instruments should be corrected to conform with such provisions or we should refuse to insure. Where you are to insure the lien of a mortgage on a cooperative leasehold interest, and you are unsure of the right of such lessee to mortgage his interest, then confirmatory documentation of the right to mortgage should be obtained from the cooperative corporate officers and retained in your files. Where the cooperative documents prohibit the mortgaging of the cooperative leasehold interest then, of course, you should refuse to insure the lien of any such mortgage. There must be compliance with cooperative legislation and any exceptions to title generated by such law should be reflected as exceptions in Schedule B of the commitment/policy, as for example, the lien provision for nonpayment of assessments. Ownership of stock in the cooperative corporation is generally a prerequisite to the lease. You should require satisfactory evidence that the necessary shares were delivered to and assigned to the insured owners. Where you are also issuing a loan policy the following exception should be set forth in Schedule B of the loan commitment/policy: Liability, if any, arising from the failure of the insured to obtain possession of the insured lease and the accompanying stock and to retain the same until the mortgage loan has been paid in full. 10. Extended Coverage: Where the legal description of the leasehold interest is less than definite, coverage over "questions of survey" and "parties in possession" should not be extended. It is possible that material and labor contracted for by the cooperative corporation and/or other proprietary

6.

7.

8.

9.

lessees may attach as a mechanic's lien to the lease insured. Mechanics' lien coverage should not be extended unless you have

Chapter 7A - Page 3 COOPERATIVES Title

Satisfactory documentation that no mechanics' lien will attach to the leasehold interest insured by virtue of labor and materials contracted for by the lessee insured, his assignor if any, the cooperative cooperation and other proprietary lessees in the underlying lands. 11. A search should be made for filings under the Uniform Commercial Code to determine that the stock or shares in the cooperative corporation has not been assigned as security for a loan. Where a search discloses that such assignment has been made, it should be reflected as an exception in Schedule B of the commitment and should be released before policy issues. See Paragraph 9 above. 12. Where a loan policy is issue and local law requires a filing of a financing statement under the Uniform Commercial Code to perfect one's security in the cooperative stock for his loan, Schedule B of the commitment should reflect the following exception: The Uniform Commercial Code statements with respect to the agreements securing the stock in the cooperative corporation as security for the lien of the mortgage to be insured should be filed in the offices designated for such purpose by the UCC. 13. Where we are asked to insure an assignee of the leasehold estate, which lease was not previously insured, it is necessary to obtain the names of and make a lien and Federal Estate Tax search against all parties previously having an interest in the leasehold estate equivalent to the time period that a lien endures. Any matters disclosed by such search should be shown on Schedule B.

TITLE REQUIREMENTS (A) The proprietary lease and accompanying stock described in the security agreement are to be delivered for examination and review. (Otherwise, see WCH memo of 5 June 1979) Any assignment of the proprietary lease and any new lease and transfer of the accompanying stock required at closing are to be proper in form, duly executed and that such assignment of the proprietary lease and any new lease delivered at closing must contain the trust clause provided for by subdivision 5 of section 13 of the lien law. Where the memorandum of lease, notice of lease or short-form lease is recorded in lieu of the full proprietary lease, a certified copy of the proprietary lease must be delivered to this company to be retained in our

(B)

(C)

files.

Chapter 7A - Page 4 COOPERATIVES Title

(D)

Alternatively, the original of the Proprietary lease and all assignments, including one to the present lessee, must be submitted to this Company prior to closing, so that appropriate searches may be made against any prior owners for the last 10 years. Note: this is the only way we are able to ascertain that the shares of stock secured by the UCC-1 are unencumbered by any further liens. An instrument in writing is to be obtained from the lessor corporation, its managing agent or its board of directors, indicating the consent of the board of directors to the transfer of stock or the issuance of new stock to the purchaser and the assignment of the lease and/or the issuance of a new lease to said purchaser and further consenting to the making of the security interest to be insured. The proprietary lease and accompanying stock described in the security agreement are to be delivered at closing otherwise, policy to issue will except "Liability arising from failure of the insured to obtain possession of the insured lease and the accompanying stock." If the proprietary lease requires any consents, same must be obtained and submitted to this Company. An Estoppel Certificate or other instrument in writing is to be obtained from the lessor corporation or its managing agents certifying that as of the date of closing the lease was in full force and affect, that there is no existing default by the tenant with respect to any of the terms, covenants, conditions and agreements contained in said lease, and that there were no outstanding charges payable with respect thereto. Proof is required that the cooperative plan of the building in which the proposed insured apartment is situate is in full force and effect and there is no pending litigation with respect thereto. Proof is required that said lease has not been otherwise encumbered. In order to insure the lenders interest we shall require both a Security Agreement and a UCC -1 be duly executed and delivered for recording in the appropriate county recording office and the Office of the Secretary of State. The legal description should describe the underlying lands and setforth the apartment number and its location within the building and its boundaries. Wherever possible the apartment should be described by reference to a recorded survey of floor plans. Where the legal description of the apartment in the lease is totally indefinite then we will refuse to insure unless and until

(E)

(F)

(G) (H)

(I)

(J) (K)

(L)

the legals are corrected to sufficiently describe and locate the apartment we

Chapter 7A - Page 5 COOPERATIVES Title

are asked to insured. (M) In order to insure the leasehold interest we shall require the original proprietary lease and all assignments thereof (or memorandas thereof) be recorded.

FEE EXCEPTIONS When insuring the cooperative association as fee owner and insuring the fee title of property which is known to be in "cooperative ownership" requires that an exception reflecting the interest of the cooperative owners be set forth in Schedule B of the commitment or policy. The exception may read as follows: Terms, provisions, conditions and rights of the cooperative owners or lessees under the proprietary leases issued by the cooperative corporation and all persons claiming by, through or under them. NB For further exceptions refer to PLI Publication no. 176 at p. 100.

LEASEHOLD EXCEPTIONS Any loss or damage due to the fact that the Proprietary lease to be insured is note recorded. NB Closers Note: if the lease is not recorded it may fall into "profane hands" and thereafter be improperly assigned or pledged by someone other than the lessee. In such event the title company may be liable upon claim for failure to advise the insured of the potential hazard.

Covenants, terms and conditions set forth in the proprietary lease and all assignments thereof.

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Chapter 7A - Page 1 COOPERATIVES EXCEPTION WHERE LEASE IS NOT DELIVERED AT CLOSING Legal Bulletin

We have been asked to insure a cooperative title where the coop. corporation granted conditional approval for membership based upon the prospective grantees becoming married and further making delivery of the proprietary lease and stock certificates conditional upon delivery to the management a marriage certificate. Pending such delivery, during the interval, the parties would be given use of the premises. This would create in affect a landlord tenant relationship. Your attention is directed to the case entitle Earl W. Jimerson Housing Co. Inc., v. Butler, decided 2/1/79 wherein the court held a cooperators relationship with the cooperative corporation held not to be that of a landlord and tenant, regardless of any provision of the occupancy agreement attempting to define it consensually as such and are not therefore proper parties to a summary proceeding for non-payment of rent. Reversed NYLJ 12/11/79 p 12. This case should be born in mind in any similar circumstances and the following exception is to be included in the title certificate. Any loss or damage occasioned by failure to issue or assign the stock at the time of the delivery of the lease or assignment thereof to be insured hereunder. See 1979 NYLTA Bulletin JD-332

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UNDERWRITING SUPPLEMENT
──────────────────────────────────────────
UNDERWRITING DEPARTMENT ∃ 210 WEST FRONT STREET ∃ MEDIA ∃ PENNSYLVANIA ∃ 19063-3191

On Thursday, January 11, 1996 the New York Land Title Association held its 1996 Winter Educational Seminar. One of the subjects discussed at the seminar was entitled "Everything You Wanted to know about Co-ops but were afraid to ask". The speaker was Daniel Krimmer, V.P. and Senior Area Counsel, Chicago Title Insurance Company. Attached to this Supplement members of the underwriting department will find the handouts distributed by Mr. Krimmer. Please inset these materials at the end of Chapter 7A of the New York Manual. For any additional information relating to Cooperative issues you should refer to Real Estate Titles, 2d Edition, chapter 25 page 19. Additional material relating to cooperative policies and samples may be found in PLI publication no. 176 entitled Title Insurance, Special Problems at page 95

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Chapter 5 - Page 1 CEMETERIES General

CEMETERIES
The subject of cemeteries is one which we have to consider only infrequently. However, it is of sufficient importance so that we ought to have some basic knowledge of cemeteries as they affect title. This is especially true in the suburban counties where it is not at all unusual to find a burial ground within the confines of a farm. In any case where we come across a cemetery or a burial ground in connection with our title, this should automatically wave a red flag of caution. Proceed slowly, and carefully consider the problems that pertain to a cemetery. We will also discuss, at least to some extent, problems pertaining to actual ongoing cemeteries, that are covered by the Membership Corporations Law. Occasionally, we are asked to insure the title to a burial plot in a cemetery. This we regularly decline to do because, primarily, the purchaser of a cemetery plot does not get a fee title to that plot. Usually what he buys is a burial right. A burial right in a church yard as distinguished from an independent cemetery is an easement, and not a title to the freehold, even though fee language is used. (Richard vs. N.W. Protestant Church, 32 BARB, 42) In another case, a deed of a burial plot in a rural cemetery incorporated under the Laws of 1847 was held to have conveyed an easement for burial only and not the fee to the soil. That case was affirmed by the Court of Appeals in 150 NY 577. Another case, Daniel vs. Hopkins in 257 NY 112 says that a burial lot is real property, but the purchaser of such lot acquires not a title in fee simple thereto but only the right to hold the lot for burial purposes. The rights in the lots are limited and circumscribed. Lots after an interment become forever inalienable and cannot be sold, but before any burial therein, a cemetery plot, like other real property, is subject to sale. In another case, it was said that the legislature can permit lands with bodies buried in them to be sold if proper provision is made for the removal of bodies. (Angel vs. Methodist Protestant Church, 47 App. Div. 459) In many cases, it may be appropriate to except: "No title is insured to the land lying within the confines of the cemetery." The cemetery might be described in a particular deed, it might be referred to in a particular deed, or it may be shown on a survey. In some cases, the lines of the cemetery may be indeterminate. It may merely be referred to as a plot of 100 X 100 in the northeasterly portion of the farm." They may refer to "the burial plot as now enclosed." In many cases like that, it may be necessary to phrase an exception which will cover the entire burial plot, even though you cannot accurately locate it with the information which you presently have at hand.

Where you except title to a burial ground, keep in mind that you belong to except an easement of access to it, unless it fronts on an existing right of way or street. If there is no easement that is specifically set forth, the owner of the property surrounding the

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Chapter 5 - Page 2 CEMETERIES General

cemetery has the right to designate the location of the easement. In any case where a servient tenement is burdened by an easement that is not accurately located, the servient tenement owner has the right to locate the easement, within certain limitations. Where the burial ground fronts on a street on a new filed map or, the parcel to be developed shows a right of way leading from a street on the filed map to the burial ground, we may undertake to modify the exception so that the easement of access to the burial ground is limited to the street, or to the streets and the right of way. Thus, we are taking the practical position of lifting the indefinite burden over the entire parcel and giving the owner the right, which he has, to designate the means of access to this particular burial ground. We rarely get titles involving active cemeteries, largely because there are severe restrictions in the law with respect to the sale of cemetery lands, even by cemetery associations and because there are severe statutory restrictions with respect to the creation of new cemeteries, and because it is violative of public policy to permit any speculative activities with respect to cemetery land. Occasionally we see a survey which shows either an existing cemetery, or evidence of a possible cemetery, such as gravestones, markers, etc., within the premises. It is suggested that when you see something like that, that you initially except the title that may be outstanding with respect to that cemetery. WE can always modify our position later. One of the reasons for taking the basic position that no title is insured with respect to a burial ground even where there is no evidence in your chain of title with respect to it being a private cemetery for a particular family is the fact it may have been a public cemetery, by reason of dedication through use. And, under the provisions of Section 291 of the Town Law, the Town is given title to any abandoned cemetery in the town. Section 291 of the Town Law starts in this fashion: "The title to every lot or piece of land which shall have been used by the inhabitants of any Town in this State as a cemetery or burial ground of the State for fourteen years shall be deemed to be vested in such Town and shall be subject in the same manner as other corporate property of Town to the government and direction of the Town Board." There are similar provisions in the Village Law. There is a distinct possibility that there may be title in the Town or Village, if this is an abandoned cemetery. One of the reasons for this law is that the Town can expend Town funds in order to put the cemetery into decent condition again, rather than to permit it to just rot away. In some cases, the deed or other instruments in our chain of title either specifically refer to, or may contain recitals referring to, the creation of a cemetery or a burial ground within our property, or there may be a reservation of burial rights in a deed in our chain of title.

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Chapter 5 - Page 3 CEMETERIES General

One of the more common cases where we find both the language of "exception" and the language of "reservation" or the confusing combination of both terms, is with respect to burial grounds. In Mitchell vs. Thorn, 134 NY 536, they used the language, "excepting and reserving the right of interment in the ground laid off for that purpose in the lands hereby conveyed, and also a right of way to the same to all the grantors of this deed and their heirs forever." The court said in this case that they referred to an exception and a reservation, and it is suggested that you read the case. In another case also reported in the Court of Appeals, Lonby Realty Corp. vs. Lane, in 250 NY 554, they used this language: "The parties of the first part reserving the 1/16th part of an acre or burial ground for a right of way to and from same." This did not "except" the title. Nothing on the ground anywhere on the farm indicated the location of any burials, gravestones, etc. Under these circumstances, the court held that the reservation was ineffective as too vague and indefinite and that the title was marketable. Each of these cases has to be considered on its own particular facts. With respect to these burial ground problems, one of the first things that we have to do is to try to make a determination as to the fee title. Is the title to that portion of the farm on which there may be a burial ground in our present certified owner or is it outstanding somewhere back in the chain of title, by reason of a proper "exception" of the title to the burial ground? In this respect, it becomes necessary to make sure that the instruments have been very carefully abstracted and any language with respect to "exception" or "reservation" taken off verbatim. If the examiner says, "subject to burial grounds," "subject to cemetery," don't take that as gospel and don't accept it. Make him go back and take that language off verbatim. In another case, Blackman vs. Striker, 142 NY 555, the language used was, "Saving, exception and reserving" a burying ground in a portion of the premises, to the heirs of the grantors' father. It was held that the grantors did not retain any beneficial interest in the fee of the burying grounds where no such claim had been made for over 100 years. Upon considering all of the facts, the court concluded that it was not an "exception" of title. If the title is clearly outstanding back in the chain of title and somebody wants to make title to this tract today, it would become necessary to trace that outstanding title down to date, either through additional deeds or through the genealogy of the person in whom title was outstanding. For instance, it may be that the bodies were previously removed or it is proposed to remove the bodies at the present time in accordance with an established procedure. If somebody wants to make that title good, they are going to have to make that title in the same manner as though any other owner had said, "Excepting a plot of 100 x 100," whether it was excepted for burial grounds or otherwise.

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A complicating factor is the fact that lands actually used for cemetery purposes cannot be taxed, so that if our title comes through a tax title, that tax title may be ineffective with respect to that portion of our property which was used as a cemetery or a burial ground. Lands actually used for cemetery purposes are not subject to execution sale. If our title comes through an execution sale, it may be ineffective with respect to that portion which was actually used for cemetery purposes. Real Property Law, Section 450, is the authority for the statement which I made with respect to cemetery lands not being taxable or subject to execution sale, and under that same section, cases have held that you cannot mortgage such lands actually used for cemetery purposes. One case reported in 106 Misc. 534 said that under Section 450, Real Property Law, that it is highly improper if not actually fraudulent to devote mortgaged lands to cemetery purposes since the foreclosure of the mortgage might result in a desecration after burial. In those cases where we are satisfied that our title includes the burial ground and that the chain of deeds clearly includes it all the way down the line, we must nevertheless consider the rights of the remains that are buried "to remain", and the future rights to bury in favor of those people who might have been granted them, or their successors and heirs, who might succeed to those rights. In connection therewith, we have to consider the applicability of local ordinances in many areas which now make it unlawful to bury in private burial grounds. In case it is proposed to use the property after the removal of the remains that have previously been buried there, the removal must be done with notice to, or the consent of the family of the deceased to move the remains to a new cemetery. The provisions of Section 104, Membership Corporations Law, might be applicable with respect to the removal of remains. As to religious cemeteries or those under the jurisdiction of a religious corporation, Section 9 of the Religious Corporation Law would have to be considered in connection with such removal. There is authority in old cases that says, "Bodies can be removed from a private lot by physically removing them. In other lots, application must be made to the Supreme or the County Court." Another case says, "There is no law which prohibits the removal of human bones from a cemetery for lawful purposes and placing them elsewhere," (140 Misc. 557). These, of course, all presume that there was no specific right granted, either through the purchase of a burial plot or something like that, which would limit the owner of the fee of that property from having those remains removed. Another of the hazards is the possibility that the family may be entitled to damages in connection with such a burial. Gostkowski vs. the Roman Catholic Church, 262 NY 320, arose in Suffolk County. In that particular case, the priest decided that he didn't like to have the body in this particular part of the cemetery and without the consent of the family, had the body removed to another part of the cemetery. The court held that the family was entitled to damages by reason of the removal of the body under these particular circumstances.

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Chapter 5 - Page 5 CEMETERIES General

ABANDONED CEMETERIES If we have fee title and there is no physical evidence of a cemetery or it is impossible to locate it, either from the records, the survey, or inspection, and if there is no reservation of burial rights, then we may be able under certain circumstances to pass the title. We would want proof that there are no bodies interred. In some cases, we demand probing or excavation, unless there is fairly strong evidence that no burial ever took place on the property and there has been no evidence of any graves or burial ground for long, long periods of time. I have already referred to some cases where it was held notwithstanding something in the record indicating that there was a burial ground, that the title might nevertheless be marketable, if for long periods of time there is no evidence at all to indicate that there is any burial ground. I have another case here that was decided in 218 Appellate Division 682 (Hutchinson Land vs. Whitehead). This was a case where an action was brought under the warranty in a full covenant and warranty deed for damages on the grounds that a part of the premises contained an old cemetery which might have been a public cemetery and that, therefore, there was a breach of the warranty. It was alleged that the land was used as a cemetery for over 100 years, that it had been dedicated to and accepted by the public as a cemetery through use, but not through any formal dedication, and that the remains of a large number of people were interred within the grounds. The answer denied liability on the grounds that the cemetery had been abandoned a long time ago and that the defendant had acquired an adverse title to it, even adverse to the right to maintain a public cemetery. The court said that "It was well settled that land may be dedicated to the public for cemetery purposes. It follows that the acceptance of such dedication can only be made by acts of the public in the use of the property for cemetery purposes . . . Dedication and acceptance are questions of fact . . . . The right which passes with this dedication is not an absolute title; it is a privilege or a license, not only to bury the dead, but to erect monuments, etc . . . While these rights are created by the acceptance of the dedication, they are subject to loss as a result of their abandonment." On abandonment, the rights reverted to the grantee. Then they quote from "Corpus Juris 58, 'So long as a cemetery is kept and preserved as a resting place for the dead, with anything to indicate the existence of graves, or so long as it is known or recognized by the public as a cemetery, it is not abandoned. But where a cemetery has been so neglected as entirely to have lost its identity as such, and is no longer known, recognized and respected by the public as a cemetery, it may be said to be abandoned." This is a quote from another case: "When these graves shall have worn away, when they who now weep over them shall have found kindred resting place for themselves; when nothing shall remain to distinguish this spot from the common earth around, and it shall be wholly unknown as a graveyard; it may be that someone, who can establish a good paper title will have a right to its possession, for it will then have lost its identity as a burial ground and with that, all right founded on the dedication must necessarily become

extinct." (Hunter vs. Trustees of Sandy Hill, 6 Hill 407)

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Chapter 5 - Page 6 CEMETERIES General

We also have to consider the possible rights of a Town under the Town Law with respect to abandoned burial grounds. If there is no evidence that there is or has been a burial ground there, I do not think that the Town Law would apply because the purpose of the Town Law in cases like this is to preserve the sanctity and to maintain an old burial ground, and certainly there would be no such need if there is not now or has not been for long, long periods of time any actual physical evidence of a burial ground. You cannot maintain and preserve what no longer exists. Of course, if we cannot establish a good record title, we should not insure that part of the premises that is the former cemetery or burial grounds, unless we can establish a good title by adverse possession, based upon color of title (See Section 291, Town Law). That portion of the Membership Corporations Law that pertains to cemeteries is found in Article 9, which has been very extensively amended in recent years as a result of some of the scandals which occurred a number of years ago arising out of speculative activity in cemetery land. Cemetery corporations and cemetery associations come under the Membership Corporations Law. Section 70 provides for exclusion from the provisions of this law of a family cemetery corporation or a private cemetery corporation. It also does not affect cemeteries under the control of religious corporations or municipal corporations. Municipal cemeteries that are operated by a municipality would be regulated under the Municipal Corporations Law. The religious corporation cemeteries come under the Religious Corporations Law. With respect to the other cemetery corporations, they are affected by these provisions in the Membership Corporations Law. There is a Cemetery Board which is created within the Department of State which has jurisdiction over these cemeteries. In the Membership Corporations Law will be found the restrictions with respect to creating new cemeteries and the requirements for the consent of the Board of Supervisors, and the other very strict requirements with respect to any creation of a new cemetery. Section 81 would have to be very carefully considered in case we have a title involving a proposed sale of cemetery lands owned by one of these cemetery corporations. This is the section which limits the sale or disposition of cemetery lands and requires an application to the Supreme Court in connection with such sale and also creates a prohibition against selling any portion in which bodies had been buried. I suggest the section be read in its entirety in connection with any application that we might have involving a sale of such lands. Section 86, Subdivision 6, contains a provision that after a burial, a plot becomes inalienable as specifically provided within the article. In Section 85, we find the limitations on the resale of plots within the cemetery grounds although, as I indicated earlier, we will not normally become involved in such transactions. Section 104 is the section which pertains to the removal of bodies from private cemeteries. This is the section that requires that notice must be given to the next of kin of the deceased. In some cases, it may become necessary to apply to the court for the

manner in which such notice is to be given, such as by publication or otherwise. If it

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Chapter 5 - Page 7 CEMETERIES General

becomes impractical to give actual notice, the Supervisor of any town containing a private cemetery may remove any body interred in such cemetery to any other cemetery within the town, if the owners of such cemetery and the next of kin of the deceased consent to such removal. The owners of a private cemetery may remove the bodies interred therein to any other cemetery within such town or to any cemetery designated by the next of kin of the deceased. Notice of such removal shall be given within 20 days before such removal, personally or by mail, to the next of kin of the deceased, if known. In any case involving title to cemetery lands, it is wise to consult counsel.

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Chapter 6 - Page 1 COMMUNITY PROPERTY Title

COMMUNITY PROPERTY
Under a statute relating to dower, the legislature intended that where marriage occurred prior to September 1, 1930, a widow was to be endowed of a third part of all the lands of which her husband acquired prior to the effective date of the statute. (N.Y. Real Prop. Law ∋ 190, 1968; In re Fidler's Estate, 113 N.Y.S. 2d 634 (1952)). Under remedial legislation of 1930 in relation to decedents' estates, the estates of dower and curtesy were abolished. (In re Smiths' Will, 107 N.Y.S. 2d 993 (1951)). The estates of dower and curtesy based on the marital relationship were superseded in 1930 by statutes prescribing a surviving spouse's distributive status and right of election to take against the will of the deceased spouse. (In re Cotes' Will, 87 N.Y.S. 2d 555 (1949)). More modernly a definite trend toward equalization of rights with respect to contracting between a husband and wife is in evidence. A husband and wife each have the power, with respect only to real property which they occupy or are about to occupy as their home, to: 1) enter into and contract for a loan, 2) execute any necessary documents to obtain such a loan, 3) receive, hold and dispose of real property, and 4) execute all necessary documents for the disposition of real property. (N.Y. Gen. Oblig. Law ∋ 3-101, 1977). A married woman has all the rights with respect to real and personal property that she would have as an unmarried woman. These rights include: 1) the acquisition, use, enjoyment and disposition of the property, 2) making contracts in respect to the property with any person, including her husband, 3) exercising all powers and enjoying all rights concerning the property, and 4) being responsible for contracts made with respect to the property. All recoveries obtained by a married woman for damages to her person, estate or character are the separate property of the wife. The married woman may confess a judgment, and a judgment for or against her may be rendered and enforced. (N.Y. Gen. Obilg. Law ∋ 3-301 1977). A contract made by a married woman does not bind her husband or his property. (N.Y. Gen. Oblig. Law ∋3-305, 1977). A husband who acquires the property of his wife through an antenuptial contract or otherwise, is liable for her debts which were contracted before marriage. However, his liability is limited to the extent of the property he acquires. (N.Y. Gen. Oblig. Law ∋ 3307, 1977).

The marriage relationship will not affect the construction of instruments and transactions involving personal property

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Chapter 6 - Page 2 COMMUNITY PROPERTY Title

If an instrument creates a joint tenancy or tenancy in common in personal property in unmarried persons, the title will also be in joint tenancy or tenancy by the entireties if the persons are married. If a right of survivorship would not be created in unmarried person, it will not be created in a husband and wife. (N.Y. Gen. Oblig. Law ∋3-311, 1977). The separate property of the wife is not subject to the husband's control nor liable for his debts. Her separate property includes: 1) the real and personal property a) Now owned by the wife b) Acquired by her c) Owned by the wife at the time of marriage 2) rents, issues, proceeds and profits of this personal and real property. (N.Y. Dom. Rel. Law ∋50, 1977). The general effect of the Married Women's Property Act was to deprive the husband of all his common law right to the wife's property during her life. the legislature intended: 1) to terminate this common law right, which gave the wife's property to the husband; and 2) to give the wife the unrestricted right to and control over the property, just as if the marriage didn't exist. The wife is not entitled to a one-half interest in personal property where the husband buys it, even though the property was intended to be and was used by the husband and wife as a family unit. (Manheim v. Manheim, 302 N.Y.S. 2d 573 (1969)).

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Chapter 7 - Page 1 CONCURRENT ESTATES Title

CONCURRENT ESTATES - JOINT TENANCY
1. The common law preference for joint tenancies has been changed by EPTL 62.2. Thus a deed or devise "to A and B" in their own right creates a tenancy in common unless a joint tenancy is expressly called for. If A and B take as trustees, etc., they take still as joint tenants. Joint tenancies cannot be created by descent. EPTL 6-2.2. When X dies and A, B and C are his intestate distributees, they take as tenants in common. Creation of a joint tenancy requires the existence of the unities of time, title, interest and possession. This means that A and B must acquire their interests at the same time, from the same source, for the same duration and they each have equal rights to possession. The distinguishing mark of a joint tenancy is the right of survivorship. a. b. If property is deeded "to A and B as joint tenants with a right to survivorship" and A later dies, B owns the entire fee. In this instance should A have by will bequeathed his share to Y, or absent a will, Y was A's sole next-of-kin, Y would take nothing. A's interest is neither devisable nor descendible.

2.

3.

4.

5.

Termination a. b. By voluntary or compulsory partition. RPAPL ∋ 901. By conveyance (1) A and B own a joint tenancy. A deeds his undivided share to X.X and B own undivided shares but as tenants in common. X and B did not acquire their shares at the same time from the same source. A, B and C own a joint tenancy. A deeds his undivided share to X. B and C continue to own a 2/3 undivided interest as joint tenants. X owns a 1/3 undivided interest with them as tenants in common. Then B dies. As joint tenant with the right to survivorship. C now owns a 2/3 interest, but now he is tenant in common with X as to the whole parcel. Or, rather than die, B deeds his interest to Y. In this case X, Y and C would be tenants in common.

(2)

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Chapter 7 - Page 2 CONCURRENT ESTATES Title

(3)

Again, A, B and C are joint tenants. A deeds his share to B. B thereby becomes a tenant in common in A's 1/3 share, while B and C continue with regard to the 2/3 balance to be joint tenants. B then dies devising his "share" to X. The 1/3 B owned as tenant in common belongs to X: but B cannot devise what he owned as joint tenant with C. C acquires this share by survivorship. Thus X owns 1/3 and C 2/3 of the parcel as tenants in common.

c.

RPAPL ∋ 1211, infra.

NB See Tenancy in Common this manual TENANCY BY THE ENTIRETY 1. A conveyance or devise of real property to a husband and wife creates a tenancy by the entirety in the absence of words creating a different estate. Bertles v. Nunan, 92 N.Y. 142 (1883) a. b. By a conveyance to himself or herself and spouse, one owner may create in them a tenancy by the entirety. A conveyance or devise to two persons as husband and wife, who are in fact not lawfully married at the time, creates either a tenancy in common or a joint tenancy. Crawley v. Shelby, 37 App. Div. 2d 673 (1971). X executed deed to "Tom S. and Helen S., his wife." Later in the habendum clause the deed recited that they were "to have and to hold the premises herein granted . . . as tenants by the entirety." Tom and Helen were not married so that presumptively a tenancy in common arose. But the later clause calling for a tenancy by the entirety manifested an intent to create a right of survivorship. Held, a joint tenancy was created. X conveyed house to H and W as husband and wife. W died intestate and her death certificate listed her as "housewife" leaving H as her surviving "husband." H then conveyed the house to Y, delivering to Y an affidavit the W had died while married to H. H and W had never married and W left as next-ofkin three sisters. Absent language indicating survivorship was intended, the deed to H and W created a tenancy in common. Held, Y has acquired only H's interest in the house and held it as tenant in common with W's sisters. His remedy was to sue H for fraud. Thurman v. M. Crath, 70 Misc. 2d 849 (1972).

c.

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Chapter 7 - Page 3 CONCURRENT ESTATES Title

d.

In re Buttonow, 267 N.Y.S. 2d 740 (1966) (M as grantor conveyed to M and H and W, jointly. Held: M holds 1/2 as tenant in common with H and W who hold their 1/2 as tenants by the entirety.)

2. 3.

Estates by the entirety are peculiar to real property. EPTL 6-2.1 Neither the husband nor the wife can, without the consent of the other, dispose of any part of the estate so as to affect the right or survivorship in the other. Hiles v. Fisher, 144 N.Y. 306 (1895) a. The right of survivorship may be affected by a joint will or by a contract. Swerdfeger v. Swerdfeger, 4 App. Div. 2d 535 Each spouse is entitled to 1/2 of the rents and profits and to the use of an undivided 1/2 during their joint lives. Finnegan v. Hume, 252 App. Div. 385 aff'd, 277 N.Y. 683 (1938) Each spouse may mortgage his or her interest, subject to the right of survivorship in the other. Hiles v. Fisher, supra A judgment against one tenant by the entirety may be enforced against his or her interest. Finnegan v. Hume, supra One tenant by the entirety may sue the other for waste. Kawalis v. Kawalis, 183 Misc. 896 (1945)

b.

c.

d.

e. 4.

A tenancy by the entirety may be terminated by: a. b. c. Voluntary partition. G.O.L. ∋ 3-309 A conveyance in which both husband and wife join. An absolute divorce causes the property to be thereafter held by the parties as tenants in common. Stelz v. Shreck, 128 N.Y. 263 (1891) (1) An annulment will have the same effect. Awramenko v. Awramenko, 192 N.Y.S. 2d 15 (1959) Texido v. Merical, 132 Misc. 764 (1928) In re Kutick, 226 N.Y.S. 2d 869 (1962)

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(2)

Statutory dissolution of marriage based upon 5 year absence does not terminate tenancy by the entirety and transform it into a tenancy in common. In re Pozer, 223 N.Y.S. 2d 525 (1962) In re Feltman, 202 N.Y.S.2d 503 (1960) A foreign divorce decree, where the court does not have jurisdiction over the person of both parties, does not affect the rights in New York property. Anello v Anello, 253 N.Y.S. 2d 759 (a) If, thereafter, both remarry, their tenancy by entirety transformed into tenancy in common. Topilow v. Peltz, 270 N.Y.S.2d 116

(3)

d.

RPAPL ∋ 1211, infra.

NB see also Tenancy by the Entirety this manual TENANCY IN COMMON 1. A tenancy in common exists where property is owned concurrently by two or more persons without any right of survivorship. a. Whenever an estate is granted, devised or descends to two or more persons in their own right a tenancy in common is created, unless expressly declared to be in joint tenancy. EPTL 6-2.2 Each tenant owns undivided share of entire estate which is descendible, devisable and alienable. One tenant may maintain action against co-tenant who received more than his just share of rents and profits. RPAPL ∋ 1201 Carrying charges fall upon each co-tenant in proportion to his interest.

b. c. d. 2. D.

May be terminated by voluntary or compulsory partition.

Action to Extinguish Missing Co-tenant's Estate Upon Deposit of its Value: RPAPL ∋ 1211 (What if one tenant by entirety disappears? The remaining spouse cannot sell the premises without establishing his or her death. Further, the remaining spouse by providing a mechanism to extinguish the

interest of the absent one by paying its value into court. Since joint tenants

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Chapter 7 - Page 5 CONCURRENT ESTATES Title

or tenants in common could always sue the partition using substituted service, this enactment merely provides them with an additional remedy.) "1. Where real property is held by two or more persons in their own right as tenants in common, joint tenants or tenants by the entirety and one of such tenants is missing under circumstances which afford reasonable ground to believe that he is dead, the other tenants or tenant may maintain an action in this supreme court to obtain a determination of the value of the estate of the missing co-tenant and a judgment extinguishing the estate of the missing co-tenant upon payment into court for his credit of the amount so determined to be the value of his estate." "Persons known or unknown who are or may be the devisees or distributees of a missing co-tenant may be joined as defendants in such action." A finding of reasonable ground to believe that the missing co-tenant is dead may be made, for purpose of this section, either (a) upon proof that the co-tenant has been absent from his usual place of abode for seven successive years last past, and that a diligent search has been made to discover evidence that he is living and that no such evidence has been found, or (b) upon proof of other circumstances from which the probability that the missing co-tenant is dead may reasonably be inferred, although the period of his absence is less than seven years, provided that such period is not less than one year." Relief extinguishing the estate of the missing person shall be deemed equitable and shall be granted in the discretion of the court. However, no such relief shall be granted if the court shall find as a fact that the missing person is dead. In such event, the judgment dismissing the complaint shall state such determination, but shall not be deemed an adjudication of death of the missing person for any purpose other than the dismissal of the complaint and shall not be controlling in any other action or proceeding whether or not between the same parties, in which the fact of death of the missing person is in issue." The value of the estates of tenants by the entirety shall be deemed equal. The proportionate shares of joint tenants and tenants in common shall be determined in like manner as in an action for partition." A judgment extinguishing the estate of the missing co-tenant shall be conclusive even though the missing person was in fact alive, or was in fact dead, at the date of the entry thereof, and shall be conclusive

2.

"3.

"4.

"6.

"8.

against (a) any person claiming under the missing person by title

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Chapter 7 - Page 6 CONCURRENT ESTATES Title

accruing or conveyance recorded after the filing of the judgment-roll, or of the notice of pendency of the action, and (b) any person claiming under the missing co-tenant who is made a party to the action. The judgment shall also have like effect as a conveyance made by the missing co-tenant or by the missing co-tenant and the other co-tenant or co-tenants conveying the premises to the co-tenant or contents in accordance with their interests resulting from the judgment. The court may direct that an instrument of conveyance in conformity with the judgment be executed and delivered by the sheriff in the name of the co-tenant. Added L. 1961, c. 869, eff. April 24, 1961." RPAPL ∋ 1211 applies to estates created before or after its effective date. NB See Tenants in Common this manual.

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Chapter 18 - Page 1 EXECUTORY CONTRACTS Legal Bulletin

1.

Section 294, Real Property Law permits the recording of executory contracts for the sale, purchase or exchange of real property, or a memorandum thereof; or an option to purchase or lease real property. Such recorded contract or memorandum, or an agreement extending the same, is effective as notice only up to and including the thirtieth (30) day after the day fixed therein for the conveyance of title. (Subdivision 5). The recorded option is only effective as notice to and including the thirtieth (30) day after the last day fixed therein for its exercise. After the option is exercised, there is also provision within the thirty (30) day period subsequent to the last date fixed for the exercise of the option to extend the effectiveness of the recording to the thirtieth (30) day after the date fixed for the ultimate conveyance of title or delivery of the lease by recording a declaration as therein provided. (Subdivision 7). Subdivision 8(a) provides: "After the recording of an executory contract or memorandum has ceased to be effective as provided in subdivision five, or the recording of an option to purchase or lease real property has ceased to be effective as provided in subdivision seven, such executory contract, memorandum or option shall be: (1) void as against a subsequent purchaser in good faith and for a valuable consideration, who has no other notice of an estate or interest of the contract vendee or optionee in the premises to which such contract, memorandum or option refers, or of any claim thereof, and (2) ineffective to give notice to such subsequent purchaser of any estate or interest of the contract vendee or optionee in such premises, or of any claim thereof, or to create any duty of inquiry with respect thereto"** ** For similar case law cite in New Jersey Read case entitled "Garden of Memories Inc. v. Forest Law memorial Park Assn.", 109 Su. 523.

2.

3.

4.

5.

Examiners must abstract recorded executory contracts and options very carefully. This applies especially to the closing or performance dates, and any other provisions that may have the effect of extending the "performance date" to or beyond the happening of certain stated events. If such careful examination discloses that such final "performance date" is at least three years old, and provided that no action is found pending with respect thereto, the examiner may ." mark the instrument "Expired -- Performance date Readers may pass recorded executory contracts and options, after consultation with Counsel, if satisfied that (a) the final "performance date" is more than thirty (30) days past (b) no action is found pending pertaining thereto, and (c) there is nothing in our file indicating actual notice to our proposed insured of the contract or

option. Consultation with Counsel is not required if the final "performance date"

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Chapter 18 - Page 1 EXECUTORY CONTRACTS Legal Bulletin

is more than one year past. In the cases above described no exception need be raised. 6. 7. In all cases other than described in paragraph 5 above, the recorded executory contract or option must be reported and excepted in the title report and policy. In any case where our proposed insured or his attorney gives us notice or advice of the existence of an outstanding contract or option, even though it is recorded, we must report and except it, as it would not then have the benefit of Section 294, subdivision 8(a) of the Real Property Law because such purchaser presumably has notice beyond that provided for in Section 294, subdivision 8(a). Unrecorded executory contracts and options of which we have notice, from whatever source, must be reported and excepted, unless satisfactorily disposed of by one of the following: 1) 2) 3) 4) 5) NB Final "performance date" is at least six (6) years past; Release or cancellation by vendee, or optionee, in recordable form; Final judgment against the vendee or optionee in a bar claim or other action adjudicating the rights of the parties; Satisfactory proof that the contract was mutually cancelled. Such proofs must be approved by Counsel; Such other proofs and requirements that may be determined by Counsel as appropriate to the particular case.

8.

Refer also to option in Title Insurance Underwriting Principals and Exception Language.

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Chapter 9 - Page 1 CREDITOR'S RIGHTS Title - Underwriting

CREDITOR'S RIGHTS
The "Creditors' Rights" problems are largely a matter of issue recognition; i.e., the ability to recognize the flaw in the transaction which may render it vulnerable to an attack in the future. A transfer of an interest in real property may be considered fraudulent if the grantor transfers the interest with the intent, either actual or constructive, to obstruct the right of creditors of the grantor to reach the grantor's assets. Common "Creditors' Rights" Problem Transactions are illustrated as follows. It is by no means intended to be exhaustive: PREFERENCES, are transactions where the property is acquired by a creditor of the (former) owner. It is easy to see that mortgage-foreclosure sales, judgement execution sales, and deeds in lieu of foreclosure may fall into this category. Because only one creditor ends up owning the debtor's property, this may be viewed as a "preference" of one creditor's claim over the claims of others. Since the purpose of bankruptcy proceedings is to provide an orderly and equitable scheme for the distribution of the debtor's assets, it is obvious why these transactions are vulnerable. (See 11 U.S.C. Sections 547 & 548). Transactions where the debtor does not receive a sufficient consideration. Collateral Guaranty Mortgages fall into this category. If a party agrees to guaranty the debt of another, he may not receive consideration therefor. Thus, where XYZ Corp. obtains a bank loan, which is secured by a Mortgage on the residences of Mr. X, Mr. Y and Mr. Z (shareholders of XYZ Corp.), the consideration does not flow directly to the mortgagors, but to the corporation. While it is true that Messrs. X, Y and Z receive an indirect benefit from the loan (as shareholders of the corporation), this may be insufficient to validate the transaction. Leveraged Buy-Outs also fall into this category. LBO's frequently contain financing arrangements in which the mortgagor does not receive the proceeds of the loan. (See 11 U.S.C. Sections 547 & 548). FRAUDULENT CONVEYANCES The "Creditors' Rights" exception also extends to fraudulent conveyances which are voidable under State Law. Some common examples of transfers which a court might, under certain circumstances, hold to be fraudulent are: A. B. A transfer of title to property without consideration at the time a suit is pending against the grantor. A conveyance by a debtor to himself and his wife as tenants by the entireties to shield the property from the debtor's creditors.

Chapter 9 - Page 2 CREDITOR'S RIGHTS Underwriting

C.

The mortgaging of a subsidiary company's land to secure the subsidiary's guarantee of the parent's debt. A parent company's guarantee of the debt of a subsidiary company is usually not considered to be fraudulent. However, before insuring, consult with Home Office Counsel.

D.

Mortgages of a corporation's property where the mortgage funds are used to purchase the stock of the corporation by another entity. These types of transactions are commonly referred to as LBO's (leveraged buy-outs). In such cases, the corporation does not receive the mortgage funds but has encumbered its property to secure payment. Generally speaking, the mortgaging of property for purposes of purchasing the assets of another corporation, as distinct from purchasing the stock, will not be considered fraudulent. However, if all of the assets of a corporation are being purchased, the mortgage should not be insured without the consent of Senior Underwriter or the CEO.

E.

The mortgaging of a debtor's property to secure an antecedent debt. Although not technically considered a fraudulent transfer, it might be deemed to be a preference under the bankruptcy code and thus voidable by a subsequent trustee in bankruptcy. The mortgaging of partnership property to provide funds to pay a withdrawing partner. Any transfer of partnership property, either by way of grant or mortgage to a general partner.

F. G.

Other types of transactions that create creditors' rights problems, but are not thought of as transfers of property are: A. B. A release or renunciation by a debtor of an inheritance. The release of a valuable long-term lease by a debtor lessee.

Of course, not every transfer of the types described above will be deemed to be fraudulent. If a transfer is made for the specific purpose of defrauding a creditor, there is little question that it will be voided. There are many situations, however, where there may not be an intent to defraud

creditors, but based on the factual situation, a court would find a constructive fraud.

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The Bankruptcy Code, the Uniform Fraudulent Transfer Act and the Uniform Fraudulent Conveyance Act set out in some detail the situations where transfers will be considered a constructive fraud. Generally speaking, a transfer will be voided based on constructive fraud where the transfer was made either without consideration or reasonable equivalent consideration if the transferor was insolvent, or would be made insolvent due to the transfer. Home Office Counsel should always be consulted where: 1. 2. 3. land is conveyed either without consideration or with inadequate consideration, or land is mortgaged and it appears the mortgagor will not receive the mortgage funds, and in any of the factual situations described above.

CREDITORS' RIGHTS EXCEPTIONS Where a possible fraudulent transfer or preference question exists with respect to the insurance of a mortgage, the following exception should be added to the pre1990 policy: "Consequences of an attack on the validity or priority of the lien of the insured mortgage based on the avoidance provisions of the Federal Bankruptcy Code or similar state insolvency or creditors' rights laws." Where a possible fraudulent transfer or preference exists with respect to the conveyance of land, the following exception should be taken in the pre-1990 policy: "Consequences of an attack on the estate or interest insured herein based on the avoidance provisions of the Federal Bankruptcy Code or similar State Insolvency or Creditors' Rights Laws." CREDITORS' RIGHTS EXCLUSION The Creditors' Rights Exclusion (the "Exclusion") was adopted by the American Land Title Association ("ALTA") in April of 1990. It would be added as an exclusion to both the Lender's and Owner's policy forms. The version to be added to the Lender's policy is as follows:

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Any claim, which arises out of the transaction creating the interest of the mortgagee insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws. The language of the Exclusion to be added to the Owner's Policy is as follows: Any claim, which arises out of the transaction vesting in the insured, the estate or interest insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws. The Exclusion seeks to guard title companies against claims and losses on policies resulting from the loss of an insured position through application of the Bankruptcy Code. Title companies argue that they are not equipped to uncover the hidden risks related to attacks on the structure of transactions under the federal bankruptcy and state insolvency laws. Additionally, title companies assert that these are not the types of risks against which title insurance is intended to protect.

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Creditors' Rights Issues Affecting Title Insurance
Table of Contents Introduction to Subject Matter Fraudulent Conveyance Issues: [1] Leveraged Buy-outs [a] Description of Transaction [b] Fraudulent Conveyance Issues [c] Equitable Subordination Issues [d] Title Insurance Coverage (l) Creditors Rights Exclusion (2) Creditors Rights Exception (3) Affirmative Coverage Against Lien Avoidance: Form of Endorsement [e] Title Insurers Analysis of Financial Condition [2] The "Durrett" Problem and the 70% Rule: [a] The Holding [b] The Title Insurance Issues (pre 1990 policy) [c] The Title Insurance Considerations [d] The Title Insurance Exception(s) to be used in the 1970 ALTA Loan Policy (rev. 10-17-84) Durrett Set Aside - Supreme Court Resolves Fraudulent Conveyance Issue [a] Opinion specifically limits itself to the foreclosure of mortgages [b] Regularity of Proceedings essential including Mennonite principles [c] Foreclosure proceedings must be non-collusive, regularly conducted in conformance with state law Deeds in Lieu of Foreclosure: [a] The Legal Issue (pre l990 policy) [b] Form of Creditors Rights Exception [c] Requirements for/Conditions of Removal Parcel Assemblage - The Lease Termination Problem [a] The Legal Issue (pre l990 policy) [b] The Title Insurance Issue

[3]

[4]

[5]

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[6] [7] [8] [9] [10]

Grantors Option to Purchase Agreement(s) Contracts for Sale - Vendee in Possession Transactions between a General Partner & Partnership Corporate Upstream (or cross-stream) Transactions Mortgagee's Option to Purchase [a] Clogging the Equity of Redemption Issue [b] Title Insurance Considerations Mortgages to Secure Antecedent Indebtedness

[11]

INTRODUCTION Creditors rights issues affecting title insurance traditionally required reference to the various "TREATISE" on Bankruptcy, Debtor and Creditors' Rights Law, Mortgage Foreclosure Law, the Law of Fraudulent Conveyances and the Law of Distressed Real Estate. As a result of the debt financing techniques used in the 1980's and the subsequent loan restructuring and workout arrangements there was a need to consolidate the various reference works in order to outline the creditors rights issues which present themselves to the underwriter of title. Because of the increasing pressure put on title insurers to (i) eliminate or modify "bankruptcy" exceptions customarily included in title policies issued for certain types of transactions, and (ii) provide affirmative coverage with respect to certain potential problems, underwriters must carefully monitor developments in creditors' rights law affecting real estate transactions to determine if they are increasing their exposure to risk of loss. Creditors' rights exceptions and affirmative coverage endorsements entail both a legal and underwriting risk analysis. The underwriting risk analysis takes into consideration the potential cost to the insurer of the fulfillment of its defense obligations against adverse (third-party) claims, even if the legal analysis shows that the insurer should ultimately prevail. The general title rule has always been to "not make the company go to the court of appeals to prove you're right". Thus the availability of certain coverage will depend not only on the correctness of the legal analysis but also on whether it is likely that the transaction may be attacked by a trustee in bankruptcy or a debtor in possession as either a preference or fraudulent transaction under the bankruptcy code.

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FRAUDULENT CONVEYANCE ISSUES [1] Leveraged Buy-Outs: [a] Description of transaction In a leveraged buy-out (LBO), the stock of an acquired corporation, or the partnership interests in a partnership (or the equity interests involved in any other form of ownership, such as a trust), may be redeemed, repurchased, eliminated or otherwise acquired from the holders thereof for cash, debt obligations and/or other property, by the issuer of such stock or interest or the acquirer thereof. Using the corporate form as an example of the above "in a LBO, the stock of a corporation . . . may be . . . acquired from the holders thereof for . . . debt obligations (issued by) . . . the acquirer thereof". Stated another way, an LBO refers to a transaction in which an incoming investor group, sometimes including the existing management team, purchases the firm with debt collateralized by the company's assets, i.e., the acquisition of the company is financed with borrowed money secured by the assets of that company including a mortgage on the real property owned by that entity. These types of transactions are attractive for several reasons. Ordinarily, the buyers' equity is small in relation to the purchase price. Furthermore, the purchase of the corporation's stock may avoid (i) payment of real estate transfer taxes, (ii) reassessment for real estate tax purposes, and (iii) certain types of due- on-sale clauses. From a title insurance perspective, there are two problems encountered under such a scenario. The first involves the question of consideration and the second involves the question of equitable subordination. Both problems impact upon the rights of creditors, both existing and subsequent. Both problems are referred to as creditors rights problems. [b] The Creditors' Rights Problems - Fraudulent Conveyances In analyzing the structure of a mortgage loan in an LBO transaction, a mortgage lender will consider the risks that (i) its lien may be avoided as a fraudulent transfer under the Bankruptcy Code, and (ii) its claim may be equitably subordinated to the claims of other creditors of the debtor.

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In the event a petition for bankruptcy is subsequently filed, the debtor in possession or the trustee may, pursuant to section 548 of the bankruptcy code, avoid and recover from the recipient thereof (i.e. the lender) any payments, incurrence of indebtedness or other transfer of property made voluntarily or involuntarily by the debtor on or within one year before the date of filing said petition if: (1) (2) The transfer was made by the debtor "with actual intent to hinder, delay or defraud" any creditor of the debtor; or The debtor received "less than a reasonably equivalent value" for such transfer and (a) (b) was insolvent on the date such transfer was made, or became insolvent as a result thereof; was engaged or was about to engage in a business or a transaction for which the remaining property of the debtor was "an unreasonably small capital"; or intended to or believed that it would incur debts beyond its ability to pay as such debts matured.

(c)

The Bankruptcy Code provision is derived from, and is substantially similar to, the Uniform Fraudulent Conveyance Act (UFCA). These provisions have in many respects been preserved in those states which have adopted the Uniform Fraudulent Transfer Act. Applicable statutes of limitation vary by state, but in a number of instances are longer than the CODE'S one-year limit. For example, the New Jersey statute of limitation is four years while the New York statute of limitation is six years. Also, state fraudulent conveyance acts are not generally limited to the bankruptcy context and are generally enforceable by creditors, as well as by a bankruptcy code debtor in possession or trustee, under section 544. Section 544(a) is the "strong arm" provision granting to the trustee the avoidance powers of certain hypothetical creditors and purchasers under state law. Section 544(b) gives the trustee the rights, if any, actual creditors have to set aside prepetition transfers, e.g., under state fraudulent conveyance law.

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In most LBO transactions, particularly those involving publicly-held corporations, the potential for collateral attack based on "actual fraudulent intent" will be remote. However, even in the absence of actual fraudulent intent a transfer may be avoided as "constructive fraud" if the transferor did not receive reasonably equivalent value (the UFCA uses the term "fair consideration") for the property transferred and the transferor was rendered insolvent, undercapitalized or incapable of meeting its contemplated debts as they matured (11 U.S.C. 548 supra.).In the context of a mortgage loan transaction, this means that the mortgagor, in incurring the indebtedness and granting the mortgage lien to the lender (the transfer), did not receive reasonably equivalent value because the proceeds of the loan went to the selling shareholders or outgoing partners of the mortgagor (as the case may be), and not to the mortgagor (i.e. the corporation or partnership) itself. TITLE RULE: The way a title company must look at this kind of problem is through the eyes of a bankruptcy judge. The bankruptcy court will look through the transaction to find the substance of it. Form aside, if the analysis of the transaction determines that the people who are being benefitted are the outgoing parties, the transaction will be determined to be a "constructive fraud". As an underwriter, in order to determine whether a transaction constitutes a fraudulent transfer ask yourself: (l) was there the incurrence by the issuer (either directly or through a guarantee) of substantial indebtedness resulting from the mortgage financing of the acquisition of the stock (or partnership) interests? was there the grant of a mortgage lien? was there a substantial payout to former stockholders or partners (either directly by the issuer or from the proceeds of such indebtedness)?

(2) (3)

Such incurrence, grant and payout constitute transfers. If the answer to the above questions are yes and as a result of the transaction the issuers capital has been substantially reduced so as to render him insolvent or undercapitalized, the issuer will be viewed as not having received reasonably equivalent value or fair consideration for the incurrence of such debt and granting of the mortgage lien.

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If, prior to the LBO, the firm was not highly leveraged or overly encumbered by debt in the form of mortgages on its property, the unsecured creditors could ultimately look to the property of the entity to satisfy their debt if the need arose. However, if, as a result of the LBO there is not sufficient capitalization to provide for unsecured creditors down the road and the property is highly leveraged and encumbered, the mortgage lender's claim on the debt may be invalidated or subordinated and its lien avoided (see U.S. v. Gleneagles Investment Co), on the grounds that the financing vehicle involved overreaching by the lender to the detriment of other creditors. NB See bulletin on Leveraged Buy-outs for further discussion. [c] The Creditors' Rights Problems - Subordination As noted above, a mortgage lender may run the risk that its claim will be equitably subordinated to other claims against the debtor. Equitable subordination results from some misconduct, usurpation of control, mismanagement or overreaching by a lender to the detriment of other creditors. The second title exception below set forth includes an exception for equitable subordination. If the subordination takes the form of reclassification of the loan as "equity", it is probably more accurate to refer to the process as a "recharacterization" rather than "subordination". Recharacterization most often occurs in cases involving "loans" from an affiliate of the debtor. NB refer also to bulletin on RECHARACTERIZATION It is well established that a bankruptcy court has the power to disallow or subordinate a claim when it determines that the conduct of the claimant or the special position which the claimant occupies in relation to the bankrupt and its other creditors was inequitable or unconscionable and that as a matter of equity the claim should be disallowed or subordinated (cases cited "Collier, Real Estate Transactions and the Bankruptcy Code" section 5.02[1] n.l2).

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Subordinations may be ordered by a court by reason of the claimant's relationship to the bankrupt as dominant parent, controlling stockholder or other fiduciary, coupled with the claimant's failure to adhere to the standard of conduct required of persons in such relationship (cases cited "Collier" supra. n.l3. Title Concern: In the context of a title insurance exception providing for the application of principles of equitable subordination, the focus of concern is not the conduct of the lender subsequent to the making of the loan and issuance of the policy, because the policy does not insure against subsequent events. Furthermore, in an arms-length institutional mortgage loan transaction [without "equity participation" (NB see bulletin)], there is no issue of a parent, stockholder or other fiduciary relationship requiring a greater scrutiny of the lender-debtor relationship. The concern of the insurer of title will be that the mortgage loan "as structured at origination" will be found to be actually a capital contribution or other proprietary interest in recognition of what the court deems to be the "essential nature of the transaction" (i.e., e.g. recharacterization). This was precisely the issue illustrated in the case of United States v. Gleneagles Investment Co., 803 F2d 1288 (3rd Cir. l986). In that case an affiliated lender made a mortgage loan to a corporate subsidiary (also secured by mortgages given by other subsidiaries), who thereafter relent the proceeds to the parent corporation (in return for an unsecured note), which, in turn, used the bulk of the proceeds to pay selling shareholders for their stock. In hindsight, the court found that the borrower and lender knew that the borrower was in default under certain loan agreement covenants from and after the moment the loan was closed, that the corporate parent had no means to repay the advance received from its subsidiary, and that the borrower had an inadequate supply of cash with which to thereafter conduct its business. Although the court devoted substantial discussion to the fraudulent conveyance aspects of the transaction, it also appears that the lender's claim (apart from its lien) was subordinated to the claims of other creditors. Simply stated, this case may be viewed as involving an LBO loan that the parties knew would probably not be repaid, and thus the lender's position was viewed as actually constituting equity. It is interesting to note that in this case the lenders title company agreed to remove the fraudulent conveyance exception from its title policy in exchange for a personal indemnity (565 F. Supp at 571).

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The courts application and emphasis of "the lender(s) knowledge" cannot be stressed enough. This concept was expanded upon later in the case entitled In Re O'Day Corp involving Meritor Bank. In that case the Bankruptcy Court in Boston determined that the bank "knew or should have known" the borrower was left undercapitalized and would be left unable to pay its bills as they matured. U.S. Bankruptcy Judge James N. Gabriel granted unsecured creditors the right to collect their debts ahead of the bank that lent the money to the buy-out group to finance the highly leveraged transaction that failed. Title insurers are ill equipped in many instances to identify creditors rights' problems at the inception of the transaction. In his paper entitled "Creditors and Debtors Rights in Title Insurance", James M. Pedowitz Esq., formerly First Vice President and Chief Counsel for the Title Guarantee Company in New York City explains "there are many situations where the title insurer will not realize there is a creditors rights issue until the notice of claim arrives". There are three main reasons for this: (i) many lawyers are not sufficiently well-versed in the developing law of creditors' rights and do not recognize the pitfalls; (ii) most lower-level title company personnel are not sufficiently trained to recognize situations that may prejudice junior creditors or other persons with interests deserving of protection; (iii) the inadequacy of consideration, or the insolvency or potential insolvency of the transferor or mortgagor, is not usually apparent from the papers seen by the title insurer or its agent. It is precisely for these reasons that ALTA Forms Committee adopted the "Creditors' Rights Exclusion" for inclusion in the l990 and subsequent title insurance policies. (1) The Creditors' Rights Exclusion

The Creditors' Rights Exclusion (the "Exclusion") was adopted by the American Land Title Association ("ALTA") in April of l990. It was added as an exclusion to both the Lender's and Owner's policy forms. The Lenders version reads as follows: Any claim, which arises out of the transaction creating the interest of the mortgagee insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws.

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The language of the Exclusion to be added to the Owners Policy reads as follows: Any claim, which arises out of the transaction vesting in the insured, the estate of interest insured by this policy, by reason of the operation of federal bankruptcy law, state insolvency, or similar creditors' rights law. The Exclusion serves to safeguard title companies against claims and losses on policies resulting from the loss of an insured position through the application of the Bankruptcy Code. Title Companies have successfully argued that they are not equipped to uncover hidden risks related to attacks on the structure of transactions under the federal bankruptcy and state insolvency laws. Additionally, these types of transactions are not the type of risks against which title insurance is intended to protect. Some Lenders Counsel have suggested and successfully argued that where the insurer knew of the risk present and nonetheless agreed to insure as a "business risk" the form of Exclusion above set forth was too broad in scope and should be modified. This has resulted in what is known as the NEW YORK MODIFICATION. LOAN POLICY - NEW YORK ENDORSEMENT Paragraph number 7 of the Exclusions From Coverage is deleted and the following paragraph is substituted in its place: 7. Any claim, which arises out of the transaction creating the interest of the mortgage(s) insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, that is based on: (i) (ii) (iii) the transaction creating the interest of the insured mortgagee being deemed a fraudulent conveyance or fraudulent transfer; or the subordination of the interest of the insured mortgagee as a result of the application of the doctrine of equitable subordination; or The transaction creating the interest of the insured mortgagee being deemed a preferential transfer except where the preferential transfer results from the failure: (a) (b) to timely record the instrument of transfer; or of such recordation to impart notice to a purchaser for value or a judgment or lien creditor."

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NB The NEW YORK ENDORSEMENT does not include language sufficient to address the issue of equitable subordination under section 544(b) of the Bankruptcy Code. If this endorsement is used in lieu of the EXCLUSION and a subsequent trustee in bankruptcy of the borrower pursues remedies available under state law and the statutes of limitations relating thereto, the title insurer will have assumed the risk. The risk is not in accordance with the types of risks normally assumed under "standard coverage". Accordingly, a risk premium should be charged in accordance with the risk assumed. (2) The Creditors' Rights Exception 1970 ALTA Loan Policy (re.10-17-84) In connection with a mortgage loan transaction in an LBO, title insurers are frequently requested by the mortgage lender to eliminate the title exception which should be included in the mortgagee's title insurance policy when the risk is recognized by the underwriter. Either of the following exceptions are appropriate. The second of the two includes an exception for equitable subordination while the first only addresses the issue of fraudulent conveyance: (a) Fraudulent Conveyance Exception:

"Consequences of an attack on the estate herein insured under any creditors' rights law, state insolvency law or federal bankruptcy law." (b) Exception for Equitable Subordination" "Any loss or damage on account of the fact that, under either the Federal Bankruptcy Code or other similar state insolvency or creditors' rights laws, the insured mortgage is attacked either on the ground that such mortgage is a fraudulent conveyance or on the ground that the claim or lien of such mortgage should be equitably subordinated to other claims or interests, under principles of equitable subordination." As noted above, the second exception covers both the possibility of lien avoidance through application of fraudulent conveyance law, and the possibility of lien subordination through application of equitable principles.

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Elimination of the "Creditors' Rights Exception based on the passage of time Title insurers are often asked to modify the creditors' rights exception to add a time limit, or to commit in some other fashion to waive the exception altogether after a specified period. This request should be refused. Many customers have the mistaken belief that the transaction is subject to attack for only four months. In fact, if the transaction is later determined to be a fraudulent conveyance, the grantor's trustee in a subsequent bankruptcy can attack all conveyances (including mortgages) made within one year prior to the filing of the bankruptcy petition. In addition, section 544 of the Code gives the trustee the power to pursue remedies available under state fraudulent conveyance and insolvency law. As noted above, the statute(s) of limitation under these laws are often much longer than the one year period applicable under the federal bankruptcy code. Thus, if the title insurer allows the creditors' rights exception to be limited by the passage of time, it exposes itself to loss for any claim successfully made under section 544 of the Code. (3) Affirmative Coverage Against Lien Avoidance

Title insurers are sometimes requested to issue affirmative coverage to the effect that a mortgage lien will not be avoided as a fraudulent conveyance. The following is an example of such form of an affirmative coverage provision: ENDORSEMENT "Notwithstanding the purchase by ... of the partnership interest of ... in the limited partnership known as ... Associates, a ... limited partnership, and the utilization of the proceeds of the mortgage (insured herein) to purchase the ... partnership interests in ... Associates, policy insures that the making and delivery of the mortgage in connection with the consummation of the above transaction will not be set aside as a result of being a fraudulent transfer or conveyance under either Federal or State Law relating to fraudulent transfers or conveyances, the Company hereby assumes the costs and expenses of defense of any action undertaken to set aside the mortgage as a result of the utilization of the proceeds of the mortgage to purchase the . . . . partnership interests in the partnership; and policy further insures against monetary loss (including without limitation, attorneys' fees and expenses) resulting from a final determination that the insured mortgage is not a valid lien on the property, subject only to the terms and provisions of the policy herein including those items set forth in Schedule B herein, due to the application of Federal or State Law relative to fraudulent transfer(s) or conveyances."

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The foregoing provision, although very broad, does not reach the question of equitable subordination and should not be granted without the approval of Home Office Counsel and the risk committee. Title Insurers Analysis of Financial Condition A title insurer requested to provide affirmative coverage of the type set forth above should study the financial condition of the issuer of the debt and mortgage at the time of the transaction and determine the effect of the transaction on such financial condition. Whether the title insurer is capable of making such objective determination is an issue in itself. Such determination is not within the normal purview of title insurance and is more appropriate to the field of accounting, banking and investment analysis. In theory two types of analyses are required: (i) a balance sheet analysis to determine solvency and sufficiency of capital; and (ii) a cash-flow analysis to determine ability to pay debts as they mature. Primary attention is made to a comparison of the assets and liabilities of the issuer of the debt both before and after the transaction. Insolvency is defined in section 101 of the Bankruptcy Code as a "financial condition such that the sum of [an] entity's debts is greater than all of such entity's property, at fair value" (emphasis added). There is a special definition for partnership insolvency that takes into account the general partner's net assets [11 U.S.C. 101(31)(B)].The UFCA states that "[a] person is insolvent when the present fair saleable value (emphasis added) of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured (UFCA sec 2). Although there are, at least arguably, differences between the terms "fair valuation" and "fair salable value", both concepts refer to a market value of the assets, not their book value. Thus, it is clear that generally accepted accounting principles are not controlling in insolvency determinations [In re Sierra Steel, Inc. 19 BCD 269, 271 (1989)]. The term "unreasonably small capital" is not statutorily defined. Relevant case law indicates that it is closely related to the insolvency concept, exists automatically if insolvency exists, and may be found even in the absence of insolvency if the debtor has insufficient working capital to reasonably operate its business and to meet its obligations (Gleneagles, supra., 565 F. Supp. 556, 580). Accordingly, a title insurer's assessment of the financial information concerning the issuer of the debt and mortgage will take into account the following considerations: (l) assets should be valued based on market value rather than book value. Therefore, financial statements prepared in accordance with generally accepted accounting principals, while significant, are not necessarily determinative of asset value in this context;

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(2)

fraudulent transfer actions invariably arise after the transferor has encountered financial difficulty. While stating that solvency is to be determined as of the time of the transaction, it is common for courts in such cases to employ a great deal of hindsight in valuing the assets and, at times, even the liabilities. Therefore, little of no value will be given to "goodwill", prepaid items or other intangibles which are not useful in the absence of an ongoing profitable enterprise. Similarly, tangible items such as inventory and accounts receivable, the value, salability or collectibility of which are dependent upon the health of the enterprise, may receive discounted values; The issuer/transferor may have potential liabilities which may become actual if it meets with financial difficulty, particularly if it ceases operation. Some of these may be reflected to as footnotes to the financial statements, such as pension-related liabilities, guarantees, and pending litigation against the transferor. Another potential liability, although more difficult to identify and quantify, may be an issuer's subsequent rejection of some of its executory contracts; there may be assets which are not reflected on the balance sheet, such as claims or pending litigation of the issuer against third parties, and valuable leasehold interests. In addition, some assets may have a market value in excess of book value, such as fixed assets for which historic cost less depreciation understates current market value; valuations and appraisals are often made in connection with leveraged buyouts. These should be reviewed if available but their availability alone should not bind the insurer of title.

(3)

(4)

(5)

NB the availability of qualified persons to review financial statements, appraisals and valuations is a pre-requisite to providing any form of coverage against lien avoidance. [2] Mortgage Foreclosure, the "Durrett" Problem & the 70% Rule Mortgage foreclosures also present creditors' rights problems in light of the case entitled Durrett v. Washington Nat'l Ins. Co., 621 F2d 201 (5th Cir. 1980). The insurance of title acquired from the sheriff in a mortgage foreclosure sale should include consideration of this case.

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The Title Question: When does the sale at foreclosure of real estate of a debtor constitute a fraudulent conveyance? The Facts: The facts of the case are as follows: In a non-judicial foreclosure sale the trustee under a deed-of-trust was the successful bidder by bidding the amount due on the debt which was equal to (only) 57.7% of the fair market value of the property. Subsequent to (and within one year of) the sale, the debtor/borrower filed bankruptcy and sought to upset the sale as a fraudulent transfer under section 67(d) of the old (then in affect) Bankruptcy Act, now 548 of the Bankruptcy Code, contending that (i) the "transfer" took place at the date of the sale, not when the mortgage or deed-of-trust was made and (ii) that the consideration was not a "fair equivalent" of the property's value. The District Court had denied the petition holding that the sales price, less than 60% of the fair market value, was a fair equivalent. NB A FORECLOSURE SALE is a distress sale. QUAERE: Should it be held to the same standard as a sale to a bona fide purchaser at arms length for good and valuable consideration? [a] The Holding: The United States Court of Appeals for the fifth circuit held: [GENERALLY] that a regularly conducted, noncollusive, nonjudicial foreclosure sale, conducted within one year of the mortgagor's bankruptcy, in which the consideration paid was less than 70% of the value of the real property (as determined by the court) was a transfer for less than reasonably equivalent value and therefore fraudulent without regard to intent; and [SPECIFICALLY] where the debtor's real property sold at a foreclosure sale for $115,400.00 despite having a fair market value of $200,000.00, the sale deprived the estate of equity in the property of $64,000.00. The price paid for the transfer was not the substantial equivalent value of the property. The sale constituted both a transfer of property by the debtor and a fraudulent conveyance and was subject to avoidance.

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The Fifth Circuit Court of Appeals agreed with the District Court that the transfer occurred at the date of sale but reversed on the ground that in order for the consideration to be the "fair equivalent" it had to be at least 70% of the market value. This is the origin of the 70% Rule. "DURRETT" has been followed in a number of jurisdictions including the Third Circuit. New Jersey and Pennsylvania fall within the "Durrett" ruling [NB cases cited Underwriting Bulletin 89-13 and 91-12]. The effect of "Durrett" is to grant a defacto right of redemption in bankruptcy for a period of one year from the date of the foreclosure sale. Although "Durrett" and the cases following it were originally decided in the context of non-judicial foreclosure sales, the rationale as to the time at which the transfer occurs and the 70% Rule have been applied to conventional mortgage foreclosures prevalent in other jurisdictions. PRIOR to "Durrett", the universal understanding of mortgage lenders, attorneys, title insurers and bankruptcy practitioners was that the "transfer" occurred when the mortgage or deed-of-trust was executed and, that if this was more than a year prior to the bankruptcy, the mortgage or deed of trust could not be set aside. However, the "Durrett" court applied the sweeping definition of transfer in ll USC Subsection l which includes "voluntary and involuntary disposition, by or without judicial proceedings", and observed that the foreclosure sale also caused a change of possession falling within the definition of transfer. Thus, under "Durrett", one year must elapse after the date of the foreclosure sale before the purchaser thereat can have immunity from a bankruptcy filing by the prior borrower. [b] The Title Insurance Issues: Title insurance underwriting guidelines generally provide that where a mortgage foreclosure has taken place and one year has not expired from the date thereof, an exception for the reasonable equivalent value problems (the 70% Rule) must be placed in Schedule B. The principal title questions are whether title insurance will be issued in a "Durrett" jurisdiction to (i) a mortgage lender bidding-in at foreclosure sale; (ii) a third party purchasing at the foreclosure sale, and (iii) a third party purchasing from a mortgage lender that has bid-in at foreclosure sale. Stated another way, when, and under what circumstances, will a title insurer accept the risk that the transaction

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will not be avoided under either section 548 of the Bankruptcy Code or state fraudulent conveyance law (through section 544(b) )? In jurisdictions that have adopted the ALTA creditors rights exclusion discussed above, the title insurer will be free of risk inasmuch as the exclusion from coverage in the owners' policy will ordinarily cover the "Durrett" problem. However, in those jurisdictions where the l970 ALTA Policy (re. l0-l7-84) is used, the issue remains very much alive. 11 USC 550 deals with the liability of the transferee of an avoided transfer. Under section 550 the trustee may recover, for the benefit of the estate, the property transferred, or if the court so orders, the value of such property, from (i) the initial transferee (or the party for whose benefit such transfer was made), or (ii) any immediate or "mediate" transferee of such initial transferee. However, an immediate or mediate transferee of the initial transferee is not subject to recovery if such transferee takes for value (including satisfaction or securing a present or antecedent debt), in good faith, and without knowledge of the voidability of the avoided transfer [ll USC 550(b)(l)]. NB Quaere: Whose responsibility is it to disclose the voidability of the transfer? The examiner of the title? Under section 550 (c), the trustee is entitled to only a single satisfaction under section 550. Under section 550 (d)(l), a good faith transferee from whom the trustee may recover under section 550 (a) has a lien on the property so recovered to secure an amount equal to the lesser of (i) the cost of any improvements made to the property after the transfer, less the amount of any profit realized by or for the account of such transferee from the property, and (ii) any increase in the value of the property resulting from such improvement. The term "improvement" is defined in section 550(d)(2) to include physical additions and changes, repairs, tax payment, payment of indebtedness on the property secured by a lien superior to the rights of the trustee, and costs of preservation of the property. Under section 550(e), an action or proceeding under section 550 may not be commenced after the earlier of one year after the avoidance of the transfer on account of which recovery is sought, or the time the case is closed or dismissed.

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It should be noted that a transferee, other than the initial transferee, that takes for value is not required to meet the section 548(a)(2) requirement to give reasonably equivalent value in exchange for the transfer. Moreover, any immediate or mediate good faith transferee from a transferee(other than the initial transferee) that has given value is immune from recovery if it is acting in good faith, but there is no value requirement as long as the predecessor in title gave value and otherwise satisfied the requirements of section 550 (b)(l). It appears that the term "good faith" means, in this context, that the transferee does not know that the transaction is not a normal trade and that there is reason to believe that the transferor was engaged in defrauding his creditors [see 4 Collier on Bankruptcy, 550.03 (Matthew Bender l5th ed)]. [c] The Title Insurance Considerations: [i] Insurance of lender bidding-in foreclosure Title insurance companies ordinarily will not be willing to insure title for (i) a mortgagee bidding-in at a foreclosure sale without a policy exception of the type set forth below. The exception may be omitted in jurisdictions that permit variation or removal of the ALTA creditors rights exclusion in that rare instance where a mortgagee presents an unequivocal and trustworthy appraisal report to the title company, and the deletion of the exception is approved at the regional or home office. HOW TO CLEAR THE TITLE EXCEPTION The "DURRETT" exception can be removed from SCHEDULE B if a determination can be made that the bid made at the foreclosure sale of a first mortgage was in an amount equal to or in excess of the reasonable equivalent value of the property including the amount of the unpaid mortgage. For example, if the unpaid mortgage was in the amount of $l,000,000.00 and the full value of the property was $2,000,000.00, the bid would have to at least equal the $2,000,000.00 even though the remainder of the value after the first million was totally encumbered, i.e., there can be no equity remaining in the property.

Chapter 9 - Page 21 CREDITOR'S RIGHTS Underwriting

[ii]

Insurance of third party purchaser at foreclosure Title insurance companies are more inclined to issue title insurance without exception in the case of (ii) a third-party purchaser at a foreclosure sale. However, once again, an appraisal will be required and there can be no equity value remaining in the property. Moreover, the title insurance company will seek to assure itself that the purchaser is proceeding in good faith and is dealing at arms-length. If any indication of collusive activity exists, the insurance will not be given without an appropriate exception.

[iii]

Insurance of purchaser from initial transferee Finally, in the case of a purchaser from the initial transferee, title insurance companies are generally willing to issue insurance without exception providing they are satisfied that the requirements of ll USC 550(b) have been met, i.e., that the purchaser is acting in good faith and is giving value.

[d]

The Title Insurance Exceptions: Exception One Consequences of an attack upon the estate insured under Federal Bankruptcy Law, State Insolvency Law or similar creditors rights law. Exception Two Any claim or allegation in any bankruptcy proceedings filed by or on behalf of (foreclosed mortgagor, grantor, or trustor) within one year (from the date of recordation of the foreclosure deed) that the deed from (grantor) to (grantee) was a fraudulent transfer. Exception Three Any loss or claim of loss arising from or occasioned by an attack upon the transferor to the insured herein (i) pursuant to sec 548 of the Federal Bankruptcy Code upon the filing of a petition thereunder within one year of said transfer; or (ii) pursuant to sec 544 of the Federal Bankruptcy Code and/or the provisions of any insolvency or debtor's relief statute or other law of the state of (state) upon the filing of a petition under said Code and/or state law within ( ) years of said transfer.

Chapter 9 - Page 22 CREDITOR'S RIGHTS Underwriting

The second exception set forth above appears to provide the title insurer with no protection under section 544 or any action initiated under state law outside of a bankruptcy case, which may incorporate a state statute of limitations longer than one year from the date of recordation of the foreclosure deed. As noted above, the Broad ALTA creditors' rights exclusion, which covers any claim arising out of the transaction creating the interest of the insured by reason of the operation of the federal bankruptcy laws, will clearly cover any transaction involving the transfer of the property at foreclosure sale. As an underwriter, you are encouraged to use the exclusionary language in the form of an exception when using the l970 ALTA Policy (rev. l0-l7-84). [3] SUPREME COURT RESOLVES CONFLICTING RULES RELATING TO WHEN A MORTGAGE FORECLOSURE IS A FRAUDULENT CONVEYANCE

We previously raise two important questions regarding mortgage foreclosure sales. The first was when does the sale at foreclosure of a debtor constitute a fraudulent conveyance? The second was whether a foreclosure sale is a distress sale and if so, should it be held to the same standard as a sale to a bona fide purchaser at arms length for good and valuable consideration? Title insurers have been hard pressed to understand or argue that a sale at foreclosure upon the real estate of a defaulting debtor constitutes a fraudulent conveyance. [See Madrid v. Lawyers Title Insurance Corporation, ll B.C.D. 945 (Ninth cir. l984)]. DURRETT SET ASIDE In a very recent case also brought in the 9th Cir. entitled In Re. BFP, 974 F.2d ll44 the Ninth Circuit court of appeals held that as long as the foreclosure sale was non-collusive in nature and was held after proper notice in accordance with Mennonite (supra) principles, and there could not be demonstrated any collusive action between the lender and the bidders at the sale, the sale would be valid. The Supreme Court agreed with the 9th Circuit Court of Appeals. On may 23, l994 the United States Supreme Court delivered its opinion in BFP v. Resolution Trust Company, U.S. l994 U.S. Lexis 3776, 62 U.S.L.W. 4359, which overturns the Durrett and Bundles line of cases that previously created rules for setting aside mortgage foreclosure sales of real estate as fraudulent conveyances. In a 5-4 decisions the Supreme Court held that the price paid at a non-collusive, real estate mortgage foreclosure sale conducted in conformance with state law satisfies the requirements in Section 548 (a)(2)(A) that transfers of property by insolvent debtors (emphasis mine) be for "reasonably equivalent value," and that the sale could not be set aside as a fraudulent conveyance.

Chapter 9 - Page 23 CREDITOR'S RIGHTS Underwriting

In other words, the court held that the price received in a mortgage foreclosure sale conclusively established "reasonably equivalent value" of mortgage property, as long as the requirements of that particular state's foreclosure laws were met. In essence, this case put a rather large stake through the Durrett 70% value standard. The court declined to accept "fair market value" as a benchmark for determining fraudulent transfers, finding that market value has no applicability in a forced-sale context. The opinion specifically limits itself to the foreclosure of mortgages and deeds of trust on real estate held in accordance with state foreclosure statutes, and recognizes that other foreclosures and forced sales, i.e., to satisfy tax liens, may be different. The opinion does not discuss other processes by which lenders realize on their collateral, such as deeds in lieu of foreclosure, or obtaining a partners' interest in the property in lieu of foreclosure. Nor does the opinion deal with the various types of loan workouts which may affect the debtor-creditor relationship, such as giving the lender an option to purchase the property that can be exercised in the future. All of these methods are still subject to creditors' rights attacks as fraudulent conveyances. The courts opinion made it clear that, while bankruptcy courts can no longer void a mortgage foreclosure sale for lack of reasonable equivalent value, sales can still be set aside if they were not held in strict compliance with state mortgage foreclosure laws, or if there were some type of collusion between the buyer and the seller.

TITLE RULE: If we are satisfied the mortgage foreclosure sale is not collusive, and was regularly conducted in accordance with state law, you may proceed to closing without further concern of the prior underwriting restrictions imposed by Durrett and Bundles.
[4] DEEDS IN LIEU OF FORECLOSURE Where the company is asked to insure a deed-in-lieu of foreclosure and the policy to issue is a l990 ALTA Owners Policy containing the Creditors Rights Exclusion set forth above, the title insurer may generally rely on the exclusion as sufficient protection against a subsequent creditors rights claim. I use the word "generally" above for good reason. You want to exercise a greater degree of caution where the borrower (and proposed grantor in the deed-in-lieu) is someone other than an individual. It has been suggested at "ALTA Title Counsel" that the industry must establish a minimum standard of obtaining an objective determination of consideration and value irrespective of the policy exclusion, because of the potential for collateral attack by aggrieved stockholders or limited partners, in those cases where the equity value substantially exceeds the unpaid debt. From a practical standpoint, while I am sure the company would prevail under the policy

Chapter 9 - Page 24 CREDITOR'S RIGHTS Underwriting

exclusion, the defense costs could be excessive. Consequently, whenever there is even the potential threat of a stockholder derivative action or challenge by aggrieved limited partners the home office is to be contacted and the facts presented in writing for review. Bear in mind that the premium to be collected should be commensurate with the risk incurred. The title guidelines presently set forth in the "DEED IN LIEU OF FORECLOSURE" section of this manual will continue to apply in those instances where the company is asked to insure title coming from the prior deed-in-lieu grantee (the lender) to a new third party within the one year time frame of delivery of the prior deed-in-lieu of foreclosure. In that instance our concerns are different from those of the insurer of the actual deed-in-lieu of foreclosure transaction and we are not entitled to rely on the exclusion contained within the prior policy. That policy and its exclusion ceases to exist when the lender conveys to a third party. The issue of solvency is of concern where, within one year of the delivery of the deed-in-lieu, the company is asked to insure a deed from the grantee of the deed-in-lieu. I cannot emphasize this enough. IN THAT INSTANCE THE CREDITORS' RIGHTS EXCLUSION CONTAINED IN THE TITLE POLICY INSURING THE LENDER AS GRANTEE IN THE DEED-IN-LIEU IS NO LONGER APPLICABLE BECAUSE IT ONLY APPLIED TO THE TRANSACTION INSURING THE DEEDIN-LIEU. IT DOES NOT APPLY TO A SUBSEQUENT TRANSACTION INSURING A THIRD PARTY. In those jurisdictions or instances where the l990 ALTA Policy Form is not being used and the l970 ALTA Policy (rev. l0-l7-84) is being used the creditors rights issue and the issue of solvency continues to exist and must be addressed where we are asked to insure a deed-in-lieu of foreclosure. In those instances you should review the prior subject matter contained within this manual, including the following clearance suggestions. [a] The Legal Issue. The principal creditors' rights issues relating to the delivery by a mortgagor to a mortgagee of a deed-in-lieu of foreclosure are substantially the same as the fraudulent conveyance and avoidance concerns as discussed above, i.e., whether the lender is paying or otherwise giving reasonably equivalent value for the conveyance. Title insurance considerations include (i) whether the deed is intended to be an absolute conveyance by the mortgagor to the mortgagee and not a new security instrument. Additional concerns (ii) include the effect of the deed on the mortgagor's equity or right of redemption, and (iii) the

Chapter 9 - Page 25 CREDITOR'S RIGHTS Underwriting

obtaining consents of all necessary parties to the transaction, such as shareholders, partners or trust beneficiaries. The Form of Title Exception The following is a broad form of exception that may be set forth in the title insurance policy relating to a deed-in-lieu of foreclosure transaction unless certain title company requirements are satisfied and approved by a senior underwriter: [i] (ii) Any defect, lien or encumbrance arising by reason of the fact that said deed was given in satisfaction of a mortgage; or The effects of said transfer being a fraudulent transfer or preference in any proceedings in or related to any chapter of the Federal Bankruptcy Code or the effect of said transfer being invalid under any state insolvency or fraudulent conveyance laws.

[b]

The Clearance Requirements of the Title Company: If the prospective lender insured party is unwilling to accept such a broad exception, the title company may issue a policy without exception if all of the following conditions are satisfied. The form of the requirements should read as follows: "With regard to the request that we undertake to insure the deed-inlieu of foreclosure free and clear of any exception relating to Federal or State insolvency or creditors' rights laws, we have several concerns, all of which are to be addressed in writing":

(i) (ii) (iii) (iv)

is the mortgagee paying or otherwise giving reasonably equivalent value for the conveyance? is the deed intended to be an absolute conveyance by the mortgagor to the mortgagee and not a new security instrument? what is the effect of the deed upon the mortgagor's right of redemption? will the consents of all the parties to the transaction be obtained, including corporate shareholders or partners?

Chapter 9 - Page 26 CREDITOR'S RIGHTS Underwriting

"We will consider issuing a policy free of the creditors rights exception if all of the following conditions are met to the company's satisfaction": (a) An Estoppel Affidavit is to be executed and acknowledged in recordable form by the grantor of the deed. The estoppel affidavit shall include representations that the deed is intended to be an absolute conveyance and not a mortgage, trust conveyance or security instrument of any kind; that the grantor is [was] fully aware of the consequences of delivery of the deed-in-lieu of foreclosure; that the delivery of the deed was not given as a preference; that there were no other persons, firms or corporations having an interest in the premises (other than the mortgagee) at the time of delivery of the deed; that the grantor is [was] solvent at the time of the delivery of the deed, will not be rendered insolvent thereby and further that there are no other creditors whose rights would be prejudiced by the conveyance; The deed must contain a recital substantially to the effect that it is an absolute conveyance, the grantor having sold the land described therein to the grantee for fair and adequate consideration, such consideration being and including the full and complete satisfaction of all obligations secured by the mortgage (as described), and that the grantor declares that the conveyance is freely and fairly made, and that there are no agreements, oral or written, other than the deed, existing between the parties with respect to the land; The Note or other evidence of indebtedness secured by the mortgage must be surrendered and canceled, and the mortgage securing such note or evidence of indebtedness must be released of record; The grantor in the deed must surrender possession of the property to the grantee; Evidence of corporate authority (including shareholders resolutions, where required) must be delivered; The grantor must deliver an independent appraisal of the property satisfactory to the title company certified to by either a MAI or SRE appraiser. The appraisal should show that the property is not worth more than the amount of the unpaid principal balance of the mortgage plus accrued interest;

(b)

(c)

(d) (e) (f)

Chapter 9 - Page 27 CREDITOR'S RIGHTS Underwriting

(g)

There can be no other circumstances, such as a leaseback with option to repurchase, or agreement to reconvey, which would imply the continued existence of the debt; The grantor must not be insolvent at the date of the execution of the deed.

(h)

If less than all the conditions above set forth on (a) through (h) inclusive are not satisfied, it shall be absolutely necessary to obtain the approval of the Home Office prior to issuing a policy clear of a creditors rights' exception. ALTERNATIVE PRESENTATION OF TITLE CONSIDERATIONS (1) Proof (by presentation of an independent appraisal) that the value of the property does not exceed the amount actually remaining due of the mortgage including accrued interest. This addresses bankruptcy and non-bankruptcy issues raised by "Durrett". Our concern is whether or not there is equity value in the premises over and above the mortgage balance. So long as the equity value in the property does not exceed the canceled debt and the further consideration of the deed-in-lieu includes both (i) the estimated cost of the foreclosure action and (ii) a full written release of the owner from the obligation of the note and cancellation of the mortgage, the transfer is not likely to be collaterally attacked. However, if the value or equity is in excess of the debt, then the transfer results in a diminution of the estate and is voidable. (2) Require an Agreement between the mortgagor and the mortgagee the minimum elements of which should include the following: (a) (b) (c) (d) acknowledgment of the indebtedness; acknowledgement of default; confirmation of the simultaneous execution of a deed to the mortgagee and satisfaction of the debt; warranties with respect to title that: (i) (ii) (iii) (iv) the mortgagor is the owner of the property; there are no leases, contracts of sale or other agreements affecting title (such as subordinate mortgages); owner has not suffered any lien or judgment (i.e., e.g. Judgment or Federal Tax Lien) whereby the premises have been encumbered in any way whatsoever; owner has not entered into any contract for or caused any work to be done or performed in or upon the premises which has or may result in the filing of a mechanics lien.

Chapter 9 - Page 28 CREDITOR'S RIGHTS Underwriting

NB Because there is an absence of "cash" a bi-lateral agreement spelling out the terms of the transaction is preferable to an affidavit, although these issues could be addressed in an estoppel affidavit. Bear in mind that a written "agreement" may survive a subsequent bankruptcy of the borrower whereas an affidavit is clearly subject to disaffirmance. FROM THE BORROWER YOU WANT THE FOLLOWING REPRESENTATIONS: 3. 4. Representation that the transaction is entered into voluntarily, free of any fraud, duress or undue influence. Proof that the deed is being given unconditionally and absolutely; that there are no collateral side agreements to the delivery of the deed, such as repurchase options or contract to repurchase or management agreements or obligation for any future payments to the lender by the borrower which shows a continuing relationship. FROM THE LENDER YOU WANT THE FOLLOWING REPRESENTATIONS: A. Acknowledgment that the transfer is an absolute conveyance of the mortgagor's right, title and interest in and to the premises, together with the appurtenances and that, upon acceptance, it is intended to convey all rights of possession as well as title. This goes to the issue of marketability and could appear as a recitation in the deed to be delivered. If the representations of the mortgagor are made in an affidavit, the mortgagee must execute a separate contemporaneous instrument evidencing the release of the mortgagor from further obligation; A covenant that as consideration for the transfer, the mortgagee releases the mortgagor from any personal liability for the indebtedness; Acknowledgment that the affidavit or "bi-lateral agreement" is made to induce the mortgagee to accept the conveyance of the property in lieu of foreclosure knowing that the title company will rely upon the statements made therein and thereon for the purpose of issuing its policy of title insurance; that the representations and warranties made in the agreement are binding upon the parties their heirs, representative, successors and assigns.

B.

C.

Chapter 9 - Page 29 CREDITOR'S RIGHTS Underwriting

[5]

PARCEL ASSEMBLAGE - THE LEASE TERMINATION PROBLEM [a] The Legal Issue:

This is the one area where title insurers frequently overlook the existence of a creditors' rights problem. While the problem is most likely to arise in a large metropolitan area it is not confined thereto. In assembling parcels of land to obtain a larger site for the purposes of construction of a new building, a developer may be constrained to purchase from one or more tenants their leasehold rights in exchange for the termination of their lease(s). It is possible that if such a former tenant subsequently files a petition in bankruptcy, the trustee will seek to avoid the surrender or conveyance of the lease to the developer. The avoidance action could be maintained under either section 548 or 544 of the Bankruptcy Code. There is no doubt that the surrender of a lease by the tenant, whether accomplished by way of a surrender or assignment, constitutes a transfer by the debtor of an interest in property within the meaning of the Bankruptcy Code [cases cited Collier Real Estate Transactions and the Bankruptcy Code, chapter 5, n.34]. The landlord accepting the assignment or surrender from the tenant is an immediate transferee for the purposes of section 550. And, a purchaser from the landlord is a transferee from an immediate transferee under section 550. A mortgage lender, receiving from the landlord a mortgage lien on the property, will be dependent upon the validity of the landlord's title for the preservation of its lien position which, as the insurer of title, is one of the things we insure on the facing page of the policy. The Title Insurance Issue The foregoing considerations give rise to considerable problems for the title insurer asked to issue a title policy on an assembled parcel with respect to which leases have been surrendered or conveyed to a developer, clear of any creditors' right exception. Obviously a title policy clear of any such exception is prerequisite to the funding of construction and permanent loan financing. However, in order to write such a policy the title company must determine whether each terminated lessee was solvent at the time of the transfer of the leasehold estate to the developer and that the lessee received reasonably equivalent consideration for the value of his leasehold interest. A value determination would require an analysis of the rental levels under the lease, the duration of the lease, the rights of the lessee under the lease (including assignment and subletting rights), and the relation of the lease rental to the then fair market rental value of the property [see In Re Pinto, 98 B.R. 200(B.Ct., E.D. Pa.) l989].

Chapter 9 - Page 30 CREDITOR'S RIGHTS Underwriting

Title companies are neither equipped nor generally willing to engage in this process. Furthermore, it is not clear whether the ALTA Creditors' Rights Exclusion contained in the l990 loan policy form covers the lease termination problem. This exclusion relates only to the transaction(s) creating the interest of the mortgagee insured by the policy. It cannot be concluded with any certainty that this language protects a title insurer against claims arising from the surrender of leaseholds effected during the course of an assemblage. Consideration should be given to requiring indemnities or other form of financial inducement when a request is made to issue policies under these circumstances. [6] OPTION AGREEMENTS Refer to OPTIONS in this Manual for a discussion of the subject. [7] CONTRACT FOR SALE - Vendee in Possession Section 365(i) of the Bankruptcy Code recognizes the specific performance rights of a vendee in possession. On a case by case basis we may be willing to issue affirmative coverage as to the vendor's obligation to deliver a deed to a contract vendee in possession who elects to remain in possession of the real estate notwithstanding the fact that the trustee in bankruptcy may have elected to reject the contract as an executory contract. Such a request must be submitted to the Home Office in each and every instance. If approved, the following exception should be used which, you will note, includes a statement affirmatively insuring that a deed will be delivered: "The effect of federal bankruptcy law on the interest of the insured, except that, if the vendee is in possession of the property, the policy insures against the refusal of a trustee in the event of vendor's bankruptcy, to issue a deed pursuant to the contract". [8] EQUITY PARTICIPATION TRANSACTIONS BETWEEN A GENERAL PARTNER AND PARTNERSHIP Section 548(b) of the Bankruptcy Code provides that the trustee of a partnership debtor may avoid transfers made and obligations incurred to a general partner of the debtor within one year prior to the filing of a petition if the debtor was insolvent on the date of such transfer or incurrence, or became insolvent as a result thereof. For the purposes of section 548(b), it is irrelevant that the debtor received fair consideration in return for the transfer. Accordingly, there is an inherent problem with regard to a mortgage loan transaction between a partnership, as borrower, and one of the general partners, as lender. If the general partner then seeks to obtain title insurance in the form of a lender's policy with respect to its loan, it will have to deal with the customary policy exception concerning avoidance of the obligation under section 548 above cited.

Chapter 9 - Page 31 CREDITOR'S RIGHTS Underwriting

With the approval of the Home Office only, this exception may be removed upon proof of solvency of the borrowing partnership. In determining whether or not to remove the exception, one of the crucial considerations would be the determination of the sufficiency of partnership assets to discharge the liabilities of the non-partner creditors. The issue is a factual one and, from the company's standpoint, requires a detailed analysis of the partnership's financial position at the time of the transaction, by a corporate employee qualified to evaluate financial statements or, of an independent professional certified public accountant. Bear in mind that the removal of the exception is a form of credit underwriting. The problem should be considered in transactions involving both a loan and an equity investment in a real estate project by the same financial institution. Although in some instances the lender will take its equity position in a different entity than that which makes the loan (usually a wholly owned subsidiary), consideration must be given to the possibility that a court of competent jurisdiction might hold that there is sufficient identity between the holder of the partnership interest and the holder of the mortgage loan such that junior creditors may be prejudiced. There is some authority (Hughes v. Dash, 309 F2d l, ATE Financial Services v. Carson, 268 A2d 73) indicating that because of section l3 of the Uniform Limited Partnership Act, the exception is unnecessary if the lender is a limited partner in a limited partnership formed pursuant to the Act. Because of the limited number of cases addressing this point, the company is unwilling to authorize omission of the title exception on a general basis where the lender is a limited partner. The title exception should read as follows: "Any loss or damage occasioned by the fact that the insured mortgagee is also a partner in the partnership which is the mortgagor in the mortgage set forth under Schedule A herein and insured hereunder". [9] CORPORATE UPSTREAM OR CROSS-STREAM TRANSACTIONS Refer to subject matter in this Manual entitled: INTERCORPORATE GUARANTEES AS FRAUDULENT TRANSACTIONS [10] MORTGAGEE'S OPTION TO PURCHASE Refer to OPTIONS in this Manual for a discussion of the material

Chapter 9 - Page 32 CREDITOR'S RIGHTS Underwriting

[11] MORTGAGES TO SECURE ANTECEDENT INDEBTEDNESS Refer to subject matter in this Manual entitled ANTECEDENT DEBT TRANSACTIONS NOTE: The subject matter contained in this section originally appeared as CHAPTER 5, "Creditors' Rights Issues Affecting Title Insurance", COLLIER REAL ESTATE TRANSACTIONS AND THE BANKRUPTCY CODE, Matthew Bender & Co. Inc., New York, New York, (Rel. 8-9/92 Pub. l3l). Portions of that chapter are reprinted with permission of the Publisher. In some cases the material has been substantially edited by William C. Hart for inclusion of related material and case law. Excerpts from articles prepared by James M. Pedowitz Esq. and Oscar H. Beasley Esq. have in part been used For cross reference material please refer to Title Insurance Underwriting Principals and Exception Language For cross reference see also: Bankruptcy - Fraudulent Transfers Corporate guarantees Cross Stream, Downstream & Upstream Transactions Deeds-in-lieu Equitable Subordination Foreclosure Fraudulent Transfers Mortgage Modification - Novation issues

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Chapter 8 - Page 1 CORPORATIONS General

CORPORATIONS
DEFINITIONS Corporation or domestic corporation means a corporation for profit formed under business corporation law, or formed under any other general statute or by any special act of this state for a purpose or purposes for which a corporation may be formed under this chapter. (N.Y. Bus. Corp. Law ∋ 102, Supp. 1977-78). Foreign corporation means a corporation for profit formed under laws other than the statutes of this state, which has as its purpose or among its purposes a purpose for which a corporation may be formed under business corporation law. "Authorized", when used with respect to a foreign corporation, means having authority under article 13 (Foreign Corporations) to do business in the state of New York. (N.Y. Bus. Corp. Law ∋ 102, Supp. 1977-78). FOREIGN CORPORATIONS A foreign corporation shall not do business in this state until it has been authorized in this state. A foreign corporation may be authorized to do any business which may be done lawfully in this state by a domestic corporation to the extent that it is authorized to do such business in jurisdiction of its incorporation. A foreign corporation will not be considered doing business in the state where it is: 1) maintaining or defending any action or proceeding, whether judicial, administrative, arbitrative or otherwise, or effecting settlement thereof, 2) holding meetings of its directors or its shareholders, 3) maintaining bank accounts, 4) maintaining offices or agencies only for the transfer, exchange and registration of its securities, or 5) appointing and maintaining trustees or depositaries with relation to its securities. (N.Y. Bus. Corp. Law ∋1301, Supp. 1977-78). A foreign corporation may apply for authority to do business in New York by having an officer of or attorney-in-fact for the corporation sign and verify and deliver an application to the department of state. (N.Y. Bus Corp. Law ∋ 1304, Supp. 1977-78). DOMESTIC CORPORATIONS Upon the filing of the certificates of incorporation by the department of state, the corporate existence shall begin, and such certificate shall be conclusive evidence that conditions precedent have been fulfilled and that the corporation has been appropriately formed. (N.Y. Bus. Corp. Law ∋403, 1963). JUDICIAL DISSOLUTION The attorney-general may bring an action for the dissolution of a corporation upon one or

more of the following grounds:

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Chapter 8 - Page 2 CORPORATIONS General

a) b)

That the corporation procured its formation through fraudulent misrepresentation or concealment of a material fact. That the corporation has exceeded the authority conferred upon it by law, or has violated any provision of law thus forfeiting its charter, or transacted business in an illegal manner, or abused its powers contrary to public policy. (N.Y. Bus. Corp. Law ∋1101, 1963).

A majority of the board, or the shareholders of the corporation, may adopt a resolution to judicially dissolve the corporation, either based on insufficient assets or that dissolution will be beneficial. (N.Y. Bus. Corp. Law ∋∋ 1102, 1103, 1963). CORPORATE AUTHORITY-EXECUTION OF INSTRUMENTS A corporation has power to purchase, receive, sell, convey, lease, mortgage, make contracts, give guarantees, incur liabilities, borrow money, issue notes and bonds, lend money, invest and reinvest its funds and all other powers necessary or convenient to effect any or all purposes for which the corporation is formed. (N.Y. Bus. Corp. Law ∋ 202, 1963). TRANSFER OF ALL ASSETS - SALE OR MORTGAGE A sale, lease, exchange or other disposition of all or substantially all the assets of a corporation, if not made in the usual or regular course of business actually conducted by the corporation, must be in accordance with the procedures outlined in ∋909 of the Business Corporation Laws. This includes board approval of the proposed transaction and submission to a vote of the shareholders. (N.Y. Bus. Corp. Law ∋909, Supp. 1977-78). The board may authorize any mortgage or pledge of, or creation of a security interest in, all or any part of the corporate property, or any interest therein, wherever situated. Unless the certificate of incorporation provides otherwise, no vote or consent of the shareholders shall be required to approve such action by the board. (N.Y. Bus. Corp. Law ∋911, Supp. 1977-78). NON-PROFIT CORPORATION A corporation is a not-for-profit corporation if it is formed for any purpose indicated in ∋201, of the Not-for-Profit Corporation Law. The corporation is classified. Classifications include social and fraternal purposes, charitable, cultural, educational, scientific, religious and social service purposes. (N.Y. Not-for-Profit Corp. Law ∋201, Supp. 1977-78). A not-for-profit corporation is not formed for pecuniary profit or financial gain. (N.Y. Notfor- Profit Corp. Law & 102, 1970). A not-for-profit corporation has the powers necessary to effect any and all of the purposes for which the corporation was formed. (N.Y. Not-for-Profit Corp. Law ∋202, Supp. 1977-78).

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Chapter 8 - Page 3 CORPORATIONS General

PUBLIC UTILITIES The term "utility company" or public utility company applies to one or more persons or corporations operating an agency or agencies for public service, and who are subject to the jurisdiction, supervision and regulations prescribed by or pursuant to Public Service Law. (N.Y. Pub. Serv. Law ∋2, 1955). A corporation or person owning or holding a majority of the stock of a common carrier, gas or electric corporation subject to the jurisdiction of the public service commission shall be subject to the supervision of the public service commission with respect to relations between the corporation and its owners or majority stockholders in so far as such relations arise by reason of such ownership or holding of stock. Supervision includes examination of records, accounts and memoranda and submission of reports and information to the public service commission. (N.Y. Pub. Serv. Law ∋5, Supp. 1977-78). CREDIT UNION - STATE When authorized by the superintendent, seven or more persons employed or residing in the state of New York may form a corporation to be known as a credit union, which may include a central credit union. Such persons must submit an organization certificate to the superintendent which state the name of the corporation which must include the words "credit union". (N.Y. Banking Law ∋45, 1971). TRANSACTIONS BETWEEN CORPORATIONS AND OFFICERS OR DIRECTORS Contracts or other transactions, between a corporation and its officers or directors, are neither void nor voidable for the following reasons alone: 1) between corporations where directors are on both boards, 2) where the directors have a substantial financial interest in the corporation, and 3) where the director is present at the meeting which approves the transaction or that his vote is counted for such purpose. If there is a full disclosure of all material facts and in the interested directors vote is not needed for approval, then the approved transaction may not be avoided by the corporation. If however, there was no disclosure or knowledge of the material facts or the vote of the interested director was necessary to approve the transaction, the corporation may avoid the transaction, unless the party can establish that the transaction was fair and reasonable as to the corporation, at time of approval. Shareholders may also ratify the transaction if they know the material facts. Common or interested directors may be counted in determining the presence of a quorum. The certificates of incorporation may contain additional restrictions on contracts and transactions between a corporation and its directors. (N.Y. Bus. Corp. Law. ∋713, Supp. 1977-78).

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Chapter 8 - Page 4 CORPORATIONS General

TRANSACTIONS DURING DISSOLUTION The mere filing of a certificate of dissolution does not fully dissolve an existent corporation; it must first lawfully dispose of its assets and do all other acts required to adjust and wind up its business and affairs, and it may sue and be sued in its corporate name. (Feneck v. Murdock, 181 N.Y.S. 2d 441, 16 Misc. 2d 789 (1958)). After dissolution the corporation shall carry on no business except for the purpose of winding up its affairs. The corporation shall proceed to wind up its affairs with power to fulfill or discharge its contracts, collect its assets, sell its assets for cash, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business. (N.Y. Bus. Corp. Law ∋ 1005, 1963). TAXES RESULTING IN SUSPENSION OF CORPORATE POWERS On or before the thirtieth day of June in each calendar year the tax commission may certify and transmit to the department of state a list containing the names of any or all designated corporations that have not filed tax reports during a two year period, or have been delinquent in the payment of taxes for any two years duly assessed. (N.Y. Tax Law ∋203 (a), Supp. 1977-78). Dissolution of a corporation by proclamation for failure to pay taxes did not affect either its right to collect and distribute its assets or to sue in its corporate name. (Vinlis Const. Co. v. Roreck, 325 N.Y.S. 2d 457, 67 Misc. 2d 942 (1971)). MERGER AND CONSOLIDATION Two or more domestic corporations may merge into a single corporation which shall be one of the constituent corporations. A constituent corporation means an existing corporation that is participating in a merger or consolidation with one or more other corporations. Two or more domestic corporations may consolidate into a single corporation which shall be a new corporation to be formed pursuant to the consolidation. (N.Y. Bus. Corp. Law ∋901, 1963). If a surviving or consolidated corporation is, or is to be, formed under the law of any jurisdiction other than this state it must comply with the provisions relating to foreign corporations. (N.Y. Bus. Corp. Law ∋ 907, Supp. 1977-78). Upon the filing of the certificate of merger or consolidation by the department of state or on such date subsequent thereto, not to exceed thirty days, the merger shall be effected. The surviving or consolidated corporation shall thereafter possess all the rights, privileges, immunities, powers and purposes of each of the constituent corporations. All the property; real and personal, including subscriptions to shares, causes of actions and every other asset of each of the constituent corporations, shall vest in the surviving or consolidated corporation shall assume and be liable for all liabilities, obligations and penalties of each constituent corporation. (N.Y. Bus. Corp. Law ∋906, 1963).

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Chapter 8 - Page 1 CORPORATE REQUIREMENTS Title

BOARD OF DIRECTORS RESOLUTION - REGARDING MORTGAGE TO BE MADE If the present transaction consists in whole or in part of the making of a new mortgage, we will require a certified copy of the resolution of the board of directors of any corporate mortgagor authorizing the making of said mortgage. Proof must also be shown that the consent of stockholders of the mortgagor corporation is not required by its certificate or incorporation or amendments thereto for the making of said mortgage. The mortgage should contain a recital showing that it was made and executed pursuant to the resolution of the board of directors of the mortgagor. WHERE CERTIFICATE OF INCORPORATION REQUIRES CONSENT OF STOCKHOLDERS TO MORTGAGE. The certificate of incorporation of (insert corporate name) requires consent of (insert all or give number) of the stockholders for the making of the mortgage. A certified copy of the resolution of the board of directors of said corporation and the consent of the stockholders is required as to the mortgage to be made. The mortgage should contain a recital showing that it was made and executed pursuant to the resolution of the board of directors of the mortgagor and the consent of stockholders as required by the certificate of incorporation. STOCKHOLDERS CONSENT - REGARDING CONVEYANCE TO AN OFFICER HERETOFORE MADE Consent of all stockholders of (insert name) is required as to the conveyance hereinafter set forth and proof shown that the making of said conveyance did not render the corporation insolvent. Said corporation by deed dated recorded liber cp conveyed to (insert name). LIQUIDATION OR DISSOLUTION TAX ON CONVEYANCES TO STOCKHOLDERS PRIOR TO JANUARY 1, 1962. Proof of payment of liquidation or dissolution tax on (insert corporate name) as provided by subdivision 2 of Section 182 of the Tax Law as same existed on the date of recording of the instrument set forth below is required. The corporation conveyed to the stockholders (insert name) by deed dated recorded Liber cp. SHAREHOLDERS CONSENT ON CORPORATE CONVEYANCE OR LEASE If the present transaction consists in whole or in part of a conveyance or lease by a corporate grantor or lessor we will require the written consent thereto by all of the holders of the outstanding shares of the said corporation and the instrument on closing

should so recite.

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Chapter 8 - Page 2 CORPORATE REQUIREMENTS Title

In lieu thereof the consent of the holders of two-thirds of all of the outstanding shares entitled to vote thereon obtained at a meeting duly noticed and called for the purpose of obtaining such consent in the manner provided for in Section 605 of the Business Corporation Law is required and the instrument on closing should so recite. If neither of the above is obtained, then, the proofs showing the basis upon which the conveyance or lease is to be made must be submitted to counsel prior to closing. CORPORATE CONVEYANCE TO OFFICER EXECUTING DEED. Deed dated recorded Liber cp is executed on behalf of the (insert corporate name) by (insert name) who is also a grantee in said instrument. Under section 301 sub 2 RPAPL said deed cannot be received in evidence. A confirmatory deed executed by a proper corporate officer not a grantee in the instrument is required. This objection can be disregarded if title is to pass to a purchaser for value. CORPORATION NOT TIMELY ORGANIZED Deed made by (insert name), grantor, to (insert name), grantee, dated is recorded in Liber cp , prior to the incorporation of the grantee. A confirmatory deed is required from said grantor to the present owner of the premises herein. WHERE CERTIFICATE OF INCORPORATION NEEDED. Certificate of Incorporation of (insert name) with proof of its due incorporation prior to (insert closing or give date) must be obtained and considered in connection with this title. Being further investigated by this Company. WHERE CERTIFICATE OF INCORPORATION OF A FOREIGN CORPORATION NEEDED Certified copy of the certificate of incorporation of (insert name) a corporation of the State of (insert) with proof of its due incorporation prior to (insert closing or give date) must be submitted to the Company and considered in connection with this title. STATUS OF FOREIGN CORPORATION - STATE OF INCORPORATION Proof is required to show that (insert name) a (insert State) corporation has not been dissolved either by proclamation or otherwise in the State of its incorporation. (Inquiry has been made of the Secretary of State of said State regarding this proof. Insert this sentence where applicable). FOREIGN CORPORATION STATUS - NEW YORK STATE Proof required that is in good standing and authorized to do business in this state and its License Fee and Franchise Taxes have been paid.

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Chapter 8 - Page 3 CORPORATE REQUIREMENTS Title

CERTIFICATION OF TITLE IN A CORPORATION (After our printed front sheet heading) say (insert name) a (insert word domestic or if not domestic insert state of incorporation) corporation SALE, LEASE, EXCHANGE OR MORTGAGE OF PROPERTY BY A CORPORATION GOVERNED BY THE NOT-FOR-PROFIT CORPORATION LAW (FORMERLY GOVERNED BY THE MEMBERSHIP CORPORATION LAW.) If the proposed sale, lease, exchange or mortgage to be insured is by a corporation governed by the Not-For-Profit Law, previously formed under the Membership Corporation Law, and said corporation is a type A, B, C or D corporation as defined in Section 201 of the Not-for-Profit Corporation Law, then we shall require proof of compliance with Section 510(a) (1) and/or (2) of the Not-For-Profit Corporation Law. If the proposed sale, lease or exchange to be insured is by a type B or C corporation as defined in Section 201 of the Not-For-Profit Corporation Law, then we shall require compliance with Section 510 (a) (1) and/or (2) of the Law as well as a Supreme Court order or County Court order as provided in Section 510 (a) (3) of the law. SALE BY A RELIGIOUS CORPORATION The proposed seller is a corporation formed under the Religious Corporation Law of the State of New York. The sale to the proposed insured must be approved by an appropriate order of the Supreme Court prior to closing. MORTGAGE BY A RELIGIOUS CORPORATION The proposed mortgagor is a corporation formed under the Religious Corporation Law of the State of New York. The mortgage to the proposed insured must be approved by an appropriate order of the Supreme Court prior to closing. CORPORATE CONVEYANCE TO ITS OFFICER Proof required that deed from (Corporation) to (individual) one of its officers, did not render the corporation insolvent.

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Chapter 8 - Page 1 CORPORATIONS 1 SALES & MORTGAGE CONSENT REQUIRED Legal Bulletin

1.

Mortgage Prior to September 1, 1963 consent to mortgage was provided for in section 16 of the Stock Corporation Law. Where, however, a mortgage was executed without the required consent, it could be validated by a subsequent assent where there are no intervening rights. This operates to make the mortgage, as of the time it is given a valid mortgage [Rochester Savings Bank v Averell, 96 N.Y. 467]. Since September 1, 1963, consent of the stockholders of a New York Corporation to the execution and delivery of a mortgage has not been required unless the certificate of incorporation provided otherwise. (See Section 911 of the Business Corporation Law). We do, however, require a resolution of the Board of Directors authorizing the mortgage. The certificate showing the passage of the resolution must certify that the articles of incorporation do not require the consent of the stockholders.

2.

Sale On and after September 1, 1963, the sale, lease, exchange or disposition of all or substantially all of the assets of a New York Corporation outside of the regular course of business actually conducted by the corporation must be authorized * not only by the directors of the corporation but also by the consent of the holders of two-thirds of the outstanding shares of the corporation at a meeting duly called or of all its stockholders in writing. See Section 909 and 615, Business Corporation Law. * Effective September 1, 1965 the word authorized was changed to approved.

3.

In all reports where title is found in a New York Corporation or where title is to pass through a New York Corporation, the following exception must be inserted: Consent of the stockholders to the proposed conveyance or lease by the corporation must be obtained.

4.

Whether or not the question has been raised in the report, the closers are responsible for obtaining the necessary consents.

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Chapter 8 - Page 2 CORPORATIONS 1 SALES & MORTGAGE CONSENT REQUIRED Legal Bulletin

5.

Unanimous Consent Whenever feasible consent of all the stockholders should be obtained. The consent should be acknowledged and may be in the following simple form: The undersigned, being all of the stockholders of ABC Corporation, do hereby consent to the sale by the corporation of the premises known as No. 191 Main Street, New York City on such terms as the directors of the corporation may determine. The consent must be accompanied by a short affidavit of the secretary of the corporation showing that the signers of the consent are all the stockholders of the corporation. The deed should contain the following recital: "This conveyance has been made with the unanimous consent in writing of all the stockholders of the party of the first part."

6.

Two-Thirds Consent If consent of all stockholders in writing is not feasible and the consent is obtained at a meeting, an affidavit by the secretary should be submitted in substantially the following form: I reside at I am the Secretary of ABC Corporation. At a meeting of the stockholders of said corporation, duly called for that purpose of which due notice was given, the following resolution was adopted: (Name) "Resolved that the corporation located at No. 191 Main Street New York City consented that the said premises may be conveyed (mortgaged) on such terms as the Directors may determine." The holders of two-thirds of the outstanding shares of the corporation voted for the resolution. The certificate of incorporation does not require any higher percentage.

The deed should contain the following recital: "This conveyance has been made with the consent of the holders of at least two-thirds of the outstanding shares of the corporation entitled to vote thereon obtained at a meeting duly called."

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Chapter 8 - Page 3 CORPORATIONS 1 SALES & MORTGAGE CONSENT REQUIRED Legal Bulletin

7.

If a unanimous consent in writing or consent of two-thirds at a meeting is not feasible, we will consider proof by affidavit showing that the sale is in the ordinary course of business conducted by the corporation. Such proofs, whenever possible, should be submitted to counsel or to a title officer prior to closing. A suggested form of affidavit follows: I reside at I am the President of ABC Corporation, the owner of property at No. 191 Main Street, New York City which is about to be sold by the corporation. The stock of the corporation is (publicly) held. There are stockholders. The corporation was formed for the purpose of and is actually engaged in the business of buying and selling real estate. The parcel at No. 191 Main Street is one of parcels of real estate now owned by the corporation. The certificate of incorporation does not require any consent of stockholders to the sale of property.

The deed should contain the following recital: "This conveyance is made in the regular course of business actually conducted by the party of the first part." 8. If the unanimous consent in writing, or obtaining the consent at a meeting of twothirds of shareholders entitled to vote is not feasible, and the sale is not in the ordinary, usual and regular course of business, but is not all or substantially all of the corporation's assets, a consent of stockholders may not be required. But this category of cases must be submitted with appropriate affidavits to counsel for determination. If the deed is passed, it should contain the following recital: "This conveyance is of premises which do not constitute all or substantially all of the assets of the party of the first part. The Certificate of Incorporation of the party of the first part does not require any consent of stockholders to the sale of property." 9. Section 909 (b) and (c) of the Business Corporation Law provides: "(b) A recital in a deed, lease or other instrument of conveyance executed by a corporation to the effect that the property described therein does not constitute all or substantially all of the assets of the corporation, or that the disposition of the property affected by said instrument was made in the usual or regular course of business of the corporation, or that the shareholders have duly authorized such disposition, shall be presumptive evidence of the fact so recited.

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Chapter 8 - Page 4 CORPORATIONS 1 SALES & MORTGAGE CONSENT REQUIRED Legal Bulletin

(c) An action to set aside a deed, lease or other instrument of conveyance executed by a corporation affecting real property or real and personal property may not be maintained for failure to comply with the requirements of paragraph (a) unless the action is commenced and a notice of pendency of action is filed within one year after such conveyance, lease or other instrument is recorded . . ."

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Chapter 8 - Page 1 CORPORATIONS 2 NOT-FOR-PROFIT CORP. LAW Legal Bulletin

1.

APPLICABILITY: Effective September 1, 1970 this law replaced the Membership Corporation Law and is cited as "N-PCL". Several amendments have subsequently been added. It applies to both domestic and foreign Corporations. The law as amended applies to benevolent orders (effective 9/1/71) and to corporations formed under the Religious Corporations Law (effective 9/1/72) , and to educational corporations effective 9/1/73 (Section 216-(a) Education Law). However, in the event of conflict between the N-PCL and RCL, the RCL shall prevail (Section 103 (a) N-PCL; Section 2-b RCL); similar provisions are contained with respect to education corporations and the special act under which it was formed. (216-a Education Law). The General Corporation Law is expressly made inapplicable (Section 103 (b)), though many of its provisions are incorporated in original or revised form. Similar provision is contained in Section 216-a (5) of the Education Law.

2.

TYPES OF CORPORATIONS: In addition to many special types of membership Corporations having specialized provisions (Article 14) that have been carried over from Articles 9 to 19 inclusive, of the Membership Corporation Law with revisions, there are four types of corporations under the new law designated as Type A, Type B, Type C and Type D (Section 201). Type A is intended to cover the usual non-business membership corporations where activities by or for members are the predominant aspect. They would include civic, patriotic, social, fraternal, professional, trade or service associations. Type B covers the charity, educational, cultural, scientific and literary corporations, those to prevent cruelty to children or animals, and religious corporations (Section 2-b (2) RCL) and also education corporations (Section 216-a (5)). Type C is a new type whose purposes are ordinarily carried on for profit, but is intended to be non-profit. Type D is intended to cover the formation of corporations for purposes as provided in some other law, and may also include purposes included within Types A, B and/or C.

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Chapter 8 - Page 2 CORPORATIONS 2 NOT-FOR-PROFIT CORP. LAW Legal Bulletin

3.

DETERMINATION OF TYPE OF CORPORATION: (a) Every Not-For-Profit corporation in existence on 9/1/70 with designated exemptions, is considered a Type B corporation (Section 113 (a) N-PCL), unless the type of corporation is determinable from its certificate of incorporation (Section 402 (a) (2) N-PCL) or it has filed a Certificate of type of not-for-profit corporation with the Department of State or its certificate of incorporation has been amended to state its type (Section 201 N-PCL). Corporations that are exempted from the automatic determination of type are corporations whose type is determined by the Education Law; the Religious Corporations Law; the Private Housing Finance Law; corporations formed under the Membership Corporations Law or a prior General Law or Special Act; corporations whose principal purpose is religious, educational or charitable and are operated, supervised or controlled by a religious corporation; or special corporations formed under Article 14. An exempt corporation may elect to deliver a Certificate of type of not-for-profit corporation to the Department of State. (Section 113 (b) N-PCL).

(b)

4.

DISSOLUTION: (a) A Membership Corporation that was dissolved under former Section 57 of the Membership Corporation Law may be reinstated by filing a Certificate of annulment of dissolution and reinstatement of corporate existence, pursuant to Section 1012 N-PCL, with the Department of State. In the event of a dissolution of a former membership corporation pursuant to former Section 57 of the Membership Corporation Law, the following exception should be raised: " , a Not-For-Profit Corporation (formerly a Membership Corporation) was dissolved by the Secretary of State on , 19 . Prior to closing, proof must be furnished that said corporation has been reinstated pursuant to Section 1012 N-PCL." In the event that the corporation is not reinstated, Section 1006 N-PCL will apply as to a winding up of the affairs of the corporation, and only a disposition of that nature should be insured.

(b)

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Chapter 8 - Page 3 CORPORATIONS 2 NOT-FOR-PROFIT CORP. LAW Legal Bulletin

5.

PURCHASE, SALE, MORTGAGE OR LEASE OF REAL PROPERTY: (a) No court order is required to authorize the purchase, sale, lease or mortgage of real property except under (b) (2) below, but it must be authorized by the vote of two-thirds of the entire board of directors, provided that if there are twenty-one or more directors the vote of a majority of the entire board is sufficient (Section 509) and comply with the certificate of incorporation and by-laws. A sale, lease, exchange or other disposition of "All, or substantially all" of the assets of the corporation must comply with Section 510 which includes the following: (1) If there are members entitled to vote thereon, the board of directors must adopt a resolution recommending the sale, lease, exchange or other disposition, specifying the terms and conditions and the eventual disposition of the consideration, together with a statement that the dissolution of the corporation is or is not contemplated thereafter. If there are members entitled to vote thereon, the resolution of the board containing all essential facts must be approved by a two-thirds vote at an annual or special meeting after notice to all members whether or not entitled to vote and to the holders of any bonds or subvention certificates of the corporation. If there are no members entitled to vote, the resolution of the board of directors as in (a) above will suffice. (2) Such a sale, lease, exchange or other disposition by a Type B or Type C corporation also requires a court order based upon a petition complying with Section 511. In addition, sales, mortgages (other than purchase money), and leases for a term exceeding 5 years by religious corporations continue to require a court order as required by Section 12 Religious Corporations Law, and Requires notice of the application to the attorney general (Section 2-b RCL). There is presently no provision for any confirmatory order to cover transactions consummated without the required court order, except as contained in Section 12 RCL.

(b)

(3)

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Chapter 8 - Page 4 CORPORATIONS 2 NOT-FOR-PROFIT CORP. LAW Legal Bulletin

6.

SERVICE OF PROCESS: The Secretary of State is designated the statutory agent for process as to both domestic and foreign Not-For-Profit Corporations (Section 304). In addition, a registered agent may be designated in the certificate of incorporation or an amendment thereto. Process is served on a registered agent as if the registered agent were a defendant (Section 306). Service on an unauthorized foreign corporation is provided for under Section 307.

7.

DIGEST ONLY: This digest does not cover the entire Not-For-Profit Corporation Law as it is too voluminous for such purpose. It only covers those portions of primary interest in our work.

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Chapter 8 - Page 1 CORPORATIONS 3 RELIGIOUS CORPORATIONS LAW Legal Bulletin

1) 2) 3)

Churches are affected by the Religious Corporation Law & Not-For-Profit Corporation Law Franchise Taxes and Status reports are not required Even if property so specifically devised u/w to a religious corporation, the N.Y. State and Federal Estate tax questions apply because the property forms part of the gross estate. The following exception language applies: A. Unanimous written consent of stockholders of Saint John's Protestant Episcopal Church to the proposed sale must be submitted or in the alternative proof must be furnished that the holders of two-thirds of its stock have consented to the sale at a meeting duly called. Leave of court must be obtained approving the giving of a deed from Saint John's Protestant Episcopal Church, a Not-For-Profit Corporation, formerly a Membership Corporation, if the transaction to be insured hereunder is a sale of all or substantially all of the assets of the grantor corporation. If such sale is not for all or substantially all of the assets there is no need for such a court order, however, the following proofs must be submitted: 1) 2) Proof by affidavit and documentation that the sale does not constitute all or substantially all of the grantor's assets. That the sale has been authorized by a vote of two-thirds of the entire board, provided that if there are twenty-one or more directors, the vote of a majority of the entire board shall be sufficient. Proof that the sale is in compliance with the corporate charter and bylaws.

4)

B.

3)

Religious corporations a. Requires leave of court to sell but not to contract to sell. Relig. Corp. L., Sec. 12: Sun Assets Corp v. English Evangelical Luth. Church, 19 Misc. 2d 187, 185 NYS2d 695

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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Chapter 8 - Page 2 CORPORATIONS 3 RELIGIOUS CORPORATIONS LAW Legal Bulletin

b. c.

Sale without leave is nullity Wilson v. Ebenezer Baptist Church, 17 Misc. 2d 607, 187 NYS2d 861 Property acquired through foreclosure of mortgage held by religious corporation or by deed in lieu of foreclosure requires no leave to sell. Gen. Corp. L. , Sec. 52-a

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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Chapter 8 - Page 1 CORPORATIONS 3.1 RELIGIOUS CORPORATIONS DISPOSITIONS RESEARCH OPINION Legal Bulletin

RELIGIOUS CORPORATIONS DISPOSITIONS 1. QUERY: Will we insure a deed executed on behalf of a Roman Catholic Church corporation by the Bishop, without the necessity of a court order, when the parish has been split and the deed is being given to the new or second Roman Catholic Church corporation in accordance with Section 92 of the Religious Corporations Law?

The section permits the Bishop to execute such a deed. However, it also states: "Said transfer shall be made by the said roman Catholic Bishop or his successor after having complied with the requirements of this chapter in the same manner as the trustees of any religious corporation are compelled to do before making a transfer of church property." It is my opinion that this latter sentence contemplates compliance with Section 12 of the Religious Corporation Law. Reading Subdivisions 1, 3, and 8 together, it is my opinion that a court order would be required. I have given consideration to the fact that as of September 1, 1972 the Not-ForProfit Corporations Law will become applicable to religious corporations. However, wherever the provisions of the two laws conflict, the provisions of the Religious Corporation Law must prevail. In addition, where the provisions are not in conflict, both provisions must apply. Accordingly, I do not feel that there will be any change in the foregoing opinion after September 1, 1972. 2. QUERY: Under Section 12 of the Religious Corporations Law, may the pastor (secretary-treasurer) of a Roman Catholic Church corporation execute a deed to another church with the consent of the Bishop but without a court order?

In my opinion, a court order is required. We have always construed Section 12 of the Religious Corporations Law to apply to any disposition and not only to what could strictly be defined as a "sale". In addition, Section 12, Subdivision 8, Religious Corporations Law would apply.

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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Chapter 8 - Page 2 CORPORATIONS 3.1 RELIGIOUS CORPORATIONS DISPOSITIONS RESEARCH OPINION Legal Bulletin

Although the Not-For-Profit Corporation Law refers to sales, leases, exchanges or other dispositions, and although a technical argument might be made that a disposition other than a sale would not require a court order under the combination of the Religious Corporations Law and the Not-For-Profit Corporation Law, it is my opinion that a court order will still be required for all dispositions. 3. QUERY: After September 1, 1972, will a religious corporation still require a court order to sell, mortgage (other than purchase money mortgage) or lease for a term exceeding five years?

Yes, the Not-For-Profit Corporation Law will have no effect on the requirements for obtaining a court order in these cases. NB If title in Archbishop of New York, no court order needed.

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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Chapter 8 - Page 1 CORPORATIONS 4 & 5 CORPORATIONS TAXES Legal Bulletin

FRANCHISE AND LICENSE FEE TAXES - NEW YORK STATE - ARTICLE 9A, TAX LAW Lien limited to 10 years as to bona fide purchaser, Section 219, Tax Law. 1. 2. 3. Search and report of payments from Department of Taxation and Finance, Corporation Tax Bureau, State Campus, Albany, New York 12227. Release of lien - Section 213 (3), Tax Law. Insurance against collection?

FRANCHISE TAXES (When a Lien?) Engelhardt v. Alvino Realty Co. Inc., 222 AD 815, aff'd 248 N.Y. 374 NEW YORK CITY GENERAL CORPORATION TAX New York City Administrative Code, Sections R46-1.0 to R46-10.0; 10 year lien provisions, Section R46-73.0. 1. 2. Required letter form of search requiring full details of payment and report of payment. Release provisions in R46-73.0 (10) (b)

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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Chapter 8 - Page 1 CORPORATIONS 4 NEW YORK CITY CORPORATION TAX Legal Bulletin

1.

NEW YORK CITY CORPORATION TAX. On July 15, 1966 pursuant to a state enabling act (Chapter 772 of the Laws of 1966) the City enacted a law (Local Law 21) which added a new title, Title R, to Chapter 46 of the Administrative Code, imposing an annual tax on corporations doing business in New York City. The tax is retroactive to January 1, 1966 in that it taxes the business of such corporations since that date. The holding of real property in the city is doing business within the city (Section R46-3.0, subdivision 1 (effective August 10, 1970; )). the tax is a lien on all the property of the corporation in New York City. Therefore whenever a corporation now holds title to real estate or has held title to real estate in the city at any time since January 1, 1966, we must consider whether a tax under this new act has become a lien. LIEN DATE. The new law follows very closely the provisions of the Tax Law imposing the annual state franchise tax on corporations doing business in the state. As in the state statute the tax becomes a lien on the date the report is required to be filed (without regard to any extension of time that may be granted) (Section R46-73.0, subdivision 10). The corporation must report on or before March 15th if it reports, as most corporations do, on a calendar year basis. It must report two and one-half months after the close of the fiscal year if it reports on a fiscal year basis. We will rely on the reports from Albany on the state franchise tax for the date of the end of the fiscal year. EXAMPLES: If the corporation reports on a calendar year basis, the exception should read: New York City Corporation Tax which became a lien March 15, 1977. If the fiscal year ended September 30, 1976 the exception should read: New York City Corporation Tax which became a lien December 15, 1976.

2.

3.

4.

PROOF OF PAYMENT. The procedure for obtaining status reports on New York City Corporation tax is the following: Submit copies of the last two years returns and cancelled checks with a check for $5 payable to the city collector. Send to: Finance Administration Department of Tax Collection 139 Centre Street New York, NY 10013

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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Chapter 8 - Page 2 CORPORATIONS 4 NEW YORK CITY CORPORATION TAX Legal Bulletin

If the documentation is not available it may still be possible to obtain a status report. In such event contact New York Counsel. 5. DEPOSIT - RATE OF TAX. The rate of the tax follows the same pattern as the state franchise tax statute to the extent of the income earned and the capital employed in New York City. In brief the tax is the highest of four figures - (a) 6.7% of the income, (b) one mill for each dollar of the capital, (c) 6.7% of the sum of a figure which represents 30% of the income and a figure which represents of the excess over $15,000.00 of the compensation of officers and certain stockholders, or (d) $25.00 (effective June 30, 1971 Section R46-4.0). Generally therefore the deposit taken to secure payment of the tax should be the same as if it were a state franchise tax. Where both state and city taxes are unpaid, the deposit generally should be twice what the deposit should have been for the state franchise tax alone. The foregoing dates and rates apply only to ordinary stock corporations. Other dates and rates apply to insurance companies, banks and transportation companies.

6.

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Chapter 8 - Page 1 CORPORATIONS 4.1 BUSINESS CORPORATION TAX CLEARANCE (NYC) Legal Bulletin

It is the applicant's responsibility to clear this exception and not the title companies? All requests for a status report are to be sent to: The City of New York, Finance Administration, Department of Tax Collection, 139 Centre Street, New York, New York, 10013. Together therewith, the City requires copies of (i) the reports filed for the past three years and (ii) the cancelled checks showing payment of the tax liability. It will not issue a status report unless all the above are complied with. T.A. Title will not accept submission of either (i) or (ii) above set forth without a status report from the City, because it is the City's position that they are not estopped from raising further tax questions unless a status report has been issued. In those situations wherein a prior corporation, now out of title, was properly dissolved in Albany, we cannot assume they have satisfied their obligation to the City of New York. Same must be verified. The applicant should obtain a "Release of Lien" - form 49 - to remove the exception. In those situations where we require an escrow covering said taxes, same should be taken only where the lien is to be paid and discharged of record not later than 30 days after closing. In addition to the escrow, require the completion of a letter of personal undertaking acceptable to the Company. The following forms relating to BCT follow: Activities Report of Corporation disclaiming liability for tax, form 245 Application for Release of Lien of NYC General Corp. Taxes, R46-73.9 Tax Status application

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Chapter 8 - Page 1 CORPORATIONS 5 FRANCHISE TAX NEW YORK STATE Legal Bulletin

An important amendment of the Tax Law in 1961 classified real estate corporations as business corporations and another in 1962 changed the lien date on business corporations from May 15 to March 15. 1. ANNUAL FRANCHISE TAX ON REAL ESTATE CORPORATIONS Prior to 1962 corporations engaged solely in the business of buying and selling real estate were taxed annually pursuant to Section 182, subdivision 1 of the Tax Law. This tax became a lien on January 1 of each year. The last tax under this Section became a lien on January 1, 1961 and was imposed for the privilege of doing business during the calendar year 1961. 2. TRANSITION TAX ON REAL ESTATE CORPORATIONS By the statute passed in 1961, Section 182 was repealed as of the end of that year and corporations previously taxed under that Section became ordinary business corporations to be taxed under Article 9-a of the Tax Law. During the transition year, for the privilege of doing business during the calendar year 1962, a new provision, Section 209, Subdivision 1-a, imposed a tax on such corporations of 2% of the sum of its surplus and dividends paid during 1961. This tax became a lien March 1, 1962. 3. LIQUIDATION TAX ON REAL ESTATE CORPORATIONS If a corporation classified under Section 182 was dissolved or liquidated before January 1, 1962, it was required to pay a liquidation tax pursuant to Section 182, subdivision 2. The repeal of Section 182 abolished this tax as to any liquidation after January 1, 1962. 4. ANNUAL FRANCHISE TAX ON BUSINESS CORPORATIONS Prior to 1963, business corporations were required by Article 9-a of the Tax Law, for the privilege of doing business in a calendar year, to file reports on or before May 15, and the tax became a lien on that date. If a corporation filed on a fiscal year basis instead of a calendar year basis, the report was due and the tax became a lien three and one-half months after the end of the fiscal period. In 1963 and thereafter business corporations (which now include real estate corporations) are required to file reports on or before March 15 and the tax becomes a lien on that date. If the corporation files on a fiscal year basis the report is due and becomes a lien two and one-half months after the close of the fiscal year. Heretofore business corporations were permitted to pay the tax in two installments, but the entire tax was a lien on the report date. After 1963 the entire tax must be paid when the report is due.
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Chapter 8 - Page 2 CORPORATIONS 5 FRANCHISE TAX NEW YORK STATE Legal Bulletin

5.

NEW CORPORATIONS If a corporation is created, acquires real estate and sells it during one calendar year, no franchise tax will be due before the sale if the corporation will report on a calendar year basis, but a tax may be due if it will report on a fiscal year basis. In such cases an affidavit must be obtained and considered which shows whether the corporation keeps books and will report on a calendar or fiscal year basis.

6.

FOREIGN CORPORATIONS When a foreign corporation holds real estate, the license fee imposed by Section 181 must be considered as well as the annual franchise taxes.

7.

AUDIT OF RETURNS The State Tax Commission has discontinued the practice of showing the word "unaudited" on its returns.

8.

DEPOSITS In computing deposits to secure payment of franchise taxes, consult branch Counsel.

9.

DURATION OF LIEN If a corporation is out of title by a deed recorded more than ten years ago, no question will be raised as to franchise, liquidation or license taxes against such corporation.

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Chapter 10 - Page 1 DECEDENTS' ESTATES General

DECEDENTS' ESTATES
GENERALLY When a decedent appears in the chain of title, the examining agent should determine: a) b) c) that the owner is (or was), in fact, dead; and that claims of all unsecured creditors have been paid or that sufficient time has elapsed that enforcement of such claims is barred; and that federal and, if applicable, state estate or inheritance taxes have been paid or that the enforcement thereof if legally barred by passage of time or that no such taxes became due; and the person or persons who succeeded to the decedent's interest in the property.

d)

All four elements (a) to (d) above must be determined. PRESUMPTION OF DEATH: The best evidence of death is an official death certificate. Absent such record proof, for older conveyances, the examiner may usually rely upon affidavits, recitals made in deeds from heirs or upon facts recited in a petition for probate or administration of the estate to establish the fact of death of a record owner. The examiner should not rely upon mere presumptions of death where the individual has been absent for a statutory period of time. For an individual "presumed" but not known to be dead, a Court determination is required before title can be insured in a purchaser from the heirs of the absent owner, and even a Court Order may be relied upon only if the particular state statute authorizing such determination of death is sufficiently comprehensive that it includes protection for persons who purchase from the heirs of the presumed decedent. Under no circumstances should those persons claiming to be the heirs of a "missing" person be insured; even with a judicial determination of death. CREDITORS: If administration proceedings have been opened and appropriate notice to creditors has been given, most state statutes provide that, after the time for filing of claims as set forth in such statute has elapsed, the estate is not subject to claims of unsecured creditors who have not timely filed their claims. Secured creditors (Mortgages, etc.) ordinarily are not affected by the death of the debtor and a failure to file a claim in the estate will not
Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

release or impair the lien on the security (property).

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Chapter 10 - Page 2 DECEDENTS' ESTATES General

LIFE ESTATES: A Life Estate terminates on the death of the life tenant and title remains vested in the remaindermen, free and clear of any claim of the Estate or heirs of the life tenant. However, the examiner should recognize that if the Life Estate was created by the decedent as a retained interest in property he conveyed, the value of the life estate will be included in his Gross Estate and when the life tenant has a substantial Estate, estate tax clearance will be necessary. (26 U.S.C. 2036). A life estate received from a third party is not an interest which would be includable in the life tenant's Gross Estate and the property would generally not be subject to a lien for federal estate taxes. (Exception generation skipping transfers made after 1/1/83 - subject to $1,000,000 exemption.) The death certificate of the life tenant should be recorded and, if necessary, evidence of tax lien clearances should also be placed of record. JUDGMENTS AGAINST HEIRS: The lien of a properly recorded judgment against an heir will attach to that heir's interest in the property as soon as it is acquired by the debtor heir. Since title will be deemed to have vested in the heirs as of the date of death of the decedent, such judgments must be noted as exceptions unless the interest of the heir has been divested by a proper sale of the property by the Personal Representative. Even where the heirs have agreed amongst themselves to distribute the property to heirs other than the judgment debtor, and the judgment debtor never receives a record title, the judgment will have attached to the interest acquired at death and must be noted as an exception. EXAMINATION OF PROBATE PROCEEDINGS Certification of title through a decedent's estate assumes a full examination of the estate proceedings, notwithstanding that the proceeding has been completed in apparently regular order. The examiner must consider each of the essential elements of the Administration in accordance with the governing law of the state. In the absence of curative legislation (including time limitations), exception must be taken to any apparent omission or error in the proceedings. In addition, no policy which is based upon administration proceedings or any order entered therein, should be issued until the appropriate appeal time has elapsed, unless such possible appeal is set out as an exception in the policy or the requirement has been waived by the Home Office. In addition to death, taxes, creditors and determination of heirs, the examiner must consider: a) b) Sufficiency of execution, proofs and probate of the Will, if any. Entitlement of the personal representative to appointment. If not named in the Will or by statutory preference, have the named, preferred, parties waived their right to serve?

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Chapter 10 - Page 3 DECEDENTS' ESTATES General

c) d) e) f) g) h) i)

The possibility of marriage of or children born to or adopted by the Testator after the execution of the Will. Disposition of homestead, dower, curtesy, elective shares and other marital or lineal descendant preferences and rights. Ambiguity in the terms of the Will or any Trust created thereby as to who are the intended beneficiaries or who has power of sale. Are there any restrictions imposed on the use or alienability of the land? Is there sufficient money in the Estate to pay any legacies, or are they a charge against the land being insured? (Proof of payment of the legacies required). What powers does the Personal Representative have? If the property is being sold by the Estate, has notice of the intended sale been given to all parties entitled to such notice? Does the insured transaction adhere to the terms of the order? Does the Estate properly dispose of the interests of all heirs and devisees If a Trust is created under the Will and the property to be insured is to be vested in the Trust, the Trust portions of the Will and any Trust document involved must be examined and the same determinations [a) through j) above], made. In addition, consideration must be given to any state statues regulating trusts.

j) k)

If any irregularities are found, or if the agent is uncertain as to the applicable state law, consult with the Home Office.

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Chapter 10 - Page 1 DECEDENTS ESTATE Digest

ABBREVIATIONS: -EPTL: Estates Probate & Trust Law -SCPA: Surrogates Court Procedures Act -RPAPL: Real Property Applications and Procedures Law SIMULTANEOUS DEATH (E.P.T.L. 2-1.6) TRANSFER OF DECEDENT'S TITLE (S.C.P.A. 1907, 2505) 1. Testate Decedent Probate of will and issuance of letters pursuant to S.C.P.A. Article 14. Statutory power of sale in executor, trustee and preliminary executor. This does not apply to specifically devised property. (E.P.T.L. 11-1.1) A devisee can convey after probate of will. If decedent died outside the state ancillary probate is authorized pursuant to S.C.P.A. Article 16 (∋ 1601-1616). The domiciliary executor may act in New York state pursuant to power in will (unless restricted by ∋ 131, Banking Law). 2. Intestate Decedent Heirs can convey by intestate succession (see below). Administration proceedings and issuance of letters gives administrator power to convey without a court order; however, temporary administrator requires court order to sell. (S.C.P.A. 904) Administrator is required to file bond. (S.C.P.A. 805, Subd. 3) Court may order disposition of decedent's real property where there is no power in fiduciary. (S.C.P.A. art. 19) INTESTATE SUCCESSION (E.P.T.L. 4-1.1) If no issue, and no parent survive, a surviving spouse takes entire estate. If a spouse and children, or issue of child survive, property not exceeding $50,000 in value and one-third of residue goes to spouse with balance to children or their issue per stirpes.

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Chapter 10 - Page 2 DECEDENTS ESTATE Digest

If spouse and only one child, or issue of one child, survive, money or personal property not exceeding $50,000 in value and one-half of the residue goes to the spouse with the balance to the child or issue of child. If no spouse survives the entire estate is succeeded to by issue, per stirpes. TESTATE SUCCESSION-WILLS 1. Execution (E.P.T.L. 3-2.1) Must be signed by testator and attested to by at least two subscribing witnesses who affix their residence address. Testator may either sign in the presence of, or acknowledge his signature to each attesting witness separately; he must declare that the instrument is his will and request the witnesses to act. This section permits the execution of a will by another person, in the name of the testator, in the presence of a the testator, and by his direction. Such person must affix his residence address; and, he is not counted as one of the necessary witnesses. 2. Foreign Executed Will (E.P.T.L. 3-5.1) Will be recognized as valid in New York if executed: a. b. c. According to the law of New York or According to the law of the place where executed, According to the law of the domicile of the decedent at date of death.

ESTATE ADMINISTRATION 1. Personal Representatives - Qualifications (S.C.P.A. 707) An executor or administrator must be a natural person or an entity authorized by law to act as fiduciary. The following are not qualified: Infants, incompetents, non-domiciliary aliens (other than a foreign guardian of an infant who has been granted ancillary letters in New York), felons, incompetents by reason of drunkenness, dishonesty, improvidence, or want of understanding, persons disqualified by the court by reason of inability to read, and write the English language. 2. Creditor Claims (S.C.P.A. 1801, 1802)

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Chapter 10 - Page 3 DECEDENTS ESTATE Digest

Claims must be filed within three months from the day of first publication of notice to creditors; or, if no notice is published, within seven months from the date of issuance of letters. If claims are not so filed, the fiduciary shall not be chargeable for any assets or money paid in good faith in satisfaction of any lawful claims or of any legacies or distributions to distributees, before such claim was presented. 3. Real Property Transactions (E.P.T.L 11-1.1; S.C.P.A. 1901 et seq.) Unless limited by order of court, or by will, every fiduciary is authorized to sell or mortgage the real property at public or private sale. Fiduciaries, other than trustees, may lease for a term not exceeding three years; and, in case of trustees, for a term not exceeding ten years, even though such term extends beyond the duration of the trust. Leases for a greater period require court authorization and confirmation. 4. Summary Estate Administration (S.C.P.A. 1301 et seq.) Statutory provisions apply only to personal property estates not exceeding $10,000 in value. TAXES 1. Inheritance Tax None, 2. Estate Tax (Tax Law 951 et seq.) Modeled after federal estate tax. Where state tax is less than maximum credit allowed under federal law the New York tax is increased to that maximum credit allowed. Rate ranges from 2 percent on taxable estates of not more than $50,000 to more than 14 percent for taxable estate exceeding a value of $10,000,000.

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Chapter 10 - Page 1 DECEDENTS ESTATES Title

SUCCESSION TO TITLE OF A DECEDENT The rights of succession to the property of the deceased, whether by will or intestacy, are of statutory creation. Nothing in the Federal Constitution forbids the state legislature to limit, condition or even abolish the power of testamentary disposition over property within its jurisdiction. (Will of Granchelli, 393 N.Y.S. 2d 894 (1977)). It is within the power of the legislature to prospectively dictate the terms of distribution of property in intestacy and to control the power of testamentary dispositions. (In re Schloessinger's Estate, 333 N.Y.S. 2d 603 (1972)). Every person who is at least eighteen years old is allowed to dispose of his real and personal property and to exercise a power to appoint such property. He can devise or bequeath every estate of property that he owns. This testamentary disposition of property can be made to any person who has the capacity to acquire and hold such property. The testamentary disposition, in order to be effective, must meet the requirements set forth in N.Y. Est. Powers $ Trust Law ∋ 3-2.1, 1967. The distribution by intestacy is really a transmission of property pursuant to a statutory will, which determines the property passing as well as the identity of the recipients. (In re Williams's Estate, 295 N.Y.S. 56 (1937)). The "statutory will" which governs intestate succession in New York is found in N.Y. Est. Powers & Trust Law ∋ 4-1.1 - 1.4, 1977. The law of the situs governs and controls descent, alienation, effect and construction of the decedent's will as well as the effect of any conveyance and validity of any power possessed by fiduciaries to deal with the land. (In re Drexel's Will, 231 N.Y.S. 2d 574 (1962)). The legal domicile at death determines what law is to be applied and what court has jurisdiction over personal property of the decedent. (In re Rougeron's Estate, 270 N.Y.S. 578 (1966)). JURISDICTION The Surrogate's Court has general jurisdiction over probate proceedings. This grant of jurisdiction to the court is an affirmative exercise of the legislative power under Article 6, section 12e of the Constitution. The Surrogate's Court is to exercise full and complete general jurisdiction in law and in equity in order to administer justice in all matters relating to the affairs of decedents. (N.Y. Surr. Ct. Proc. Act. ∋201, 1967).
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Chapter 10 - Page 2 DECEDENTS ESTATES Title

The court obtains jurisdiction over a case by the existence of the jurisdictional facts prescribed by statute. The jurisdiction of the court is exercised by the commencement of a proceeding in the court. All proceedings are special proceedings and are commenced by filing a petition. Personal jurisdiction of the parties is obtained by: 1) service of process upon the parties; 2) submission to the jurisdiction of the court by waiver of issuance and service of process; 3) appearance of an adult competent party in person or by attorney or by pleading. (N.Y. Surr. Ct. Proc. Act. ∋203, 1977). The Surrogate's Court has jurisdiction to determine necessary parties to the proceeding and their right to share in the estate. No jury trials are granted for this preliminary question. (In re Fay's Estate, 332 N.Y.S. 2d 322 (1972)). The Surrogate's Court of each county has jurisdiction exclusive of every other surrogates' court over the estate if: 1) 2) The decedent was a domiciliary of that county at the time of his death, disappearance or internment; The decedent was a non-domiciliary of the state who: a) b) c) left property within that county and no other; left personal property which has come into that county and no other since his death, disappearance or internment, and remains unadministered; left a cause of action against a domiciliary of that county for damages for the wrongful death of the decedent and who left no property in any other county. (N.Y. Surr. Ct. Proc. Act. ∋206, 1967).

If an estate or matter may be within the jurisdiction of the surrogates' courts of two or more counties, the court which first exercises jurisdiction by the commencement of the proceeding shall retain jurisdiction. (N.Y. Surr. Ct. Proc. Act. ∋207, 1977). The court may exercise personal jurisdiction over any person as to any matter within the subject matter jurisdiction of the court if such a person would be subject to the personal jurisdiction of the supreme court in a similar action. (N.Y. Surr. Ct. Proc. Act. ∋211, 1967). POWERS AND DUTIES OF PERSONAL REPRESENTATIVES The powers and duties of the personal representative of the decedent's estate are set forth in N.Y. Est. Powers & Trusts Law ∋11-1.1, 1977.

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Chapter 10 - Page 3 DECEDENTS ESTATES Title

An executor or administrator is primarily charged with the duty of liquidating estate assets as soon as possible. (Matter of Larson's Estate, 385 N.Y.S. 2d 720 (1976)). According to Larson, the executor/administrator's usual functions include: 1) Paying debts; 2) Marshalling assets; 3) Distributing specific sums. The executor/administrator must at all times discharge its fiduciary duty so that all legatees are treated in like manner and without prejudice. (In re Muller's Estate, 300 N.Y.S. 2d 341 (1969)). In addition, he must at all times exercise utmost good faith and may never advance their own personal interests at the expense of the beneficiaries. (In re Israel's Estate, 315 N.Y.S. 2d 453 (1970)). Letters of administration must be granted to the persons who are distributees of an intestate and who are eligible and qualify. If there are eligible distributees who qualify and are equally entitled to administer the estate, the court may grant letters of administration to one or more persons. SPECIAL ADMINISTRATORS, ADMINISTRATORS WITH WILL ANNEXED, MULTIPLE REPRESENTATIVES Letters of administration may be granted to a trust company or other company authorized to act as a fiduciary. (N.Y. Surr. Ct. Proc. Act. ∋1001, 1977). Any person interested in the estate of an intestate may present a petition to the court having jurisdiction, asking for a decree granting letters of administration to him or to another person upon the estate of the decedent. (N.Y. Surr. Ct. Proc. Act. ∋1002, 1977). Letters of administration with will annexed will be granted in the following priority: a) a sole beneficiary; b) one or more of the residuary beneficiaries; c) one or more persons interested in the estate. The court may refuse to issue letters of administration with will annexed where distribution of the estate is possible under law. (N.Y. Surr. Ct. Proc. Act. ∋1418, 1977). PROCEDURE IN PROBATE PROCEEDINGS The probate proceeding is initiated by the filing of the petition, if process is issued and service made upon any respondent within 60 days after the date of filing the petition. When process is served by publication, the first publication must be made within 60 days of the filing of the petition. (N.Y. Surr. Ct. Proc. Act. ∋301, 1967).

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Chapter 10 - Page 4 DECEDENTS ESTATES Title

The pleadings shall consist of the pleading, answer or objections and account. A demand for the relief sought must also be stated. (N.Y. Surr. Ct. Proc. Act. ∋302, 1967). The determination of the rights of the parties to a special proceeding is a decree which is enforceable as any decree, judgment or order made by the Supreme Court in an action. (N.Y. Surr. Ct. Proc. Act. ∋601, 1967). Upon the request of any interested person, any instrument acknowledging payment of moneys pursuant to a decree may be recorded with the court. This recordation is presumptive evidence of: 1) the contents of the instrument; 2) its due execution; 3) any payment of money or delivery of property acknowledged in the record. (N.Y. Surr. Ct Proc. Act. ∋604, 1967). PROCEEDINGS FOR SALE OF PROPERTY The court may authorize or direct the disposition of a decedent's real property. Disposition includes: a) b) c) d) e) f) g) h) i) Sale; Mortgage; Exchange; Lease; Confirmation of a prior lease made without court approval; Release of the right to an award for the taking of real property by eminent domain; Transfer to a spouse or other beneficiary in full or partial satisfaction of the interest or share of such person in the decedent's estate; Enter into possession of any real property and receive the rents from the property and apply them as directed by the court; Bringing a partition action if the property was held in common. (N.Y. Surr. Ct. Proc. Act. ∋1901, 1977).

The administrator, in selling land, should make a business judgment and utilize the powers given him. (In re Osterndorf's Estate, 349 N.Y.S. 2d 275 (1973)). The surrogate's court has discretionary power to order the disposition of a decedent's real property. In order to justify the sale, however, the action must serve to carry out the provisions of the will or benefit those interested in the estate. (In re Perkin's Will, 286 N.Y.S. 2d 586 (1967)). The real property may be disposed of for any or all of the following purposes: the payment of: administration expenses, funeral expenses, decedent's debts, (including judgment or other liens, excepting mortgage liens, which existed on the property before his death), estate or death tax, any debt or legacy charged upon the property, payment and distribution of the shares to the entitled persons and any other purpose the court
Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

deems necessary. (N.Y. Surr. Ct. Proc. Act. ∋1902, 1967).

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Chapter 10 - Page 5 DECEDENTS ESTATES Title

A sale will not be ordered if it appears that the fiduciary officer can satisfy the debts from the rents from the property. (N.Y. Surr. Ct. Proc. Act. ∋1905, 1977). RENUNCIATIONS, TRANSFERS, ASSIGNMENTS An executor is deemed to have renounced the appointment if: a) b) c) he does not qualify or renounce within 15 days after the probate of the will; he does not qualify or renounce within 15 days after the filing of the document designating him as executor; an objection is made to his appointment and he fails to qualify or renounce within 5 days after the court ruled in his favor. (N.Y. Surr. Ct. Proc. Act. ∋1416, 1967).

A person named as executor in a will may renounce his right to letters testamentary by an acknowledged instrument. However, a renunciation may be retracted by an instrument similarly executed to an instrument of renunciation. This retraction must be made before the letters testamentary or letters of administration with will annexed are issued to another. (N.Y. Surr. Ct. Proc. Act. ∋1417, 1967). A distributee may not renounce once he has accepted any part of the property. (Smith v. City of New York, 344 N.Y.S. 2d 799 (1973)). A renunciation of an intestate share or of a testate share is made retroactive to the date of death of the deceased and must be treated as if no inheritance or gift ever passed or vested to the person who renounces. (Matter of Dankner's Estate, 384 N.Y.S. 2d 683 (1976)). The intestate renunciation statute permits distributees of an intestate estate to pass the intestate share to those who would have taken it if the renouncing distributee had predeceased the intestate, usually benefitting the renouncer's issue. (In re Fienga's Estate, 347 N.Y.S. 2d 150 (1973)). An interest in the decedent's estate can be transferred or assigned. The purpose of the statute which authorized the recordation of this disposition is to furnish a means of protection against other assignees of the same interest. (In re Gray's Estate, 214 N.Y. S. 2d 834 (1961)). Gray also held that the recordation affects priority but not the validity of the disposition. STATE INHERITANCE TAX An inheritance tax is imposed on the transfer of any real or personal property when: 1) The transfer is by a will or by the intestate succession laws from a person who died owning the property while a resident of the state.
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Chapter 10 - Page 6 DECEDENTS ESTATES Title

2)

The transfer is made by deed, grant, bargain, sale or gift in contemplation of death. However, if any of the transfer is made for a valuable consideration, that portion for which the consideration was paid is not taxable. Any person or corporation becomes beneficially entitled, in possession or expectancy, to any property or its income by a transfer. Any person or corporation exercises a power of appointment obtained from any disposition of property. This appointment will be deemed a taxable transfer.

3) 4)

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Chapter 10 - Page 1 DECEDENT ESTATES 1 Underwriting

EFFECT OF DEATH ON RIGHTS TO DECEDENT'S PROPERTY When an individual owner of property dies, his natural dominion and control over his property is at an end. The right to dispose of property owned during one's lifetime and to control its distribution after death is not an inherent right. Such right was created by statute in Roman and Anglo-Saxon Law and persists pursuant to the provisions of New York Statutory Law today. Since such rights are created by statute it is essential that all the legal requirements provided for be complied with strictly. Warren's Weed, New York Real Property, Descent, sec. 101, p.4; 14 N.Y. Jur. Rev. Decedent's Estates, secs. 17, 18, p. 224; Doldeer's Estate, 226 N.Y. 623, 123 N.E. 381 (1919); In re Adam's Estate, 182 Misc. 937 (Surr. Ct., N.Y. City., 1943), 45 N.Y.S. 2d 494, aff'd, 267 A.D. 985, 48 N.Y.S. 2d 801 app. den., 268 A.D. 849, cert. den., Adams v. City Bank Farmers Trust Co., 324 U.S. 865; Matter of Whitney's Will, 153 N.Y. 259, 264, 47 N.E. 272, 273; 60 Am. St. Rep 616 (1897). If the owner chooses to dispose of his property by will and complies with all the statutory requirements, the property will pass according to the terms of the will when the will is duly admitted to probate. If there is no will, or the owner fails to comply with the provisions of law, or there is failure in the devise of some of the property, the property (or that part which passes by the partial intestacy) will pass according to the rules of statutory descent and distribution which, in effect, will designate the persons who are to take title to property. Both transfers as a result of disposition by will and disposition by virtue of intestate succession will be discussed in this chapter. QUALITY OF TITLE OF DISTRIBUTEES 1. Vesting of Title Upon the death of an intestate, title to his real property vests immediately and automatically in his heirs or distributees, as determined by the statutory law in force at the time of the decedent's death. This is so with respect to those interests which survive an owner's death; but is not applicable to those interests which automatically cease and terminate upon the death of the owner (See sec. II, supra). Since the vesting is automatic on decedent's death no Surrogate's proceeding at all is necessary to effectuate the vesting. A Surrogate's proceeding may, nonetheless, be desirable in order to marshall the assets of the estate, pay the debts and claims of the estate including taxes, determine the intestate distributees, and provide for an orderly and proper administration and distribution of the assets of the estate.

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Prior to the occurrence of the intestate's death, and in absence of any enforceable agreements to the contrary, prospective heirs or distributees have nothing more than a mere expectancy or prospect of taking the real property by descent. During the lifetime of the decedent such expectancy could be frustrated by conveyance, the due execution of an enforceable will which remains effective and unrevoked at the time of death; or by the execution of various enforceable agreements which will be enforceable against decedent's estate and thus effectively defeat the interests of the distributees. When the property of an intestate decedent passes upon his death to two or more heirs or distributes, such individuals take their shares as tenants in common. See the statutory references set forth in section 3 above. In re Hilliard's Will, 164 Misc. 677, 299 N.Y.S. 788 (Surr. Ct., Kings Cty., 1937), aff'd, In re Hilliard's Estate, 225 A.D. 781, 7 N.Y.S.2d 111. In re Myers, 254 A.D. 879, 5 N.Y.S.2d reh'g. den Irving Trust Co. v. Day (N.Y.) 314 U.S. 556; 137 A.L.R. 1093. NB 2. See Heirship this manual Existing liens and encumbrances The quality of title to the real property which the heirs or distributees take upon the death of the decedent is no better than that held by the decedent immediately prior to his death. Therefore, it is subject to all existing liens and encumbrances including mortgages, judgments, tax liens and all other legal and equitable right of third persons in the property (See EPTL sec. 3-3.6). In addition, any unrecorded interests which would have been enforceable and effective against the decedent will be effective and enforceable against the heirs or distributees. Therefore, a proper and enforceable unrecorded deed, mortgage or other conveyances executed by the decedent as grantor will be effective against the distributees. Enforceable contracts of sale and other enforceable agreement or gifts will likewise be enforceable against the distributees. It is obvious that the distributees are not purchasers for value and are not entitled to the benefit of the recording act. Moreover, in short, as to existing encumbrances they stand in the same shoes as the intestate decedent. In re Dell's Estate, 154 Misc. 216, 276 N.Y.S. 960 (Surr. Ct., Orange Cty., 1935); Chamberlain v. Dunlop, 126 N.Y. 45 (1891(; Crippen v. Spies, 255 A.D. 411, 7 N.Y.S.2d 704 (3rd Dept., 1938). Debts and claims against the estate

3.

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The title of distributees, in addition to being subject to all existing liens and encumbrances, is also subject to certain general debts and claims which may be enforced against the decedent's estate. Pursuant to EPTL sec. 4-1.1, the property, not disposed of by will, is to be distributed only after the expenses of administration, funeral expenses, debts (presumably the claims of general creditors of the decedent) and any Federal and State Estate and death taxes have been paid. These matters are discussed in Section VI below. DEVOLUTION BY WILL Just as in the case of intestacy where distribution is governed by the law at the time of death so also the devolutionary effect of a will and its provisions are governed and determined by the law in effect at the time of testator's death, not the law in force when the will is executed (see EPTL sec. 1-1.5). The law in effect at the time of execution, on the other hand, will govern the formalities of execution and attestation, as well as any limitations on the power of testamentary disposition. So far as the choice of law relating to devises of real property, EPTL sec. 3-5.1 specifically provides that the testamentary disposition of real property will be determined by the law of the jurisdiction in which the land is situated. NECESSITY FOR PROBATE A will is not operative until it is filed in the proper court and admitted to probate. Admission to probate involves establishing to the court's satisfaction, upon due notice to all required persons, that the will is the will of the testator, that it has been signed and witnessed and otherwise executed as required by law, that at the time of its execution the testator was of sound mind and that it, indeed, was the last will and testament of the testator. The execution of a subsequent will revokes an earlier will, unless it is intended to be a codicil to the earlier will. When the court is satisfied as indicated, the will is admitted to probate and is effective for all purposes, including the transfer of the title to real property, as of the time of the decedent's death, as provided therein. Until such admission the will is with no force and effect. PROBATE OF WILLS The probate of a will, as the name implies, is a formal proceeding for the purpose of proving the will. Since testamentary disposition by will is a statutory privilege, every element of the statutory prescriptions necessary for its validity must be met and proved in the Surrogate's Court, a court of record. When the will has been recognized by the decree of the court, all the provisions of the will become, as part of the judgment or decree, binding upon and incontestable by all those made party to the proceedings. The probate of a will, devising or directing the disposition of real property, thereby judicially confirms the transfer of the title intended by the testator.

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Moreover, the decree, by its affirmance of the title of those taking under the will, gives the devisees and legatees the benefit of the statutes of limitation incorporated in the SCPA. When no executor has been named in the will, or when the named executor, or anyone entitled to act as executor in his place, is incapable of acting by reason of death or disqualification, the Court appoints an administrator to carry out the provisions of the will (See 6. Letters of Administration with Will annexed, below. Also see the discussion regarding title practices set forth in VI. G infra.) The execution of a domestic will is governed by EPTL Article 3, Part 2. A will executed in another jurisdiction is governed by EPTL Article 3, Part 5. QUALITY OF TITLE OF DEVISEES 1. Vesting of title Generally the title of a devisee does not arise from the mere fact that the will has been executed by the testator, since the will is an ambulatory instrument revocable by the testator at any time before his death. There are some situations, however where a will may not be revoked. This occurs where there is an agreement, for good and valuable consideration, whereby parties agree either to execute joint, mutual and reciprocal wills or to provide property or services in consideration for the execution of a particular will by the recipient. Subject to the requirements of any circumstances which would disqualify the proposed devisee, and to the scrutiny of the court acting in its capacity as a court of equity, such agreements may be specifically enforced. Nevertheless, although intended beneficiaries often anticipate their inheritance by assigning their benefit in it, their title can arise only after the death of the testator, and subject to the solvency of the estate. Moreover, unlike the title of a distributee, the title of devisees does not vest automatically and immediately upon the death of the decedent. The testamentary gift to the devisees, provided for in the will of the testator, is considered an offer, and without acceptance of the gift there is no vesting or passage of title to the devisees. In the absence of a renunciation, however, acceptance of a devised gift, beneficial on its face, is presumed within a reasonable time. Once there is acceptance of the devise, title of the devisee relates back to the date of death. Unless testator expresses a contrary intention in the will a devise to two or more persons or devisees creates in them a tenancy in common. (EPTL sec 6-2.2., incorporating former RPL sec. 66).

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Overheiser v. Lackey, 207 N.Y. 229 (1913); In re Walker's Will, 195 Misc. 793, 89 N.Y. S. 2d 826 (Surr. Ct., Broome Cty., 1949), modified, 277 A.D. 811, 97 N.Y.S.2d 82 (3rd Dep.); In re Bennett's Estate, 22 Misc. 2d 505, 207 N.Y.S. 2d 200 (Surr. Ct., Wayne Cty., 1959). 2. Existing liens and encumbrances; debts and claims Just as in the case of the intestate distributees in intestacy, the devisees under a will take subject to all existing liens and encumbrances on the property. (See EPTL sec. 3-3.6). In like manner, just as the title of the distributees is subject to certain general debts and claims which may be enforced against the decedent's estate, so is the title of the devisees. GENERAL POWERS OF DISPOSITION BY A FIDUCIARY The statutory powers given fiduciaries were thoroughly revised with the passage of section 127 of the Decedent Estate Law effective June 1, 1965 (The Fiduciaries' Powers Act). It consolidated the statutory powers of trustees and personal representatives which were formerly scattered among several statutes. Basically, if conferred a number of powers on a fiduciary, where the instrument appointing him is silent, of the type generally found in the "boiler plate" clauses of well drawn wills and trusts. As of September 1, 1967 sec. 127 of the Decedent Estate Law was replaced by sec. 11-1.1. of the Estates, Powers and Trust Law. The statutory powers may be expressly limited or excluded by the will or trust instrument, while other powers, not included in Article 11 of EPTL, may be expressly conferred, except for the powers prohibited by EPTL sec. 11-1.7 (a) as being contrary to public policy, which are: a. b. exoneration from liability for failure to exercise reasonable care, diligence and prudence; and the absolute power to fix the value of any asset for distribution.

As originally enacted and as subsequently amended, the Article has accomplished a number of major changes with respect to the powers of a fiduciary including the abolition of the distinction between personal and real property in the administration of an estate. This permits the personal representative to sell, under EPTL sec. 11-1.1 (b) (5), any property not specifically disposed of without specific court order. Under New York Law, an executor takes unqualified legal title to all of decedent's personal property not specifically bequeathed, however, title to property specifically bequeathed vests in the legatee as of testator's death, subject only to certain rights of retention and use in the executor, and title to real property passes directly to the devisee
Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

as of the date of death, without passing through the executor. In re Bentley, 120 B.R. 712.

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Title to real property devised under Will of decedent generally vests in beneficiary at moment of testator's death. DiSanto v. Wellcraft Marine Corp., (2nd Dept., 1989) 540 NYS2d 260, 149 AD2d 560, appeal denied 552 NYS2d 108, 75 NY2d 703. Real property title vests in the distributees on the date of death, and in devisees once the Will is probated, subject to power of sale possessed by the fiduciary. Application of Fello, (Sur., 1981) 440 NYS2d 1004 109 Misc2d 744, reversed 449 NYS2d 770, 88 AD2d 600, affirmed 461 NYS2d 1009, 58 NY2d 999. Landmark cases are Trask v. Sturgess, 170 NY 482, 63 NE 534; Hetzel v. Barber, 69 NY 1. WHAT INTEREST MAY BE MORTGAGED? Any interest capable of passing by purchase or decent is capable of being encumbered by a mortgage, Mutual Life Ins Co. v Shipman, 119 NY 324; Real Property Law, Section 240 (4). Article 8 of the Real Property Law dealing with conveyances and mortgages defines the terms "estate" and "interest in real property" as including every such estate and interest, freehold or chattel, legal or equitable, present or future, vested or contingent. According to the Real Property Actions and Proceedings Law, Section 1602, when the ownership of real property is divided into one or more possessory interests and one or more future interests, the owner of any interest in such real property or in the proceeds to be derived therefrom on a direct sale thereof except the owner of a possessory estate in fee simple absolute therein, may make application to the court for an order directing that such real property or a part thereof be mortgaged. OTHER TITLE CONSIDERATIONS While EPTL now empowers a fiduciary to sell property without a specific order of court, the fiduciary's power to sell should be established by a proceeding for probate or administration. If no letters have been issued, and no order for sale has been made, it is necessary to have all parties in interest join in a conveyance by the fiduciary. In the case of a will, these include all parties required to be joined in the proceedings for probate: beneficiaries under the will as well as presumptive distributees. A deed by a fiduciary should recite full consideration, to avoid marketability problems and the need to establish off the record that full consideration was paid. One last time I ask for your indulgence in repeating the admonition that when dealing with a death in the chain of title the substantive law that will govern is the law in effect at the time of death. Such admonition is certainly applicable in the consideration of the powers of the fiduciary.
Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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A proper historical consideration of all the changes in the law relating to the powers of a fiduciary and all issues raised by such laws could be undertaken at length in an exhaustive treatise. Such a consideration is beyond the purpose and scope of this text and chapter, beyond the energy of this writer, and perhaps beyond the patience or interest of the readers. As is the case with all former law, the earlier laws relating to the powers of a fiduciary become less and less significant with the passage of time, and as the deaths encountered in the chain of title occur subsequent to the effective duration of such laws. Thus, the following represents a brief summary of some of the more significant changes in such laws. Section 13 of the Decedent Estate Law was adopted in 1930 and provided that duly qualified executors and trustees would be deemed to have a power to sell, lease or mortgage real property even if no such power was contained in the will. However, despite this broad provision, the statute and related statutes were construed so that the right to sell, lease or mortgage real property could not be exercised except upon Surrogate Court approval obtained through a proceeding brought under sec. 234 of the Surrogate's Court Act. Executors, trustees and administrators could petition the court under sec. 234. Effective September 1, 1947 sec. 13 DEL was amended to authorize executors and testamentary trustees to sell, lease or mortgage real property without court approval despite the absence of any power contained in the will. Such statutory power could be exercised without proceedings and court approval except: (1) (2) (3) Where the will expressly prohibited the sale, lease or mortgage; or Where the will expressly provides that a particular parcel shall not be sold, leased or mortgaged; or Where the property was specifically devised to one person not under a disability.

At this time an administrator could sell only upon due proceedings and court approval. On June 1, 1965 sec. 127 DEL replaced sec. 13 DEL. Section 127 authorized executors, trustees and other fiduciaries, including administrators to sell, lease or mortgage real property without proceedings and court approval. The statutory power in the case of executors and trustees was not applicable if the will or other instrument provided otherwise or where the property was specifically devised to one person not under a disability. In the case of an administrator, he must post an additional bond. In addition, the letters of administration should be carefully reviewed, for the Surrogate often limited the administrator's powers in the letters.

Underwriting Department 210 West Front Street, Media, Pennsylvania 19063 (610) 892-8100 ext #135 1-800-220-3901 Fax (610) 892-8834

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Effective September 1, 1967 the EPTL repealed the DEL and sec. 11-1.1 EPTL now sets forth the statutory powers. A most significant difference in the new law is that EPTL sec. 11-1.1 (b) (5) expressly excepts from the powers granted to the fiduciary the power to convey, mortgage or lease real property specifically disposed of. In such an instance, a specific order of the Surrogate's Court or the execution of the instrument by all interested parties must be obtained. Note that the former rule DEL sec. 127, only limited the fiduciary in regard to property devised or descending to one person. The statutes referred to above including the current EPTL sec. 11-1.1. (d) purport to apply to estates of all decedents irrespective of the dates of death. The constitutionality of such retroactive provisions is suspect. Hence, until the constitutionality of such provisions is clearly established, title insurers will apply such laws prospectively to the estates of decedents dying on and after the respective effective dates of the statutes.

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Chapter 10 - Page 1 DECEDENTS ESTATES 2 PROBATED ESTATES - SALE BY EXECUTOR UNDER POWER Underwriting

In general, upon the death of an owner of land, its ownership passes to his heirs or devisees. The devolution of title, absolute and complete, is not automatic however. In a testate estate, probate is necessary to establish the will and antecedent to a determination of the persons who shall become entitled to the ownership of the land. Thereafter, ownership passes subject to the debts of the decedent. The debts are a potential lien upon the land and until they are discharged or barred by time, they remain an encumbrance rendering the title to the land unmarketable. Where an estate is in probate and the decedent's executor has a power of sale under the will, he may wish to sell immediately to preserve the asset, pay debts, etc. Conveyances by executors and/or administrators under powers and according to statute give the purchaser title free and clear of the claims of the creditors or the estate, their rights attaching to the proceeds of sale. In order that statutory liens be properly discharged, the attorney for the estate should make a frank disclosure of the assets of the estate. An estimate can be formed of the outside limit of the anticipated death taxes by submitting copies of the following: For N.Y. Estate Taxes - Copy of: (1) (2) (3) (4) TT102 or copy of Order fixing tax together with Copy of the transmittal letter of An estate tax remittance

For Federal - Copy of the 706 form. The total of these amounts are deposited with the title company plus a cushion, all which is returned to the executor upon proof of payment of death taxes.

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Chapter 10 - Page 1 DECEDENTS ESTATES 3 ESTATES TAXES Underwriting

FEDERAL ESTATE TAX Affidavits can be used to dispose of this question where the gross estate wheresoever situated including all personal and real property is less than $600,000.00. Affidavits are sometimes used in cases where the estate is in excess of $600,000.00 where a full disclosure is made of the amount of the gross estate, the nature of the deductions, and the net figures show the estate is substantially less than $600,000.00. Where property is sold by the survivor of a tenancy by the entirety to a purchaser for value the Internal Revenue Service has ruled that the purchaser takes title free of the lien of Federal Estate Tax due on the estate of the deceased spouse. Note: New York State Tax Commission now follows this rule. NEW YORK ESTATE TAX Can be disposed of by one of the following: (1) (2) (3) (4) Order of exemption after a tax proceeding in which the property is listed. Proof of payment of a tax fixed in accord with a tax proceeding in which the property is listed. A recorded release of lien of the specific property in accordance with Section 249BB of the Tax Law. Title companies now apply a rule of the Tax Commission regarding sales by a survivor of a joint tenancy or tenancy by the entirety.

Note: Affidavits showing non-liability for tax are NOT acceptable by title companies with respect to New York Estate Tax.

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NEW YORK ESTATE TAX 1. Section 249-11 of the Tax Law provides that the lien on real estate of New York Estate Taxes ceases fifteen years after accrual in all cases. We will not raise any question of New York Estate Tax if the decedent died more than fifteen years prior to the date of examination of title. Death on or before June 30, 1978. The rate of the tax for resident decedents is set forth in Section 249-n of the Tax Law. The rate applicable to estates of persons who died on or after April 1, 1959 is a sliding scale beginning at 2% of the first $50,000 of the net estate and 3% of the next $100,000 and going up to 21% of the excess of the net estate over $100,000. The net estate is computed after deductions from the gross estate of various personal exemptions and of insurance up to $100,000. 3. Death on and after July 1, 1978. Chapter 67 of the Laws of 1978, effective July 1, 1978, completely revised the estate and gift tax laws. The revisions however did not adopt all of the provisions of the Federal Tax Reform Act of 1976. a) b) c) d) There was and is no unified gross estate and gift tax. There was and is no unified gross exemption. Credits for personal and insurance exemptions have been eliminated (Tax Law Sections 952 (b) and 958). A new general estate tax credit provided under Section 952 (b) is to be applied before other credits (Agricultural exemptions, tax on gifts or prior transfers). Pursuant to this section a New York State gross estate of up to $108,333.33 will receive a credit of $2750 which will cancel the full amount of the tax. Where the gross estate exceeds the aforesaid sum the applicable credit declines to a maximum of $500 if the gross estate tax exceeds $5000 or more. Taxes are still computed at the rates provided for in Section 249-n (See Paragraph 2 above). Where the gross estate of a New York decedent who dies on or after July 1, 1978 is $100,000.00 or more, an affidavit cannot be used to omit an exception as to the New York Estate Tax. The question may only be passed upon a Release of New York Estate Tax or upon a Motion to Fix the Estate Tax and receipted bills showing payment of the same.

2.

e)

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4.

An escrow or an indemnity to cover the New York Estate Tax can only be taken with the consent of counsel and then only for the purpose of omitting the exception for the mortgage and insuring the fee against collection.

FEDERAL ESTATE TAX 1. Section 26 U.S.C. 6324 provides that the lien on real estate of the Federal Estate Tax ceases ten years after accrual in all cases. We do not raise any questions of federal estate tax if the decedent died more than ten years before the date of examination of title. a) Death on or before December 31, 1976 The exemption for federal estate taxes up to and including December 31, 1976 was $60,000. An affidavit to the effect that the gross estate did not exceed that amount can be taken so as to pass an exception as to federal estate tax. Gross estate was defined as not including lifetime gifts unless made in contemplation of death (presumably within three years of the decedent's death). b) Death on and after January 1, 1977 i) The Tax Reform Act of 1976 redefines the gross estate which now includes all real estate, stocks and bonds mortgages, notes and cash, insurance on decedent's life, jointly owned property, transfers during decedent's life without an adequate or full consideration, powers of appointment, annuities, certain personal property, interests in a partnership of unincorporated business, and the value of the decedent's adjusted lifetime gifts. Where the current gross estate as above defined of a decedent who dies on or after January 1, 1977 is $600,000 or less, an affidavit may be used to omit an exception with respect to the lien of the gross estate [see the table on the following page showing changes in the size of estates subject to federal estate tax].

2.

ii)

3.

Where the current gross estate as defined in (2) (b) (i) above for a decedent who dies on or after January 1, 1977 is $600,000 or more, an affidavit cannot be used to omit an exception as to federal estate tax. The question may be passed only upon a Release of the lien of the federal estate tax or a closing letter from IRS and the cancelled checks showing the tax thereon, fully paid. An Estate Tax Clearance Letter, Escrow or an Indemnity to cover the federal estate tax can only be taken with the consent of counsel and then only for the purposes of omitting the exception for the mortgage and insuring the fee against collection.

4.

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Note: 1)

In succeeding years the exempt gross estate for decedents dying in those years will be increased as follows: prior to year January 1, 1977; less than Commencing January 1, 1977; less than Commencing January 1, 1978; less than Commencing January 1, 1979; less than Commencing January 1, 1980; less than Commencing January 1, 1981; less than Commencing January 1, 1983; less than Commencing January 1, 1985; less than Commencing January 1, 1986; less than Commencing January 1, 1987; less than $60,000. $120,000. $134,000. $147,000. $161,000. $175,000. $325,000. $400,000. $500,000 $600,000.

Note: 2)

The tax rates range from 18% of the first $10,000 of taxable estate to a rate of 70% of taxable estate in excess of $5,000,000.

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1.

Section 6324 of the Internal Revenue Code provides that a bona fide purchaser or mortgagee from a surviving joint tenant or surviving tenant by the entirety takes the property or the mortgage free of the lien of federal estate tax due from the estate of the deceased tenant by the entirety. A ruling was made by the Internal Revenue Service in 1956 to the effect that a purchaser or mortgagee who deals at arms's length with the property and pays a full and adequate consideration to the survivor is a bona fide purchaser notwithstanding that he has actual knowledge of the death. Similarly, as to the lien of the New York Estate Tax, Section 249-BB of the New York Tax Law protects a bona fide purchaser from the surviving joint tenant or tenant by the entirety. However, it makes no provision for the holder of a mortgage executed by such survivor. A ruling by the State Tax Commission follows the 1956 ruling of the Internal Revenue Service in recognizing that a purchaser who pays full and adequate consideration is a bona fide purchaser. Therefore when property is being sold for a valuable consideration by a surviving joint tenant or tenant by the entirety, we may disregard both federal estate and state estate taxes against the estate of the deceased tenant. When a mortgage is being made by a surviving joint tenant or tenant by the entirety, we may disregard the federal estate tax but not the state estate tax against the estate of deceased tenant.

2.

3.

4.

5.

Chapter 10 - Page 1 DECEDENTS ESTATE 4 FIDUCIARY PURCHASES Title

FIDUCIARY PURCHASES A trustee or other fiduciary cannot buy the trust property nor may he sell his individual holdings to himself as trustee, because such transactions can be attacked by the beneficiaries.198 That a full and adequate consideration was paid is no defense. Such a transfer is not void but is voidable at the election of the cestui que trusts. 199 If a chain of title discloses a deed from executors to a stranger and later there is a deed from the grantee back to one of the executors, an objection to the title will be set up because the transaction is subject to attack and the deeds may be set aside. Such a transaction makes the title unmarketable.200 This prohibition also extends to the husband and wife of an executor or trustee.201 Such voidable purchases may be validated and the title cured by having the purchase confirmed by the court on a full disclosure of the facts and on notice to all interested parties. 202 This can usually be done in an accounting proceeding. A purchase by a guardian of an infant is made void by statute.203 In a proceeding to sell for debts a purchase by the administratrix was held void and an action to determine claim could not be maintained to cure the defect.204

198

In re Fulton, 253 App. Div. 494; In re Whitmore, 172 Misc. 277.

Boerum v. Schenck, 41 N.Y. 182; Hubbell v. Medbury, 53, N.Y. 98; People v. Open Board of Stockbrokers Bldg. Co., 92 N.Y. 98.
200

199

LePage v. Goldstein, 121 Misc. 233. Seymour v. Seymour, 120 Misc. 525

201

Gallatian v. Cunningham, 8 Cow. 361; Rhodes v. Caswell, 41 App. Div. 229; Corbin v. Baker, 167 N.Y. 128; Webster v. Kings Co. Trust Co., 145 N.Y. 275.
203

202

C.P.A. 987; O'Donoghue v. Boies, 159 N.Y. 87.

204

Kaufman v. Koldin, 263 N.Y. 535

Chapter 10 - Page 2 DECEDENTS ESTATE 4 FIDUCIARY PURCHASES Title

In the case of a voidable sale, the ten year statute of limitations is usually applicable if there are no disabilities 205 Where, however, a trustee bought a mortgage which was a prior lien, foreclosed it and bought in the property individually, it was held that the 20 years statute, now reduced to 15 years, (applying to actions to redeem from mortgages)206 would apply.207 If executors or trustees desire to purchase any part of the estate property, the better practice is to obtain court approval before the consummation of the sale. This can usually be secured on a showing of the fairness of the proposed sale.208 In one estate, the executors owned real estate individually and the estate held mortgages thereon. The executors as individuals were authorized to purchase a $35000 mortgage for $6500 and a $40000 mortgage for $20,750. The executors were able to show that there was no other market where the mortgages could be sold at a higher price. All of the parties being before the court, no question of marketability of title could thereafter arise.209

Yeoman v. Townshend, 26 N.Y.S. 606; Smith v. Hamilton, 43 App. Div. 17; Dugan v. Sharkey, 89 App. Div. 161; Cahill v. Seitz, 93 App. Div. 105; As to disabilities, see Messinger v. Foster, 115 App. Div. 689, 691; N.Y.C. & H.R.R.R. Co. v. Cottle, 102 Misc. 30 aff'd 187 App. Div. 131, 229 N.Y. 514.

205

206

C.P.A. 46 Jefferson v. Bangs, 197 N.Y. 35 In re Mairs, Millard, S., Oct. 14, 1941; In re Segal, 170 Misc. 673

207

208

209

In re Segal, 170 Misc. 673.

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Chapter 10 - Page 1 DECEDENTS ESTATES 4 PURCHASE BY FIDUCIARY Legal Bulletin

1. 2.

It is a fundamental principle that a fiduciary cannot convey property to himself, directly or indirectly. A conveyance by an executor, trustee, attorney in fact, guardian, committee or other fiduciary to himself is voidable and makes a title unmarketable, no matter how fair the consideration may appear to be. A conveyance by the fiduciary to wife or husband or close relative or nominee is also voidable. Sometimes it is sought to cure such defect by reconveyance to the fiduciary in his fiduciary capacity, but in such cases the matter should be submitted to counsel. Such transactions may be ratified by a court having jurisdiction in an appropriate proceeding or action, but all persons having any vested or contingent interest in the property or in the proceeds of the sale thereof must be made parties to such proceeding or action. An example: A devise is made to "A" for life with remainder to "A's " children, the children of a deceased child to take the share of the parent. "A" has three children, all adults. "A" and his three children cannot convey a marketable title to the property because of the contingent remainders in the children of the children, born or unborn. If the property is sold by the executor of the will to himself in an attempted exercise of a power of sale, it is not effective unless jurisdiction is obtained of "A" and all his descendants, including children, grandchildren and great-grandchildren.

3.

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Chapter 10 - Page 1 DECEDENT ESTATES 5 FIDUCIARY POWERS Legal Bulletin

POWERS OF EXECUTORS AND TRUSTEES 1. A review of the statutes giving fiduciaries the power to sell, mortgage or lease is in order. Under the provisions of Section 13 of the Decedent Estate Law, as originally enacted in 1930, Executors and Trustee, in the absence of express powers granted by the will, could not sell, mortgage or lease real property without court approval. An amendment which took effect on September 1, 1947 provided that wills should be construed to confer on executors or trustees such powers unless the will expressly prohibited the exercise thereof or specifically devised the property to one person not under disability. Section 13 of the Decedent Estate Law was repealed effective June 1, 1965 and was replaced by Section 127 of Decedent Estate Law. The statute authorizes an executor or administrator to lease property for a term not exceeding ten years. Under Section 127 the statutory power could not be exercised if the property was specifically devised or descended to one person not under disability. Thus if a specific piece of property was devised by will to several persons, Section 127 permitted the executor or trustee to sell the property unless the power was expressly denied by the will. The amendment prohibits the exercise of the statutory power if the property is specifically devised. Thus under the new law, if a specific piece of property is devised to several persons, whether adults or infants, the executor cannot sell the property without court approval unless he is given express power in the will to sell the property specifically devised, whether to one or more persons. The new Estates, Powers and Trusts Law, which took effect September 1, 1967 repealed the entire Decedent Estate Law. The provisions for statutory powers of fiduciaries to sell, mortgage or lease real property, which formerly appeared in Section 127 of the Decedent Estate Law, is found in Section 11-1.1 of the Estates, Powers and Trust Law. These powers are extensive and apply in the absence of contrary provisions in the will. A ten-year lease by a trustee may be insured if the death occurred on or after June 1, 1965. For a longer lease a court order is required unless the will expressly grants the power to lease for a term which may last longer than the term of the trust. A mere power to lease for any number of years is not sufficient.

2.

3.

4.

5.

Chapter 10 - Page 2 DECEDENT ESTATES 5 FIDUCIARY POWERS Legal Bulletin

NOTE:

Although the statutes digested above purport to apply to estates of decedents regardless of the date of death, we must be careful not to approve titles made through the statutory power of sale or mortgage unless the applicable statute was in effect at the date of the death. Thus an executor's or trustee's statutory power to sell or mortgage may not be exercised if the death occurred before September 1, 1947.

POWER OF ADMINISTRATORS 1. 2. Section 13 of the Decedent Estate Law did not contain any power in the administrator to sell, mortgage, or lease property without court approval. Section 127 of the Decedent Estate Law replaced Section 13, effective June 1, 1965. This section confers on an administrator of an intestate the power to sell, mortgage, or lease without the court order provided that an additional bond is given pursuant to Section 121 of the Surrogate's Court Act (now Section 805, subdivision 3 of the Surrogate's Court Procedure Act). NOTE: 3. An administrator's power may not be exercised unless the death occurred after June 1, 1965.

See paragraph 4 above. Applies to administrators effective September 1, 1967.

FIDUCIARIES POWERS - MULTIPLE OR MAJORITY ACTION a. Trustees (three or more) after June 1, 1965: 1. Section 13 of the Decedent Estate Law was repealed by a statute which took effect on June 1, 1965 and was replaced by a new section, Section 127 of the Decedent Estate Law. The new section permits (unless the will otherwise directs) the majority of the survivors of the qualifying trustees to exercise the powers conferred by the statute. This provision was carried over to EPTL 11-1.1 (13) (b), since repealed but was carried into amended Section 10-10.7 EPTL (effective June 22, 1973).

b.

Executors, Trustees or Administrators (three or more) after June 22, 1973: 1. Chapter 904 of the Laws of 1973, effective June 22, 1973, amended Estates, Powers and Trust Law, Section 10-10.7, and repealed Estates Powers and Trusts Law, Section 11-11.1, Subdivision (b), Paragraph 13.

Chapter 10 - Page 3 DECEDENT ESTATES 5 FIDUCIARY POWERS Legal Bulletin

2.

It is now clear the multiple fiduciaries (three or more) whether they be trustees, executors or administrators, unless contrary to the express provisions of an instrument conferring power, may act by a majority (or a majority of the survivors). Where joint powers are conferred upon two fiduciaries, both must act in concert, provided that the survivor fiduciary may act alone, unless otherwise provided in the governing instrument. The prior provision in EPTL 11-1.1(13) (b) was limited to trustees rather than all fiduciaries. EPTL 10-10.7 was not so limited and was carried over from Section 166 of the real Property Law. The amendment eliminates the apparent disparity and existing case law permitting one or two or more personal representatives to act for and bind an estate when exercising a several power. Until decided by a higher court, the question of the possible retroactive effect of the new amendment will remain unsettled. Until such decision, we will treat the amendment (with respect to executors) as effective only with respect to the estates of decedents dying on or after June 22, 1973, or as to instruments becoming effective on or after June 22, 1973.

3.

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Chapter 10 - Page 1 DECEDENTS ESTATES 6 RENUNCIATION OF DISPOSITIONS AND INTESTATE SHARES Legal Bulletin

Renunciation of testamentary provisions has heretofore been covered by EPTL 3-3.10 and renunciation of intestate shares by EPTL 4-1.3. These two sections have been repealed as of August 11, 1977, and have been replaced by a new EPTL 2-1.11 which provides a procedure for renunciation of dispositions and intestate shares. A disposition includes dispositions created under wills, trust agreements, powers of appointment, and the distributive share provisions of EPTL 4-1.1 as well as any of the foregoing created or increased by a renunciation made by another person. A beneficiary may accept one disposition and renounce another. Renunciation of a fractional part of a disposition is a renunciation of such fraction of all property passing to the renouncing party, while renunciation of a stated amount renounces the proportion of all the property to which such party is entitled under the disposition that the stated amount bears to the value of all property to which he is entitled in the absence of the renunciation. However, a distributee may not limit a renunciation to specified items of a decedent's estate. Property which has been accepted may not thereafter be renounced, except that an interest passing to a party by the renunciation of another may thereafter be renounced. A renunciation must be in a signed, acknowledged writing which should be filed in the office of the clerk of the court having jurisdiction over the will or trust agreement governing the property or the court which has issued letters of administration. The renunciation must be made within one year of the effective date of the disposition and must be accompanied by an affidavit of the renouncing party that he has not received and is not to receive any consideration for the renunciation from a person whose interest is to be accelerated. Notice of renunciation must be served personally or as the court directs upon the fiduciary in the will, trust agreement or estate and by mail or as the court directs upon all persons whose interest may be created or increased by the renunciation. The effective date of disposition for filing and service purpose is the date of probate of a will if the interest is created or the power of appointment is exercised by will; the date of execution of the trust agreements or the instruments exercising the power of appointment if the interest is so created; the date letters of administration are issued if the renunciation is of a distributive share, or the date upon which a person renouncing receives notice that a disposition to him has been created or increased by the renunciation of another; however, the effective date for a disposition which is a future estate is the date on which it becomes an estate in possession.

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Chapter 10 - Page 2 DECEDENTS ESTATES 6 RENUNCIATION OF DISPOSITIONS AND INTESTATE SHARES Legal Bulletin

Unless otherwise provided, a renunciation has the same effect with respect to the renounced interest as though the renouncing party has predeceased the creator or decedent or, in the case of a future estate, had died at the time of filing or just prior to the estate's becoming an interest in possession, whichever is earlier in time. Possession and enjoyment of subsequent interests are accelerated except where such interest are limited to estates other than the renounced interest. Renunciation of a distributive share will not decrease the share of any other distributee. A renunciation is retroactive to the creation of the disposition. Renunciation of a present interest by a person who has both a present and future interest in property is deemed to be a renunciation of the future interest to the same extent. A renunciation may be made on behalf of an infant, incompetent, conservatee, or a decedent by the guardian of the property, a committee, a conservator or a personal representative, as the case may be. In such cases, the agent renouncing must receive the prior authorization of the court of proper jurisdiction. Renunciations may be revoked upon application to the court, but petitions for revocation will not be granted if filed more than three months after the renunciation unless there is no prejudice to third parties. The new section applies to dispositions created or increased on or after August 11, 1977, except that with respect to renunciation of future interest, it will apply to dispositions created or increased prior to the effective date of the section. (L. 1977, c. 861).

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Chapter 10 - Page 1 DECEDENTS ESTATES 7 WILLS, FOREIGN Legal Bulletin

1.

Prior to September 1, 1967 Sections 44 and 45 of the Decedent Estate Law authorized the recording of exemplified copies of a will probated in another state and of the letters testamentary issued thereon. This recording was sufficient to enable us to insure titles made through such foreign will. When the original foreign executor named in the will sought to exercise a power of sale over New York property, we did not require the issuance of ancillary letters in New York, although we did require ancillary letters on a sale by a foreign trustee, or by an administrator with the will annexed. The Decedent Estate Law has been repealed. The substance of Sections 44 and 45 has not been incorporated in the new Estates, Powers and Trusts Law. Therefore, the mere recording of a will since September 1, 1967 is not sufficient to make the title insurable. Article 16 (Sections 1601 to 1616) of the new Surrogate's Court Procedure Act, which took effect on September 1, 1967 authorizes ancillary probate in New York of wills proved in a foreign jurisdiction and the issuance of ancillary letters thereon. Process in such ancillary proceeding must be issued to the State Tax Commission, to all domestic creditors, and to such other persons entitled to letters as the court directs. Therefore, if a decedent died seized of real property in the State of New York leaving a will probated in another jurisdiction and exemplified copies of the will and letters were not recorded in New York before September 1, 1967, our report must call for ancillary probate and issuance or ancillary letters in the county where the real property lies pursuant to Article 16 of the Surrogate's Court Procedure Act.

2.

3.

4.

Chapter 10 - Page 1 DECEDENTS ESTATES WILLS Legal Bulletin

ADMINISTRATOR C.T.A. (OLD) Where letters of administration with the will annexed are granted, the will of the deceased shall be observed and performed; and the administrators with such will have the rights and powers and are subject to the same duties, as if they had been named as executors in the will. "See Sec. 225 of the Surrogate's Court Act." Hollenbach v. Born, 206 A.D. 533, affirmed 238 N.Y. 34. As to the powers of an administrator with the will annexed prior to the Surrogate's Court Act of 1914, each case stands by itself depending entirely upon the construction of the will. AFTER-BORN CHILDREN A child born after the making of a will not provided for or "in any way mentioned" in such will, takes as if the testator had died intestate. Sec. 26 of the Decedent Estate Law. Nor does a power of sale in the will cut off the after-born child's interest. Smith v. Robertson, 89 N.Y. 555. But see matter of Hardenberg 144 Miscl. 248 CHARITABLE BEQUESTS See Sec. 17 of the Decedent Estate Law in reference to bequest of more than one-half the estate to charity. See also the following cases bearing upon this subject: Matter of Ham, 242 N.Y. 536. Matter of Seymour, 239 N.Y. 259, modifies 203 N.Y. Supp. 914. Unger v. Loewy, 236 N.Y. 73. In re Transfer Tax - Estate of Carnegie, 236 N.Y. 517. Barber v. Terry, 224 N.Y. 334. Jones v. Kelly, 170 N.Y. 401. Matter of MacDowell, 217 N.Y. 454. Decker v. Vreeland, 220 N.Y. 326. Amherst College v. Ritch, 151 N.Y. 282. Smith v. Chesebrough, 176 N.Y. 317. Kalish v. Kalish, 166 N.Y. 368. Hetzel v. Barber, 69 N.Y. 1 as to power of sale. Chamberlain v. Chamberlain, 43 N.Y. 424. Chamberlain v. Taylor, 105 N.Y. 185. In Re Braasch's Will, 206 A.D. 96; 200 N.Y. Supp. 404.

Chapter 10 - Page 2 DECEDENTS ESTATES WILLS Legal Bulletin

In re Oster's Will, 204 N.Y. Supp. 235. In re Title Guarantee and Trust Company re Hamilton's Will, 165 N.Y. Supp. 71 Affirmed 172 N.Y. Supp 922 In re Suydam's Will, 203 N.Y. Supp. 911 EQUITABLE CONVERSION There is no conversion of realty into personalty in the absence of a mandatory direction to sell, either express or implied from necessity. The power of sale to the trustee in this case was conditional on the consent of adult children. Fidelity - Philadelphia Trust Co., Etc. v. Grante et al., New York Law Journal, March 28, 1928. EXECUTION OF See Sec. 21 of the Decedent Estate Law. Also Matter of Roe, 82 Misc. 565. Hoysradt v. Kingman, 22 N.Y. 372, as to signatures of witnesses. EXECUTORS Where executors foreclose a mortgage held by the testator in his lifetime and purchase the property at the foreclosure sale, the character of the real estate is changed and becomes personal property in the hands of such executors. The leading case on this personal property fiction is Lockman v. Reilly, 95 N.Y. 64. It appears to be the rule that one of two executors may satisfy a mortgage that is due. People v. Keyser, 28 N.Y. 226. But it is not well settled that one of two executors may assign a mortgage. A mortgage payable to three executors and trustees is not properly satisfied by one (or two). People ex rel Moscovitz v. O'Loughlin, 79 Misc. 650 In this opinion Judge Benedict says: "Of course, if a mortgage ran to three executors, any one of them could satisfy it." Note - In dealing with trustees, however, all must join in either a satisfaction or an assignment of a mortgage.

Chapter 10 - Page 3 DECEDENTS ESTATES WILLS Legal Bulletin

See Bogert v. Hertell H.Hill 92 (asst.) PERPETUITIES Hoyt v. Hoyt, 210 N.Y. Supp. 155. Affirmed 213 N.Y. Supp. 823 POWER OF SALE Executors cannot sell and take stock in a corporation as a consideration. Sale must be for cash or equivalent of cash. This is true even though there was a full power of sale in the will. Schoellkopf Holding Co. V. Kavinoky, 216 N.Y. 507. Upon resignation and revocation of letters testamentary of one of two executors, the power may be validly exercised during the lifetime of the resigning executor by the remaining executor. Striker v. Daly, 175 A.D. 620; 223 N.Y. 468. Where a will devises one-half the property to the wife for life with remainder to children and provides that the wife may sell realty upon obtaining the consent of her co-executor who dies without his consent having been obtained, held; the power of sale is not destroyed and the wife may give good and marketable title. Loeb v. Hasslacher, 209 A.D. 58; 203 N.Y. Supp. 393. See also Secs. 166 and 173 of the Real Property Law. POWER OF SALE (IMPLIED) Where the will provided that the executors should "pay over" their part or portion of the estate and further that "upon all sales made by my executors," held that there was an implied power of sale. Burnham v. White, 117 A.D. 515. A will provided that "until the sale and conveyance of said premises by my executors as hereinafter provided, I give to my sister the use of said premises." Held that there was a good implied power of sale, the Court saying "Formal words are not necessary to create a power of sale." Cahill v. Russell, 140 N.Y. 402.

Chapter 10 - Page 4 DECEDENTS ESTATES WILLS Legal Bulletin

Note: It is extremely dangerous to make title through an implied power of sale in a will. Unless there is an EXPRESS power of sale, it would seem that the will should be construed by the Courts. TRUSTEES Where a will does not create a trust and the title to the property devised is vested in the heirs at law subject to a life estate, the appointment of a substituted trustee is improper. An administrator with the will annexed should be appointed. Matter of Eggsware, 123 Misc. 548. "It seems to be well established that when the acts of trustees call for the exercise of discretion and judgment, the concurrence of all its necessary." Matter of Johnson, 123 Misc. 834. Under Sec. 110 of the Decedent Estate Law, a testamentary trustee may take back a purchase money mortgage in order to accomplish a sale of the property which he is authorized to sell. In re Taylor, 198 N.Y. Supp. 347. TRUSTEES (FOREIGN TRUST COMPANIES) It appears that a foreign trust company may act as testamentary trustee in this State, but not as trustee under a deed of trust. Cited with approval in 223 N.Y. 312 See Sec. 223 of the Banking Law. TRUSTEES (LIFE BENEFICIARY AND SOLE TRUSTEE) The most important case on this subject is Weeks v. Frankel, 197 N.Y. 304. See also the case of Haendle v. Stewart, 84 A.D. 274. The decision in the Haendle case is now generally disregarded, more weight being given to the decision in the Weeks case. See also: Losey v. Stanley, 147 N.Y. 560. Rogers v. Rogers, 111 N.Y. 228. Woodward v. James, 115 N.Y. 346. Rankine v. Metzger, 69 A. D. 264. Affirmed 174 N.Y. 540. Odell v. Claussen, 120 A.D. 535.

Chapter 10 - Page 5 DECEDENTS ESTATES WILLS Legal Bulletin

Rose V. Hatch, 125 N.Y. 427. "Upon the authorities it is clear that one person can hold as trustee for the use and benefit of himself and others and it is only when the full beneficial and equitable titles become vested in the same person that a merger takes place." Editorial, New York Law Journal, March 11, 1927. TRUSTEES (UNAUTHORIZED PURCHASE) A conveyance of certain real property was made to John Quinn, as trustee under the last will and testament of Thomas Connell, deceased, by one Collins. In making the purchase Quinn used the money which formed a part of assets of the estate which were in his hands as trustee. Such purchase was not authorized by the will. The Court said that the money paid to Collins by Quinn upon the purchase of the property belonged to the estate of Connell and was in the hands of Quinn as trustee and such use of the funds was in contravention of his trust, yet the conveyance of Collins transferred the title to Quinn either individually or as trustee and for the purpose of this case the capacity in which he held the title is quite immaterial. McLean v. Ladd, 66 Hun 341. REMAINDERS In the case of Davidson v. Jones, the Court construed the will of John L. Hardee in which the testator devised all his property to his wife "for her sole and separate use for and during her natural life and on her death to my children or their legal representatives." It was held that it was the intent of the testator to vest absolute title to his real estate in such of his children as were living at his death, subject to the life estate of the widow. The Court said there is a long line of uniform authorities that the words "on," "when," "after," "from and after" and like expressions used in the devise of a remainder following a life estate do not afford sufficient ground in themselves for adjudging that a remainder is contingent and not vested and that such words, unless their meaning is enlarged by the context, are to be construed as relating merely to the time of the enjoyment of the estate and not to the time of its vesting in interest. Davidson v. Jones, 112 A.D. 254. Vanderpool v. Burke, 63 Misc. 545. Connelly v. O'Brien, 166 N.Y. 406. Hunt v. Wickbam 197 AD 80 In Marsh v. Consumers Park Brewing Co. the language of the testator was as follows: "All the estate I give, devise and bequeath to my wife Anne, during her natural life in lieu of all her dower share, thirds or portion of my estate, and on her death I give, devise and

Chapter 10 - Page 6 DECEDENTS ESTATES WILLS Legal Bulletin

bequeath the same to my children equally, share and share alike, the descendants of any deceased child to take the share which his or her deceased parent would take if living." The Court of Appeals over-ruling a unanimous decision of the Appellate Division, held in this case that the remainders were contingent and not vested. Marsh v. Consumers Park Brewing Co., 220 N.Y. 205. Note: In determining whether or not remainders are vested or contingent, be sure to note the distinction between the above decisions. A devise of the residue of the estate to wife for life with privilege to use part of principal and remainder to testator's heirs on wife's death, share and share alike, held, that remainder vested under Real Property Law, Sec. 40, in heirs living at the death of testator and not in those living at death of life tenant. Matter of Leverich, 125 Misc. 130. Attention is here called to the case of Hess v. Hess. Under the will in question there was a gift of a life estate to the widow with remainder over to children. In an action for dower by the widow, the plaintiff failed to make living grandchildren of the testator, who had contingent remainders, parties defendant. It was held that the judgment of sale did not cut off the interest of such contingent remaindermen and that a purchaser at a judicial sale should be relieved of his purchase. Hess v. Hess, 233 N.Y. 164. Note: This decision would affect a foreclosure suit also and it would be necessary to bring in all contingent remaindermen. See also amendment affecting parties in an action to foreclose a mortgage, Sec. 1079 of the Civil Practice Act and particularly Subd. 2. REMAINDERS - DIVIDE AND PAY OVER RULE Where testatrix created a trust under which her executors were to pay the net income thereof to her daughters for life and on the daughters' death to distribute principal among the testatrix's children and issue of deceased children, the remainders are contingent and vest on the death of the life tenant. May v. May, 209 A.D. 19; 209 A.D. 22. Note: Be careful to distinguish this case from the Davidson case and other cases above

noted where there was no trust. Where there is a trust, the rule is as laid down in the May case.

Chapter 10 - Page 7 DECEDENTS ESTATES WILLS Legal Bulletin

REMAINDERS (Infants Real Estate.) (Sections 105-107, Real Property Law.) Losey v. Stanley, 147 N.Y. 560 Matter of Easterly, 202 N.Y. 466; 204 N.Y. 586 Barker v. Barker, 172 A.D. 244. Matter of Petition of John H. O'Donnell, 221 N.Y. 197. But see Matter of Callahan, 96 Misc. 74, aff'd. 176 A.D. 906, aff'd 220 N.Y. 774 SUSPENSION OF ALIENATION Trust for four lives. Trust upheld on theory of division into separate shares. This case decided on the "lopping off" or "pruning" theory. Where several trusts are created, each trust independent of the other, the illegal will be cut off and the legal permitted to stand where this effectuates testator's intent. Re Bankers Trust Co., 131 Misc. 723. Cross Reference: See Chapter 42 of this Manual

Chapter 10a - page 1 DEEDS IN LIEU OF FORECLOSURE General

DEED IN LIEU OF FORECLOSURE
1. LANGUAGE FOR ABSOLUTE CONVEYANCE:

In most states a Mortgagor, upon default, may tender a deed to the Mortgagee in lieu of foreclosure (the "Deed"). The consideration for the Deed is usually the release of the Mortgagor from liability on the secured indebtedness. There is a possibility that the Deed may be construed as additional security and not as an absolute conveyance. To avoid this construction, the Deed should contain language specifically referring to the mortgage by record book and page and contain language providing that the conveyance is an absolute conveyance of the title in consideration of cancellation of the debt secured by the mortgage and is not intended as additional security. 2. MERGER:

Sometimes the Mortgagee does not want to extinguish the lien of the mortgage but prefers that the mortgage lien stay in existence so that the property can later be sold subject to the mortgage. In such case, the deed given in lieu of foreclosure should recite that the consideration is the release of the personal liability of the Mortgagor and that it is the intention of the parties that there shall not be a merger of the fee with the lien of the mortgage. Where state law relies upon the intention of the parties to determine merger, the lien will be preserved. 3. CREDITOR'S RIGHTS - BANKRUPTCY:

Consideration must also be given to the possibility that the Deed may be attacked by a creditor of the Mortgagor in the event of bankruptcy or other insolvency proceeding. The Deed is subject to being set aside under the Bankruptcy Code, Title 11 U.S.C. (the Code) as a preferential transfer within 90 days and within on year if the transaction is found to be a "fraudulent" transfer. A "fraudulent transfer" needs no actual fraud: insolvency of the mortgagor (as defined in the Code) coupled with a lack of "reasonably equivalent value" paid for the Deed may make the Deed a voidable transfer under Section 548 of the Code. 4. EXCEPTION NECESSARY:

A Deed in lieu of foreclosure should generally not be insured for at least one year after the date of the deed unless one of the following exceptions appears in Schedule B of the policy: "The enforcement, or attempted enforcement of rights under the Bankruptcy Code (11 U.S.C.) or state insolvency or creditor's rights law to invalidate or avoid the conveyance to (name of grantee)." This exception should also appear in any policy issued to a purchaser from the Mortgagee-

grantee within one year from the date of the Deed in lieu of foreclosure and thereafter if a Petition in Bankruptcy or under any state insolvency statue is filed by or against the Mortgagor-grantor within the one year period. The exception is not necessary where the l992 form policy is being issued unless the grantee in such deed in lieu subsequently sells within the one year period of the prior deed. 5. REQUIREMENTS FOR WAIVER:

However, on 1-4 family residential property, a policy may be issued to the Mortgageegrantee or to a bona fide purchaser for value from the Mortgagee-grantee after ninety days but within the one year period without the bankruptcy exception if it can be determined: a) That the amount of the outstanding indebtedness which was in return for the Deed in lieu of foreclosure, together with any other consideration which may have been paid to the Mortgagor, was "reasonably equivalent value" for the property and not less than 70% of the fair market value of the property as of the date of the Deed (See Paragraph 7, below): and That the Mortgagee-grantee is not an "insider" as defined in the Code: and That the Mortgagee-grantee or purchaser was without knowledge of the insolvency of Mortgagor-grantor; and No petition under the Bankruptcy Code, or similar state law, has been filed.

b) c) d)

6. PURCHASER FROM MORTGAGEE-GRANTEE: For residential property if the proposed insured is a bona fide purchaser who pays fair market value for the property, or such purchaser's lender, and the property is purchased from the Mortgagee-grantee more than ninety days after the Deed in lieu of foreclosure is filed, no exception for creditor's rights need be made. However, "fair market value" must be established and documented in the issuing office's files. Fair Market Value is best evidenced by a formal appraisal prepared by a licensed, recognized appraiser. On one to four family residential property, only, the Company will rely upon the Agent's sound business judgment and knowledge of the area in accepting evidence other than a formal appraisal for determination of "fair market value". 7. MORTGAGE-GRANTEE: FAIR MARKET VALUE; REASONABLY EQUIVALENT VALUE

When asked to issue a policy in favor the Mortgagee-grantee under a Deed in lieu of foreclosure, a determination of reasonably equivalent value must be made as of the date of the Deed given in lieu of foreclosure. In those jurisdictions which generally accept the "Durrett Rule" that a "reasonably equivalent value" is 70% or more of the fair market value, the issuing agent may rely upon requirements a) through d) set forth in Paragraph 5 above. In those jurisdictions which have not adopted or approved the Durrett rule, please

consult your Regional Office for any additional requirements necessary to establish that the Mortgagee-Grantee has given "reasonably equivalent value" in consideration for the Deed. Even through "Durrett" was set aside in BFP v. RTC _____US_____, Lexis 3776, 62 U.S.L.W. 4359, the 70% Rule continues to be in affect absent contrary jurisdictional findings. 8. PRIOR APPROVAL NECESSARY TO DELETE EXCEPTION:

On all commercial properties, on all policies to be issued less than ninety days after delivery of the Deed and in all instances where there is any question as to the "fair market value" or "reasonably equivalent value" of the property, and in any case where the issuing office has actual knowledge of the impending filing of a bankruptcy by the GrantorMortgagor, prior approval must be obtained from the Home Office in order to issue a policy to the Grantee-Mortgagee or an immediate purchaser from the Grantee-Mortgagee without the "creditor's rights' exception, within one year after the date of a Deed in lieu of foreclosure. 9. ALL OTHER EXISTING ENCUMBRANCES SURVIVE:

A Deed in lieu of foreclosure will not extinguish any other liens or encumbrances on the property. All other matters affecting the title, whether prior or subordinate to the mortgage being satisfied must appear as exceptions in Schedule B. See also: Creditors Rights and Title Insurance Underwriting Journal, Deeds in Lieu, Estoppel Affidavits

5/78 rev. 10/84

Chapter 11 - Page 1 DEEDS OF CONVEYANCE Title

DEEDS OF CONVEYANCE
GENERAL A. If the contract is silent on the subject, the vendor need give only a quit-claim deed. Emerick v. Hackett, 192 N.Y. 162 (1908) Tymon v. Linocki, 16 N.Y.2d 293 (1965) Kinds of Deeds (1) (2) (3) C. D. E. Quit-claim deed. Bargain and sale deed, with or without covenant against grantors acts. Full covenant and warranty deed.

B.

Must be in writing Gen. Oblig. Law 5-703 (1) Must be in English R.P.L. Sec. 333 (2) Law Governing Conveyance by Deed Peck v. Cary 27 NY9

FORM OF DEED A. Statutory Forms Real Prop. Law Sec. 258 Short Form - Permissive only Turner v. May 202 Misc. 320 B. Must contain a specific Grantor and Grantee, a proper designation of the property transferred, recital of consideration and operative words manifesting an intent to convey. It need not follow any exact or prescribed form of words. Cohen v. Cohen 188 AD 933 McGurl v. Burns 192 Misc. 1045

PARTS OF A DEED A. Presumption as to date executed and delivered. Undated or Misdated Deeds As affecting Validity

Real date is the date of delivery 15 N.Y. Jur. Rev. 73 Warren's Weed Vol 1A Deed 2.02 and 2.03

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B.

Grantor and Grantee 1. A grantor and grantee must be named for deed to be operative as conveyance. Health v. Hewitt 127 NY 166 Bachelor v. Brereton 112 U.S. 396 Reformed Church v. Schoolcraft 65 NY 134 Addresses R.P.L Sec 333 Change of Name; Spelling of Name Grantee name blank;

2. 3. 4. C.

Consideration 1. Not essential to validate executed transfer of property Krause v. Krause 285 NY 27 15 NY Jur. Rev. 89 Gen. Oblig. Law 5-1115 a. 2. But beware of rights of Grantor's creditors or transfer included by fraud

Recital in Deed a. b. Deed from a fiduciary should recite the full actual consideration. Smith v. Reid 134 N.Y. 568; R.P.L. Sec. 258 Actual consideration need not be stated in deed from one other than a fiduciary Binzen v. Epstein 58 AD 304; aff'd 172 NY 59 Presumptive evidence of consideration Berndt v. Berndt 192 Misc. 57

c. 3.

Kinds of Consideration Love and affection, Loeschigle v. Hatfield 51 NY 660 Marriage, Johnson v. Johnson 33 AD2d 640, aff'd 37 AD2d 904; app. dismd. 30 NY2d 751 Agreement to Support Kinney v. Kinney 221 NY 133 a. Deed from a fiduciary

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D.

Conveyance Clause 1. Granting or operative words of conveyance required Cohn v. Cohn, supra Warren's Weed Vol 1A, Deeds 5.01, 5.02 a. Precise words or phraseology not necessary provided intent to convey is manifested. Turner v. May, supra Suggest language from deed forms in R.P.L. 258

E.

Description 1. Property must be identifiable with reasonable certainty. Pope v. Levy 54 AD 495 a. Read as a whole to determine indentity Case v. Dexter 106 NY 548 1. Parol Evidence admissible to remove uncertainty and ascertain intention of parties Orvis v. Elmira C & N.R. Co. 172 NY 656 Harris v. Oakley 130 NY 1 15 N.Y. Jur. Rev 161 but not admissible if description leaves no doubt or uncertainty Malin v. Ward 21 AD2d 926 2. Importance of Beginning point Heller v. Cohn 154 NY 299 Eglehott v. Simpson 50 AD 595 b. "Same as" recital 1. May clarify or cure defective description Pillmore v. Walsworth 166 AD 557

Bernstein v. Nealis 144 NY 347

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c.

Words "more or less" or "about" 1. Words of caution - to cover slight inaccuracy - do not make description void for indefiniteness Oakes v. DeLauncy 133 NY 227 2. Material difference may be grounds for recovery of difference in purchase price Mills v. Kampfe 202 NY 46

d.

Lot numbers; Metes and Bounds; Street number 1. To describe by Lot number, map must be filed Johnson v. Grennell 188 NY 407 2. Where both number and metes and bound descriptions used, Lot number prevails Mazzucco v. Eastman 36 Misc. 2d 648 3. Street number usually too indefinite and only indicates location but may be clarified by extrinsic evidence Pelletreau v. Brennan 113 AD 806 4. Where metes and bounds and street number conflict, the former prevails Fitzpatrick v. Sweeney 56 Hun 159, aff'd 121 NY 707

e.

A deed describing property as being bounded by an ocean, carries title to the high water mark. Marba Sea Bay Corp v. Clinton St Realty Corp., 272 N.Y. 292 (1936)

f.

A deed describing property as being bounded by a navigable river does not carry title to the center thereof. Fulton Light, Heat & Power Co. v State of N.Y. 200 NY 400 (1911)

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g.

A deed describing property as being bounded by a non-navigable body of water, as a general rule, carries title to the center thereof if the grantor owns it and the boundary described touches the water. White v. Knickerbocker Ice Co., 254 N.Y. 152 (1930)

h.

A deed describing property as being bounded by a highway, as a general rule, carries title to the center thereof if the grantor owns it. Matter of City of N.Y., 209 N.Y. 344 (1913) If there is an inconsistency between the granting clause and the habendum clause, as a matter of construction the granting clause will prevail. Mott v. Richtmyer, 57 N.Y. 49 (1874)

i.

F.

Habendum Clause Not as important today as in early common law but should be read with the granting clause since it can explain or qualify what estate was intended. Harriot v. Harriot 25 AD 245 However, where there is an irreconcilable difference between the two clauses, the granting clause prevails. Bannin v. Peck 266 AD 209, aff'd 291 NY 717 Mott v. Richtmeyer 57 NY 49 However, this is a rule of construction and not of property and must yield to the intentions of the parties. Bates v. Virolet 33 AD 436

G.

Trust Provision (Sec. 13, Lien Law) Lien Law gives laborers and materialmen who improve real property priority over conveyance made during the improvement or within 4 months after completion. However, if the deed contains a covenant by the Grantor that he will receive the consideration as a trust fund to be applied to payment for such improvements before using same for any other purpose, the deed will take priority over liens thereafter filed if the deed is recorded and there is no fraud in execution or delivery.

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Sec. 13(5) Lien Law Servidone v. Hirschmann 268 AD 347 H. Special Clauses 1. Exceptions Something in existence but not to be conveyed -- as "excepting" part of land conveyed. 2. Reservations Something not in being at the time of the grant and newly created out of or attaching to the land conveyed -- as "reserving" a life estate or easement. 3. Subject Clauses Charges or makes the property conveyed subservient to encumbrances of various kinds -- as mortgages, easements, restrictions, etc. Though Grantee may not be personally liable, he cannot contest the existence or validity of such encumbrance. I. Execution of Deed Deed must be subscribed by Grantor or his lawful agent authorized by writing. R.P.L. Sec. 243 Gen. Oblig. Law Sec 5-703 1. Signature can be any mark or sign printed, written, stamped or otherwise placed on the deed. Gen. Const. Law Sec. 46 2. Attorney-In-Fact should execute Deed in principal's name as AttorneyIn-Fact, to wit, (Principal) by Attorney-In-Fact

Care should be taken to assure that the Attorney-In-Fact has the power claimed at the time of delivery. Mere recitation in deed is insufficient.

Marvin v. Wilber 52 NY 270

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3.

Corporate and Partnership deeds should be executed in name of the entity, to wit, ABC Corp. XYZ Associates

by President A Seal is no longer required.

by General Partner

Gen. Constr. Law, Sec 44-a J. Acknowledgement Deed must be acknowledged before its delivery or its execution and delivery attested by one witness or it does not take effect against a subsequent purchaser R.P.L, Sec. 243 even it that purchaser has knowledge of the prior deed and is not a bona fide purchaser. Dunn v. Dunn 151 AD 800 1. If not properly acknowledged or attested, it may not be recorded. R.P.L Sec 291 (a) After 15 years, a Deed defectively acknowledged but accepted for recording is deemed to have become duly acknowledged except as to a deed to a bona fide purchaser from Grantor recorded within the 15 year period R.P.L. Sec 306 (b) Deeds acknowledged outside State of New York no longer require a Certificate of the authority of the Notary Public attached thereto. R.P.L. Sec. 311 (2) 1975 Ops. Atty Gen - Nov. 20

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(c)

Law in force at time of acknowledgment governs R.P.L. Sec. 293 Richardson v. Palmer 63 Barb 67

2.

Contents of Acknowledgment (a) No required form except for corporation Warren's Weed Vol. 1 Acknowledgments 3.01

3.

Officer must know person. Identity of person making acknowledgment must be ascertained by Officer taking it. R.P.L. Sec 302

4.

Acknowledgment by Corporation. (a) Special Form by Statute R.P.L Sec. 309 (b) Form requires Seal be attached; but, if corporation has none, that fact should be stated in acknowledgment. R.P.L. Sec. 309 However, note Gen Const. Law Sec. 44-a and 45 Matter of Skidmore Coll v. Cline 58 Misc. 2d 582

5.

Officer can only act within juridiction Execution Law, Sec 135, 139-142 However, by a permanent validating statute, acts of officer which are defective due to ineligibility, mistake or omission are deemed valid unless the officer knew of the defect or it was apparent on the face of the certificate; even in the latter two instances, validation occurs after 6 months. Execution Law, Sec. 142-a

K.

Real Estate Transfer Tax (Article 31, Tax Law, Sec. 1400-1410)

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1. 2. 3. 4. 5. 6.

Rate: $0.55 for each $500.00 of purchase price or fraction thereof. Grantor liable therefor (Sec. 1404) Imposed at time of delivery (Sec. 1402) No tax if consideration $100.00 or less. (Sec. 1402) Not applicable to liens existing before and remain after delivery (Sec. 1401 (d)) Exemptions (Sec. 1405) a. b. Deeds to U.S. or N.Y. State Correction Deeds

7. 8.

Wilful non-compliance is misdemeanor (Sec. 1408) Some evidence of consideration Matter of McGeehan 134 Misc 334

9.

Failure to affix does not make deed invalid Moore v. Moore 47 NY 467

DELIVERY OF DEED A. Unconditional delivery is essential to Transfer of Title R.P.L. Sec. 244 Ross v. Ross 233 AD 626, aff'd 262 NY 381 Marden v. Dorthy 160 NY 39 1. There must be an unconditional acceptance or intention to accept by the Grantee. Buszozak v. Wolo 125 Misc. 546 Powderly v. Aetna Casualty 72 Misc 2d 251 Williams v. Ellerbe 62 Misc 2d 827 2. Acknowledgment and Recording is prima facia proof of delivery. Sweetland v. Buell 164 NY 541

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3.

Delivery in Escrow Specific conditions in escrow agreement

KINDS OF DEEDS A. The various kinds of deeds differ in several respects -- to wit, granting clause, covenants, recital of consideration, appurtenance clause and acknowledgments. Annexed hereto is a composite form of deed showing these differences. For an explanation of what the covenants mean, see R.P.L. Sec 253 and Lien Law, Sec. 13 (5). A deed passes all of the title or interest of the Grantor unless an intent to pass a lesser title or interest is clearly stated. (R.P.L Sec. 245). 1. Full Covenant Deed a. Contains six covenants - (a) Seisin (b) Quiet Enjoyment (c) Freedom From Encumbrances (d) Further Assurance and (e) Warranty of Title (f) Trust Clause. R.P.L. Sec. 253; Lien Law, Sec. 13 (5) 2. Warranty Deed a. 3. Contains only the covenants of Quiet Enjoyment and Warranty of Title

Bargain and Sale Deed a. Contains no covenants usually. However, it may include a covenant against Grantors Acts.

4.

Quitclaim Deed a. b. Contains no covenants Conveys interest of Grantor rather than grant of the fee though it just as effectively passes title. Wallach v. Riverside Bank 206 NY 434

5.

Executors Deed a. Contains covenant against Grantor's Acts.

6.

Correction and Confirmatory Deeds

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a.

Used to correct mistakes in deeds. However, if those mistakes are immaterial, a correction deed is unnecessary. Warren's Weed, Deeds, Sec. 21.01

b.

Correction Deed prevails over Corred deed; hence, there may be loss of property properly acquired in original deed. Bldrs Mtge Co. v Berkowitz 134 AD 136 Intervening judgment ineffective. Schroeder v. Gurney 73 NY 430

c.

There should be a recital in the Correction Deed explaining the correction.

CAPACITY OF PARTIES A. Partnerships 1. Real property may be taken in Partnership name and can thereafter only be conveyed in the Partnership name. Partnership Law, Sec. 12 a. Any partner can sign the deed and bind the partnership if the act appears to be in furtherance of the partnership's business. Partnership Law, Sec. 20, 21 b. Partnership can recover property if said partner, in fact, lacked authority and the Grantee knew this Partnership Law, Sec. 20 but if the Grantee has passed the title on to another Grantee for value without knowledge the partner exceeded his authority, the latter Grantee has good title despite lack of actual authority in partner. Partnership Law, Sec. 21 (1)

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2.

Limited Partnership Exclusively statutory with limited partner's interest being personalty, even where the partnership deals in real estate. Limited partner acquires no interest in the real estate of the partnership. Lanier v. Bowdoin 282 NY 32 Partnership Law Sec. 107 Reiter v. Greenberg 21 NY 2d 388 a. Only general partners can act for partnership, so presumptively a limited partner cannot convey partnership real property. But, a limited partner, by his acts, may become liable as general partner.

B.

Stock Corporations 1. Sale of all or substantially all of assets: a. Within regular course of business 1. 2. 3. b. No stockholder consent needed Obtain affidavit sale is in ordinary course of business actually conducted by Corporation. Recital in Deed

Outside of Regular Course of Business: 1. 2. 3. Directors Resolution authorizing sale and direct submission to vote of shareholders. Consent of 2/3 shareholders obtained at a meeting duly called or written consent of all shareholders. Recital in Deed. Business Corporation Law, Sec. 615, 909

2.

Sale of Not all or substantially all of assets. a. b. Consent of stockholders or Directors not required. Recital in Deed. Business Corporation Law, Sec. 202 (a) (5)

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NOTE:

Authorized foreign corporations may convey real property in same manner as a domestic corporation. Business Corporation Law, Sec. 1307, 1312 (b)

C.

Joint Ventures 1. 2. Not a recognized entity in New York If a partnership, Partnership Law governs. If not, take title in original names of joint ventures.

D.

Religious Corporations Unless limited by its certificate of incorporation or another statute, religious corporations, in furtherance of their corporate purpose, may purchase and sell real property. N-PCL Sec. 202 (4) and (5) Religious Corporation Law, Article 2 1. Authorized foreign corporations have same power. N-PCL Sec. 1307 2. Two-thirds vote of Board required unless Board numbers over 20 in such case, a majority is sufficient. N-PCL Sec. 509 3. Sale or Mortgage, other than Purchase Money Mortgage, requires Court order and membership approval may be required. Religious Corporation Law, Sec. 2 (b) and 12 Matter of the Trustee of Central Presbyterian Church of the City of N.Y.; N.Y.L.J. 12/15/75 p. 11, col. 4

E.

Infants 1. Sale of real property wholly statutory. RPA & PL, Article 17 SCPA, Article 19

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2.

Statute must be strictly complied with. Losey v. Stanley 147 NY 560 O'Donoghue v. Boises 159 NY 87 (a) In examining title, check proceeding with the statute in force at the time of transfer of title. Warren's Weed Vol. 4A Real Prop. Inv. p 7 (b) Infant defined as person who has not attained age of 18 years Mental Hygiene Law Sec. 1.05 (22)

3.

Statutory limitation when infant's property may be disposed of (a) RPAPL Sec. 1711 1. Sale usually authorized by Court as a matter of course, (sec. 1711 (1) and (4)). (i) (ii) 2. Personal property and income from real property insufficient for maintenance and education. Contract of Sale made but can't be completed due to infancy.

Sale authorized by Court after hearing which shows infant's interest will be substantially promoted. Sec. 1711 (2) (3) (5) (6).

(b)

SCPA, Sec. 1902 (a) Real property can be sold for payment of decedent's debts, expenses, taxes distribution "or any other purpose the Court deems necessary".

4.

Proceeding commenced by: (a) Under RPAPL, Guardian not required but Court usually appoints one. 1. If over 14, infant must join in petition or sale is void. Rosenfield v. Miller 131 AD 282

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(b) 5.

Under SCPA, fiduciary or interested party may institute but citation must issue to all interested parties and if Court directs, creditors.

Deed to an infant is voidable since it is an executed contract the infant may disaffirm on reaching majority; otherwise absolute title will ripen in the late infant. O'Donohue v. Smith 130 AD 214

6.

Deed from infant should be made by the infant through Guardian and the name of the infant should be subscribed by the Guardian Hyatt v. Seeley 11 NY 52 SCPA Sec. 1715

7.

An exception to complying with the statutory requirements noted above is where a husband and/or wife, not of full age, purchase real property they occupy or intend to occupy as a home. They can take, mortgage and dispose of such title without Court approval. Gen. Oblig. Law Sec. 3-101

F.

Incompetents RPAPL Article 17 also applies to proceedings to sell interest of incompetent person who is defined as one "incompetent to manage his affairs, or for whose property a committee has been appointed." Mental Hygiene Law, Sec. 78. 15 (d) 1. Conservators - one appointed to conserve property of a person not judicially declared incompetent, but rather one whose ability to care for his property or himself or others dependent on him has become substantially impaired. Mental Hygiene Law, Article 77 (a) As to real property, has same powers granted to committee of an incompetent person. Mental Hygien Law, Sec. 77.19 2. Deed by a judicially declared incompetent is void. Fitzburgh v. Wilcox 12 Barb. 235

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If not judicially declared incompetent the deed is voidable and can be set aside at election of his committee when appointed. Finik v. Goldstein 245 NY 300 G. Unincorporated Associations Have no existence or legal entity separate and apart from the members who compose it. Consequently the title to its property is vested in its members. Schein v. Erasmus Realty Co. 107 Misc. 27; aff'd 194 AD 38 1. Deed to such association conveys no legal title Mount v. Tuttle 183 NY 358 2. Members hold title as joint tenants and may dispose of same subject to the rules and By Laws of the Association Branigan v. Buckman 67 Misc. 242, aff'd 145 AD 950; aff'd 207 NY 719 H. Benevolent Orders 1. Can take, hold and convey real property Benevolent Orders Law, Sec. 3 2. Not-For-Profit- Corporation-Law applies to every corporation formed under Benevolent Orders Law. Benevolent Order Law, Sec. 1-A I. Attorneys-In-Fact 1. Power of Attorney must be in writing and recorded R.P.L. Sec. 242 and Sec. 294 (a) Revocation of Power is not deemed revoked until recorded in same office where Power recorded. R.P.L. Sec. 326

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2.

Form of Power of Attorney set forth in statute but does not exclude other forms. Gen. Oblig. Law, Sec. 5-1501

3.

Incompetency of Principal does not revoke Power of Attorney if the instrument states that the authority is exercisable despite subsequent disability or incompetence." Gen. Oblig. Law Sec. 5-1601 Otherwise, Power is revoked with respect to persons having notice of such incapacity. Dann v. Sands 38 AD 2d 661, app dismd, 30 NY 2d 944 But if the person dealing with the Attorney-in-Fact is not aware of the Principal's incompetence, the transaction is valid if the Attorney-in-Fact is acting within scope of authority. Merritt v. Merritt 27 AD 208

4.

Death of Principal or agent revoked power Weber v. Bridgman 113 NY 600 Re Chinese Merchants Bank Ltd. 151 Misc. 425

5.

Power of Attorney should be acknowledged. Gen. Oblig. Law, Sec. 5-1501

6.

Power of Attorney is revocable at will by Principal unless coupled with an interest. Culver v. Western Union 50 NY 691 Accordingly, care should be taken to ascertain extent of authority of Attorney-In-Fact. Duty of diligence devolves on one dealing with AttorneyIn-Fact. Riley v. Larocque 163 Mis. 423

J.

Custodian, Uniform Gifts to Minors Act.

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1.

Real Property may not be subject of gift under U.G.M.A. EPTL, Sec. 7-4, 9 (e)

K.

Trusts 1. Trusts of real property are authorized by statute EPTL, Article 7 (a) Must be in writing Gen. Oblig. Law, Sec. 5-703 2. Kinds of Trusts (a) (b) 3. Inter Vivos; Testamentary Express; Implied; Constructive; Passive

Title to real property vests in Trustee, though the beneficiary may enforce the terms of the trust. EPTL Sec. 7-2.1

4.

Sale of Real Property by the Trustee (a) Consider the following 1. 2. The Trust instrument RPA & PL, Sec. 1603 (i) 3. Court Approval to sell generally; not approval of specific contract.

EPTL, Sec. 11-1.1 (b) (5) (e) (i) Court approval to sell for partnership purpose defined in

SCPA Sec. 1902

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5.

Real Estate Investment Trusts (a) Purpose is Tax Shelter I.R.C. 856-858 (b) Qualifications

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Chapter 11 - page 1 DEEDS OF CONVEYANCE CONDITION Law Bulletin

A deed upon condition that the premises be used for a certain purpose or purposes and upon breach title to revert to the grantor does not convey a "fee simple" title and this thought must be born in mind when preparing Schedule "A" of the title commitment or policy. Such a deed conveys a base or "determinable fee" and not a fee simple absolute notwithstanding the case of Towle v Remsen, 70 N.Y. 303. Invariably the device was used either to maintain a land use arrangement or to assure devotion of property to certain business, charitable or public purposes. Such conditions may appear in deeds to municipalities for "school purposes"; in deeds to religious corporations "for religious purposes" or in deeds or grants from the state to upland riparian owners. Prior to the adoption of RPAPL 1951, 1953, 1954 and 1955 (in 1958) some courts were loath to ignore the express intent of the grantor and this lent a sense of timelessness to the conditions which resulted in their recognition and enforcement in perpetuity. Appellate courts, however, view reversion as a harsh remedy and, on occasion, the courts would engage in "strained construction" to preserve the charitable or public purpose rather than allow the property to revert to the original grantor, his heirs or assigns. In those cases the court may determine, for example, that while the property may no longer be needed for school purposes it may be useful for some other related "public purpose". Such findings may result in the imposition by the court of a constructive trust for the purpose of effectuating the continued public purpose. Again, such judicial determination may be found in order to thwart the original grantors attempt to exercise the reverter clause in the deed, thus depriving the municipality of property to be put to use for the publics benefit. For further review of this issue please refer to ESTATES IN LAND in this manual. RELEASE OF CONDITION Unlike restrictive covenants, conditions can be released by the original imposer without the need for adjoining owners to join in the release. Formerly there was some difference of opinion as to whether the heirs-at-law of the imposer could release before breach of condition. That issue has now been determined [Trustees of Calvary Presbyterian Church of Buffalo v. Putnam, 221 AD 502, affirmed 249 N.Y. 111]. On the death of the imposer, the condition may be released by his/her heirs-at-law before breach. Property conveyed subject to a "condition subsequent" which was also set forth in a later deed by the grantee of a single lot, is effectually released from the right of reverter by a release from the original owner of all the lands conveyed by him from the effect of such condition subsequent. A subsequent grantee of a single lot need not be a party to such release where he has conveyed the property, and his attempted reimposition of the condition is ineffective [McArdle v Hurley, 103 Misc. 540]. However, some real property owners are not in accord with this decision. see also: Weinberg v Sanders, 204 AD 409 and Postley v. Kafka, 213 AD 595. These cases appear contra to the McArdle case.

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ADOPTION OF STATUTE BARRING CONDITIONS New York has now adopted statutes which place limitations upon rights of re-entry for breach of condition if the specified contingency does not occur within a specified time frame. [McKinneys' Real Property Law (RPL) sec 345; RPAPL 1951-1955; see also the supporting study and recommendations of the New York Law Revision Commission contained in N.Y. Legis. Doc (1958) No. 65(B). The statute distinguishes "restrictions" by covenant from those enforced by right of entry or possibility of reverter. If created after the effective date of the statute, deeds upon condition with forfeiture provisions are, in effect, made enforceable only as covenants. Further, in actions brought by owners subject to rights of re-entry or possibilities of reverter which were created before enactment of the statute(s) courts are authorized to find that the devises were employed as mere land-use restrictions and to treat them, in effect, as covenants. However, special provision is made for court modification of restrictions affecting land held for charitable purposes [Bayse, Clearing Land Titles sec. 143]. Take note that while the above statutes authorize the court to determine that the deed of condition be treated as a restrictive covenant, i.e. permit the court to consider factors other than the intention of the grantor, it does not compel them to do so. In New York, the recognized present estates include "fee simple", "fee on condition" and "fee on limitation" including reversion. As Mr. Mitzner says, in chapter 5 of Real Estate Titles, " . . . the possibility of reverter and right of reacquisition are disfavored by the courts". And, " . . . whenever possible, a court will construe a grant attempting to create a possibility of reverter or right of reacquisition as containing precatory language or as creating a covenant, rather than as creating a future estate" (empasis mine). However, the court is not compelled to do so and upon clear and convincing evidence the court may still determine otherwise and rule that the condition or limitation be enforced. Therefore, passing upon such conditions containing reverter language should not be undertaken lightly. You are instructed to contact the Underwriting Department before passing upon or insuring over such conditional estates. For further review of this issue please refer to Chapter 16, ESTATES IN LAND this manual and Chapter 26, LIENS AND ENCUMBRANCES page 31 of this manual.

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Chapter 11 - Page 1 DEEDS OF CONVEYANCE (FAIR VALUE CONSIDERATION) Legal Bulletin

1.

A recorded conveyance has no priority over an earlier unrecorded conveyance from the same vendor or assignor unless it was received "in good faith and for a valuable consideration." (Section 291, Real Property Law). A "conveyance" includes deeds, mortgages, leases, easements, etc. A conveyance given as a gift is an example of one not entitled to the benefit of the recording acts.

2.

There is a difference between "good" and "valuable" consideration. "Good" consideration includes such things as love and affection, moral obligation, etc. "Valuable" consideration normally means money or money's worth in property or services. Although payment of an antecedent debt can be a valuable consideration under Section 67, Bankruptcy Act, and Section 5-1105, General Obligations Law, It is not a sufficient "valuable" consideration under the recording acts. (See Groves v. George, 123 N.Y.S. 2d 192). Unless the "valuable" consideration is also "fair" as defined in Section 272 of the Debtor and Creditor Law, the conveyance will be fraudulent as to creditors if the grantor or obligor is rendered insolvent thereby (Section 273, Debtor and Creditor Law), and may be set aside in a bankruptcy occurring within four months. In any case where the consideration is clearly not a "fair" consideration, our Schedule "B" should except: "Unless satisfactory proof is furnished that (grantor) (mortgagor) is financially solvent and will not be rendered insolvent as a result of the transaction being insured, policy will except: "Rights of creditors of the (grantor) (mortgagor)."

3.

4.

5.

In any case where our insured is not paying "valuable" consideration the policy will except: "Any loss, claim or damage arising by reason of the insured not being a purchaser in good faith for a valuable consideration under the recording acts."

6.

Closers should be alert to recognize circumstances requiring the inclusion of either or both of the foregoing exceptions as these facts can sometimes only be discerned at the closing. Caution must be exercised in insuring under a policy in possession that we determine whether the insured falls in the category of a purchaser for a "valuable" consideration. If not (i.e., a devisee under a will), paragraph 5 above will apply.

7.

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Chapter 11 - Page 1 DEEDS OF CONVEYANCE DELIVERY OF DEEDS Title

DELIVERY OF DEEDS a. A grant takes effect only from the time of its delivery. R.P.L. ∋ 244 (1) Delivery requires manifested intention to make, together with a complete surrender and parting of deed which passes under dominion of grantee or some person in his behalf. Bianco v. Furia 245 N.Y.S. 2d 645 (1963) b. Delivery to grantor's agent is ineffective. Schultz & Son v. Nelson, 256 N.Y. 473 (1931) c. A deed cannot be delivered to the grantee conditionally Herman v. Jorgenson, 263 N.Y. 344 (1934) d. A deed may be delivered to a third person to be delivered to the grantee upon the death of the grantor. Saltsieder v. Saltsieder, 219 N.Y. 523 (1916) Slowey v. Hunt, 108 Misc. 222 (1919) (1) The deed takes effect as against subsequent creditors and devisees of the grantor. Rosseau v. Bleau, 131 N.Y. 177 (1892) Rankin v. Donovan, 46 App. Div. 225 (1899), aff'd, 166 N.Y. 626 (1901)

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Chapter 11 - Page 2 DEEDS OF CONVEYANCE DELIVERY OF DEEDS Title

e.

Escrow deliveries - an escrow delivery is a deed to a third person to be held until the performance of some condition. Stanton v. Miller, 58 N.Y. 192 (1874) (1) A deed delivered as an escrow does not take effect until the condition is performed. Jackson v. Rowland, 6 Wend. 666 (1831) (2) Intervening creditors of the grantor will prevail over the grantee. Jackson v. Rowland, supra (3) A wrongful delivery by the escrow agent to the grantee does not transfer title.

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Chapter 11 - Page 1 DEEDS OF CONVEYANCE DEED EXECUTION Title

EXECUTION OF DEEDS a. A grant in fee or of a life estate must be subscribed by the grantor or his agent whose authority is in writing and either acknowledged or attested by at least one witness. If neither acknowledged nor attested it is void as against a subsequent purchaser or incumbrancer. R.P.L ∋ 243 An unacknowledged and unattested deed is effective as between the grantor and grantee. Strough v. Wilder, 119 N.Y. 530 (1890) c. The subsequent purchaser or incumbrancer need not be in good faith for value. Chamberlain v. Spargur, 86 N.Y. 603 (1881) (1) "Purchaser" construed to mean person who acquires interest by any method other than by descent. Illus: Deed from A to B unacknowledged and unattested. Deed from A to C properly executed and C has knowledge of B's deed. C prevails. Deed from A to B unacknowledged and unattested. A devises same property to C. C prevails. d. Exception to the statute where grantee under imperfect deed takes possession and makes improvements. City of N.Y. v. N.Y. & S.B.F. & S.T. Co., 231 N.Y. 18 (1921)

b.

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Chapter 11 - Page 1 DEEDS OF CONVEYANCE ESCROW DEEDS RELOCATION Settlement

ESCROW DEEDS: OMISSION OF GRANTEES ON DEEDS INTRODUCTION: Closing agents and title attorneys have been confronted with the issue of whether an incompletely executed deed accompanying a relocation related transaction is valid for acceptance for purposes of conveying title. The central issue is whether the deed is legally valid as an effective written instrument to convey title to the intended purchaser. Our focus narrows even further by examining the validity of such deed wherein the deed omits the name(s) of the grantee(s). FACT SCENARIO: The relocating party (hereinafter seller) agrees with the relocation company on a price for the sellers' equity in the home and executes the relocation company's contract and resulting deed etc. The deed is completed but for the omission of the grantees names. The relocation company intends to use the same deed later to deliver it to a new purchaser of the fee simple interest in the real estate. The sellers receive the agreed equity for the real estate and go their merry way. Along comes a purchaser and agrees to a contract of sale between purchaser and agrees to a contract of sale between purchaser and relocation company. The relocation company provides the incompletely executed deed to the closing agent or the relocation company's local agent with instructions to complete the deed by adding the name(s) of the grantee(s) and to conduct or attend the closing and deliver the deed to the buyer and thereby convey title in exchange for the purchase price. Practices among relocation companies vary as to what documentation is provided. Some or all of the following are often used (except for No. 7 which is suggested for use): 1) 2) 3) 4) 5) 6) 7) Power of Attorney from seller to an officer in the relocation company (limited or general) Exhibits A & B. Assignment of Funds (Exhibit C) Closing Authorization (Exhibit D) Appointment of special Agent (Exhibit E) Owners Affidavit (Exhibit F) Affidavit of Agent (Exhibit G) (Proposed) Authorization of Conveyance (Exhibit H)

Chapter 11 - Page 2 DEEDS - ESCROW DEEDSRELOCATION Settlement

These forms have been used as authorization to complete the sale. Many of us have assumed that this includes an authorization to complete the deed. This conclusion may be supported by the following material and citations. However, as the following indicates, it appears that whatever forms are used, documentation of express authority to complete the execution of the deed is the most prudent policy. Otherwise, one may be faced with costly time consuming efforts to show proper authority or eventual litigation to support the validity of the deed. GENERAL LAW Generally, Ohio law requires that a valid deed purporting to convey title should have the following: 1) An appropriate written documentary act containing the elements of proper formalities of execution i.e., signed, dated, witnessed, acknowledged and notarized. Definable parties (i.e. grantor (s) and grantee (s) Consideration (or by gift) Sufficient legal description of the real estate, and Delivery

2) 3). 4). 5).

The fact scenario above raises title issues especially concerning items 2) and 5) above. Hence, do the relocation deeds meet the requirements of certainty as to the parties to the deed and when does delivery take place for purposes of passing title. Other issues are not covered here. DEFINABLE GRANTEE It is well settled law in Ohio dating back to 1824 that a blank deed or a deed containing blanks which is subsequently filled in without authority from the grantor is invalid and will not pass title to any property.13 These rulings seem to imply a means to insert the items omitted at the time of the partial execution of the deed by the grantor. The means apparently must afford proper authorization. This, of course, raises additional questions, i.e. What type of authorization is required and what type of legally acceptable relationship must exist between the seller and the authorized person? To be more specific, does this result in a
Ayres v. Harvess (1824) 1 Ohio 368, 372. Schueler v. Lynam 80 O App. 325, 36 O Ops 32, 49 OL Abs 225, 75 NE 2d 464.
13

principal/agency relationship and must the authority be by power of attorney, or

Chapter 11 - Page 3 DEEDS - ESCROW DEEDSRELOCATION Settlement

otherwise only in writing or will parol authority be sufficient? No definite answers were found under Ohio case law. But the common law in many states generally seems to be as set forth below. General case law provides that omissions as to the grantee (s) in the deed apparently may be supplied if done with authorization of the grantor and the enforcement of same may be based upon the following principles: (1) Express authorization of grantor for the deed to be completed. a) b) c) (2) a) b) (3) written and in recordable form 14 written instrument of authorization by grantor15 parol authorization and consent16 No express authorization or consent by the grantor, however, if such is implied by identification of the grantee on other parts of the deed besides the granting clause then the addition of grantees is proper.17 Implied authority as derived from facts of the case.18

Ratification by the grantor after the prior grantee was added. a) b)
14

Ratification by action i.e. receipt of funds, turning over possession, etc.19 Written confirmation and/or consent after the fact.20

Bretta v. Meltzer (1932) 280 Mass 573. Merchants Bank & T. Co. v. Wimbish (1926) 192 NC 552. Cross & Bissell v. State Bank 5 Ark. 525. Durbin v. Bennett (1939; DC 111) 31 F. Supp 24. Bryant v. Barger (1942) 112 Ind. App. 17 Fisher v. Paup (1920) 191 Iowa 296. Hoey v. Ebert (1935) 270 Mich 25. Calhoun v. Drass (1935) 319 Pa 449
15

Johnson v. Rost (1925) 164 Minn 164. 2409 Broadway Corp. v. Lange (1926) 128 Misc 118, 217 NYS 566. Calhoun v. Drass (1935) 319 Pa 449. Dicta - Hoey v. Ebert (1935) 270 Mich 25.
17

16

Irwin v. Longworth (1851) 20 0 582.

Norby v. Security State Bank (1929) 177 Minn 127. Barth v. Barth (1943) 19 Wash 2d 543.
19

18

Ward v. National Bank of Paulding 5 Misc. 140, 34 002d 321 (C.P. 1965). Sommer v. Wade 6 Abs 118 (App. 1928)

20

Chapter 11 - Page 4 DEEDS - ESCROW DEEDSRELOCATION Settlement

c)

Grantors' failure to disaffirm (an action in equity based on the theory that the signed deed was a contract to convey the real estate coupled with equitable remedy of estoppel) This situation assumes that the purchaser is a bonafide purchaser for value.21

No Ohio cases were found which specify that the authorization be recordable, written or parol. The dicta in the Ohio cases cited herein suggest to this author that express written authorization is sufficient even though not executed with the formalities of recording. Obviously, the best practice calls for written authorization in recordable form. DELIVERY The basis of the authority to permit the completion of the deed exists by rules of law governing agency relationships. An agency may be defined as a contract, express or implied, by which one of the parties confides to the other the management of some business to be transacted in his name, or on his account, by which the other assumes to do the business and to render an account of it.22 Construing the relocation company as acting for the seller as seller's agent, the deed given is in escrow. Implicit in most fact situations between seller and relocation company in the verbal or written escrow arrangement is that the conditions of sale must be met prior to delivery of the deed. Even one who is agent for the grantee may accept an agency for the grantor to hold the instrument as depositary until specified conditions are performed by the grantee.23 This suggests that the closing agent who may also be the attorney for the buyer may accept the deed as depositary and further under agency law complete the deed under the implied authorization of the seller. The relocation company usually employs the closing agent to conduct or attend the closing on behalf of the relocation company. Generally, an agent may not delegate to another a power already delegated to him as agent unless the agent has the principal's authorization. 24 Again, express written authority should permit the local agent to act on behalf of the relocation company and the seller.25 For best results, the original express written authorization from seller to relocation company should provide that the relocation
Holden v. Belmont, 32 OS 585 (1877). Becker v. Shade, 17 CC (NS) 83 (1910). Am Jur 2d, Deeds 142. Am Law of Prop 12.85. Thompson on Real Property 4270, 4278. Bryant v. Barger, 112 Ind 17.
22 21

Ish v. Crane, 13 OS 574. Cincinnati W. & 2R Co. v. Iliff, 13 OS 235.

23

Norton v. Blinn, 39 OS 145. Reynolds v. Moor Bros. Realty Co., 31 Ohio App. 333. Olman v. Rawson, 9 Ohio Supp 156, 24 00 39.
25

24

Thompson on Real Property 3237.

Chapter 11 - Page 5 DEEDS - ESCROW DEEDSRELOCATION Settlement

company may at its direction use an agent (subagent) to carry out the sale of the property as the relocation company deems appropriate. CONCLUSION AND THEORY The prudent practice calls for the seller to provide documentation to expressly authorize and give consent to the relocation company to: 1) 2) 3) 4) Act as agent for the seller in all respects concerning the sale and conveyance of the real estate Complete the signed but partially completed deed Complete the closing transaction on behalf of the seller Authorize the utilization of subagents as the agent deems appropriate.

Under general law governing agency relationships, the relocation company appears to act as the agent of the seller and the title passes upon delivery of the deed by the agent or its subagents to the purchaser at the closing table. Without the agency relationship and substantiating documentation to show authorization. It appears that the Fact Scenario set forth above may result with invalid deeds being delivered at the closing table unless the execution and delivery of the deed is substantiated with implied consent or ratifications. In either event, such determination would come about through litigation. However, in the event of challenge, the conveyance may be upheld under the remedies of equity. As set forth above the courts may hold that estoppel would result to give clear title to the buyer. However, the transaction may be defeated by a suspicious purchaser doubting proper authority wherein express authority is not in writing. Intended purchasers looking for a means to escape the sale may likely find protection behind this type of challenge to the authority of the alleged agent. PROBLEMS TO CONSIDER: DELIVERY The emergence of relocation company activities in home sales is a rather recent practice. Ohio courts have yet to directly encounter these issues. The conservative approach appears to be the best. Therefore, get express written authorization. The form is very simple. See Exhibit "H" for a simple form purporting to provide authorization. Further, documentation should be requested to check marital status, solvency or pending deceased estates. The occurrence of any of these conditions requires the same corrective measures as in an ordinary transaction wherein title has not passed. The burden of additional reasonable inquiry may be upon us to guard against the occurrence of these mishaps. The proposed forms provided in the Exhibits help address this by having the seller or the authorized agent (relocation company) assert certain facts to answer those inquiries deemed appropriate by you under your particular factual situation.

Chapter 11 - Page 6 DEEDS - ESCROW DEEDSRELOCATION Settlement

One theory of law which may help in the event of supervening incapacity, death, bankruptcy or liens filed after the seller has received the equity in the real estate for the partially executed deed deals with treating the relocation company as an agent coupled with an interest. It may be argued that since the relocation company has paid a valuable consideration for the sellers' equity, that the relocation company as an agent is protected as an agent coupled with an interest. This is a question of fact for the court to determine. However, generally, powers coupled with an interest are irrevocable.26 The incapacity or death of the principal does not revoke the power of the agent.27 Additionally, bankruptcy, by operation of law, divests the authority of an agent to deal with the assets or rights of property of which the principal was divested by reason of the bankruptcy. However, an agency coupled with an interest argument may aid in negotiations with the bankruptcy trustee in order for the trustee to look to the proceeds of the equity paid to the seller as the only asset of the seller from the real estate and thereby abandon the realty in question. Lastly, intervening liens may also be negotiated on the same basis. One may also be successful on the theory of subrogation. If the relocation company purchased the sellers' equity prior to the filing of the lien, the relocation company may be subrogated to its benefit and to the detriment of the lien claimant. However, I would not want to rely on this type of potentially "boot strap" rationale. It helps if you have little else on which to rely. These may only help after you have closed the deal and find that you or your claims representative must settle embarrassing claim.

26

Simmon Real Estate Co. v. Riestenberg 51 O App 176, 4 O Ops 569, 19 OL Abs McDonald v. Administrator of Balck, 20 OS 185.

353.
27

EXHIBIT A SPECIAL POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That (seller), (marital status ), the undersigned, hereby makes, constitutes and appoints an authorized officer of (RELOCATION COMPANY), his true and lawful attorney for him and in his name, place and property described as follows: LEGAL DESCRIPTION COMMONLY KNOWN AS: PROPERTY ADDRESS

For the limited purpose of inserting the names of the Grantee on said Deed or Deeds and to complete any instrument or document needed in the closing of this transaction and in particularly to complete the Deed, including but not limited to the incorporation of a proper legal description and the name(s) of the grantee(s). An authorized officer of (RELOCATION COMPANY), is also expressly empowered to accomplish an assignment of any pertinent lease contract of sale, or other document and to complete the transfer subject to encumbrances of record, including, but not limited to, escrow instructions, amendments, loans, taxes, assessments and bonds, if any covenants, conditions, restrictions, easements and rights of way of record. Further, an authorized officer of (RELOCATION COMPANY) or an authorized agent of (RELOCATION COMPANY), shall be empowered to accomplish the assumption and preparation of any necessary documents in connection with said assumption by the Grantee of any loan or mortgage in accordance with instructions to be given by an authorized officer of (THE RELOCATION COMPANY) or an authorized agent of (RELOCATION COMPANY). WHEREVER the context so requires, the masculine gender includes the feminine and neuter, and the singular number includes the plural. WITNESS MY HAND this WITNESSES: day of , 19 .

STATE OF COUNTY OF

) )SS: )

On this day of , 19 , before me, the undersigned, a Notary Public in and for said County and State, personally appeared known to me to be the person(s) whose name subscribed to the within signed and executed the same. instrument and acknowledged to me that

Notary Public

EXHIBIT B POWER OF ATTORNEY STATE OF COUNTY OF Know all men by these presence, that we and , husband and wife, now of , but about to do hereby make, constitute and appoint move to as our true and lawful attorney-in-fact for us and in our name, place and stand, and on our behalf and for our use and benefit, with respect to the real property described in Exhibit A, attached hereto and fully incorporated herein, to execute in part or full and deliver deeds and any other instruments necessary to accomplish the sale and conveyance of said real property to such person or persons and upon such terms and conditions as said attorney-in-fact may find appropriate. Further granting our attorney-in-fact the power to receive any and all sums of money due us and to endorse checks and drafts, as may be necessary or proper in connection with said sale. It is recognized that (RELOCATION COMPANY) has purchased our interest in said real property and accordingly has an interest in the subject matter of this power and it is, therefore, agreed that said attorney is hereby irrevocably vested with the powers granted herein and we do hereby forever renounce all right to revoke this power of attorney or any of the powers conferred upon our attorney hereby. This power of attorney shall not be affected by physical disability or mental incompetence of the principals which render either or both of them incapable of managing their estate or estates. Further, we expressly authorize (RELOCATION COMPANY) to complete the execution of any documents partially executed by the undersigned including but not limited to the deed, i.e. inserting the name of the grantee or otherwise. IN WITNESS WHEREOF, we hereunto set our hands and seal this , 19 . day of

STATE OF

COUNTY OF

ss: day of

The foregoing instrument was acknowledged before me this , 19 by:

Notary Public

EXHIBIT C ASSIGNMENT OF FUNDS The undersigned hereby transfers, sets over and assigns unto (RELOCATION COMPANY) the right to receive all funds due including the refund of escrow funds due or to become due the undersigned from the sale of said property more particularly described as follows: LEGAL DESCRIPTION Commonly known as: PROPERTY ADDRESS

The undersigned further covenants and warrants that said funds assigned hereunder are free from any and all liens, claims and encumbrances whatever and has not been and will not be assigned or disposed of except as provided herein. This Agreement of funds is irrevocably vested in (RELOCATION COMPANY) and shall not be affected by death or disability of the undersigned and the undersigned hereby further renounces forever all rights to revoke this Assignment of Funds.

STATE OF COUNTY OF

) )SS: )

On , before me, the undersigned, appeared and , known to me to be the person(s) whose Name(s) is/are subscribed to the within instrument and acknowledged that executed the same. Notary Public

EXHIBIT D CLOSING AUTHORIZATION TO WHOMEVER IT MAY CONCERN: Upon compliance with all closing instructions, (RELOCATION COMPANY) as equity owner of the captioned property, does hereby appoint its Attorney-in-fact, to act on its behalf concerning any and all matters related to the transfer of title represented above, including the execution of settlement sheets and other documents, acceptance of proceeds and payment of any liens upon the captioned property. IT WITNESS WHEREOF, said party has caused this instrument to be signed all in pursuance of authority duly given by said Corporation. (RELOCATION COMPANY) by: STATE OF COUNTY OF ) ) SS: )

Before me, the undersigned a Notary Public, in and for the State of , personally appeared and severally acknowledge the signing thereof, and that such signing was freely and voluntarily performed, for the uses and purposes therein mentioned. IN TESTIMONY WHEREOF, I have hereunto signed my name and affixed my official seal this day of , 19 .

Notary Public

EXHIBIT E APPOINTMENT OF SPECIAL AGENT TO: (CLOSING AGENT) (RELOCATION COMPANY) hereby authorizes the above named closing agent to insert the name of any purchaser(s) in a deed to the following described property: LEGAL DESCRIPTION Commonly known as: (PROPERTY ADDRESS)

at the direction of (RELOCATION COMPANY) DATED:

EXHIBIT F OWNER'S AFFIDAVIT The undersigned 1. 2. 3. , being first duly sworn, on oath say (s) that:

I/we own the following described property: See attached Exhibit "A" Said person is of legal age and under no legal disability. There have been no: a. Bankruptcy, divorce or dissolution proceedings involving said person during the time said person has had any interest in the Premises, described above, other than any proceedings of public record in the County where the subject real estate is situated. Unsatisfied judgments of record against said person nor any actions pending in any courts, which affect the Premises; Tax liens against said person except as herein stated:

b. c. 4.

Any bankruptcy, divorce or dissolution proceedings of record against parties with the same or similar names, during the time period in which the above named person has had any interest in the Premise, are not against the above named person (s). Any judgments, or tax liens of record against parties with the same or similar names are not against the above named person(s). There has been no labor or materials furnished to the premises for which payment has not been made. There are no unrecorded contracts, leases, easements or other agreement or interest relating to the Premises except as stated herein: There are no persons in possession of any portion of the Premises other than pursuant to a recorded document except as stated herein: There are no encroachments or boundary in questions affecting the Premises of which Affiant has knowledge.

5. 6. 7. 8. 9.

Affiant knows the matters herein stated are true and makes this Affidavit for the purpose of inducing the passing of title to the Premises.

STATE OF COUNTY OF

) )SS: )

On the day of , 19 , before me, the undersigned, a Notary Public in and for said County and State, personally appeared

known to me to be the person(s) whose name (s) is/are subscribed to the within instrument and acknowledged to me that executed the same as free act and deed. Notary Public

EXHIBIT G AGENTS AFFIDAVIT The undersigned that: 1. , being first duly sworn, on oath say(s)

The undersigned is acting in his official capacity as an Agent for the legal fee simple title holder to the following described legal estate: See attached Exhibit "A" The undersigned has express authority to represent the owner as the owners' Agent and express authority to engage others as agents of the owner to complete any documents including and not limited to the execution of the deed, i.e. name of grantee (s), etc. and to complete the sale of the above referenced real estate. That the owner/seller [hereinafter person] is of legal age and under no legal disability. There have been no: a. Bankruptcy, divorce or dissolution proceedings involving said person during the time said person has had any interest in the Premises, described above, other than any proceedings of public record in the County where the subject real estate is situated. Unsatisfied judgments of record against said person nor any actions pending in any courts, which affect the Premises; Tax liens against said person except as herein stated:

2.

3. 3.

b. c. 4.

Any bankruptcy, divorce or dissolution proceedings of record against parties with the same or similar names, during the time period in which the above named person has had any interest in the Premise, are not against the above named person(s). Any judgments, or tax liens of record against parties with the same or similar names are not against the above named person(s). There has been no labor or materials furnished to the premises for which payment has not been made. There are no unrecorded contracts, leases, easements or other agreement or interest relating to the Premises except as stated herein: There are no persons in possession of any portion of the Premises other than pursuant to a recorded document except as stated herein:

5. 6. 7. 8.

9.

There are no encroachments or boundary line questions affecting the Premises of which Affiant has knowledge.

Affiant knows the matters herein stated are true and makes this Affidavit for the purpose of inducing the passing of title to the Premises.

STATE OF COUNTY OF

) )SS: )

On the day of , 19 , before me the undersigned, a Notary Public and in and for said County and State, personally appeared known to me to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that executed the same as free act and deed. Notary Public

EXHIBIT H AUTHORIZATION OF CONVEYANCE In Re: Sale of (address of property)

The undersigned hereby expressly authorizes (RELOCATION COMPANY), its heirs, assigns and agents to insert the name of any purchaser(s) in a certain deed executed by the undersigned but for the omission of the grantee(s) name(s). Said deed will convey the following described real estate: LEGAL DESCRIPTION The undersigned further consents to and ratifies the insertion of the grantee's name on said deed as (RELOCATION COMPANY) or its agents deem appropriate to effectuate the conveyance of title. Further, the undersigned authorize (RELOCATION COMPANY) to act as escrow agent or to appoint an agent of its choice to act as escrow agent in the closing and settlement of the sale of said real estate or in the alternative to appoint an agent of its choice to act as a representative at the closing for the undersigned with complete authority to complete and execute any and all documents incidental to the sale of said real estate including but not limited to the insertion of the name(s) of the grantee (s) on the deed. Said (RELOCATION COMPANY), its heirs, assigns or agents are authorized to execute settlement statements, affidavits or other documentation incidental to the sale and closing of said real estate to effectuate the sale and closing. Witness hand (s) this day of , 19 .

STATE OF

, COUNTY OF

SS:

The foregoing instrument was acknowledged before me, a Notary Public in and for said County and State, by: Notary Public

Chapter 11 - Page 1 DEEDS OF CONVEYANCE Law Bulletin

DESCRIPTIONS - OLD STREETS A mere description by lot number on a filed map (as lot No. 10 on Map of Mt. Hope, without giving dimensions) carries half the adjoining street. Hennessy v. Murdock, 137 N.Y. 317 Johnson v. Grenell, 188 N.Y. 407. A description bounded by a street or running to and along a street carries one-half of the street. Matter of Ladue, 118 N.Y. 213. A description beginning at the side of the street or running to and along the side of a street excludes the land in the street. Throwbridge v. Ehirich, 191 N.Y. 361. A description beginning at a particular corner of two streets, for instance, at the northwesterly corner of two street as laid down on a map, excludes the land in the street. Matter of City of New York, 209 N.Y. 344 English v. Brennan, 60 N.Y. 609. Attention is also called to the cases of: Haberman v. Baker, 128 N.Y. 253. Potter v. Boyce, 176 N.Y. 551. Van Winkle v. Van Winkle, 184 N.Y. 193. By reason of the following cases, there is still some doubt as to whether a description by lot number followed by dimensions which run only to the side of the street would include or exclude the land in the street. Watson v. City of New York, 67 A.D. 573, affirmed in 175 N.Y. 475. Woolf v. Pierce, or In re Matter of City of New York, 209 N.Y. 344. Gosstol Realty Corporation v. Gillman, 224 A.D. 63. DESCRIPTIONS - MARGINAL STREETS Where the street is a marginal street and lots are conveyed by a description which would ordinarily carry half of the street, in such a case of the marginal street would be included. Haberman v. Baker, 128 N.Y. 253.

Chapter 11 - Page 2 DEEDS OF CONVEYANCE Law Bulletin

MONUMENTS As a general rule a monument in a deed governs as against the dimension, but the monument of the "center line of a party wall" falls and the dimension governs in certain case. Darling v. Alexander, 130 A.D. 85. DEDICATION The filing of a map and its acceptance by the city does not make the streets thereon shown legally opened streets. Matter of the City of New York, 239 N.Y. 119. DRAIN RIGHTS Where a common owner conveys the servient tenement first, the drain right is cut off. Where the dominant tenement is conveyed first, the drain right is preserved. Treadwell v. Inslee, 120 N.Y. 458 Stuyvesant v. Early, 58 A.D. 242-244. HUSBAND TO WIFE A creditor will not be successful in setting aside a deed from husband to wife solely on the ground that it was not founded on a valuable consideration unless he is able to show that there was fraudulent intent on the part of the grantor. Guy v. Craighead, 21 A.D. 460. Riker v. Gwynne, 129 A.D. 112, 113 N.Y. Supp. 404, Modified Another Point, 201 N.Y. 143. Neuberger v. Keim, 134 N.Y. 35. RECITALS (AS TO HEIRSHIP) Recitals in a duly acknowledged or proved deed, mortgage, lease, release, power of attorney, or other instrument more than twenty years old, executed for the purpose of transferring the title to or interest in lands, etc., which contains recitals that the grantors, grantees, or either or both are the heirs at law of a prior owner, shall be presumptive evidence of said heirship as therein recited, etc., provided, of course, the said instrument is duly recorded. Chapter 248, Laws of 1925.

RECITALS ("BEING THE SAME PREMISES," ETC.)

Chapter 11 - Page 3 DEEDS OF CONVEYANCE Law Bulletin

Where the closing clause of the description in an instrument sums up the intention of the parties as to the particular premises conveyed, it has a controlling effect upon all the prior phrases used in the description. Ousby v. Jones, 73 N.Y. 621. Thus a defect in a metes and bounds description contained in a mortgage which failed to cover two feet of premises, was cured by the recital "Being the same premises which were conveyed by F. to S." (giving date of deed and place of record). Bernstein v. Neal, 144 N.Y. 347. This case holds further that where the defective metes and bounds description was used in the complaint, judgment and referee's deed upon foreclosure of the mortgage, though the recital was omitted from all of these the purchaser could nevertheless convey good title. (But see also Thayer v. Finton, 108 N.Y. 394). However, a deed which does not include the street, will not be construed to do so because the phrase "being the same premises" etc., inserted after the description, refers to a deed which carries the street. Matter of City of New York, re: Lawrence Ave., 99 Misc. 24. RECITALS (OLD DESCRIPTION CONTINUED) An old description continued after the widening of a street which thereby caused a change in the distance of the property from that street, renders the title unmarketable in the absence of a recital or reference to the former deeds. Egelhoff v. Simpson, 50 A.D. 595.

Chapter 10A - page 1 DEEDS IN LIEU OF FORECLOSURE Underwriting

DEEDS IN LIEU OF FORECLOSURE Where the company is asked to insure an deed-in-lieu of foreclosure and the policy to issue is a 1990 ALTA Owners Policy containing the Creditors Rights Exclusion set forth above, the title insurer may generally rely on the exclusion as sufficient protection against a subsequent creditors rights claim. I use the word "generally" above for good reason. You want to exercise a greater degree of caution where the borrower (and proposed grantor in the deed-in-lieu) is someone other than an individual. It has been suggested at "ALTA Title Counsel" that the industry must establish a minimum standard of obtaining an objective determination of consideration and value irrespective of the policy exclusion, because of the potential for collateral attack by aggrieved stockholders or limited partners, in those cases where the equity value substantially exceeds the unpaid debt. From a practical standpoint, while I am sure the company would prevail under the policy exclusion, the defense costs could be excessive. Consequently, whenever there is even the potential threat of a stockholder derivative action or challenge by aggrieved limited partners the home office is to be contacted and the facts presented in writing for review. Bear in mind that the premium to be collected should be commensurate with the risk incurred.

The title guidelines presently set forth in the "DEED IN LIEU OF FORECLOSURE" section of this manual will continue to apply in those instances where the company is asked to insure title coming from the prior deed-in-lieu grantee (the lender) to a new third party within the one year time frame of delivery of the prior deed-in-lieu of foreclosure. In that instance our concerns are different from those of the insurer of the actual deed-in-lieu of foreclosure transaction and we are not entitled to rely on the exclusion contained within the prior policy. That policy and its exclusion ceases to exist when the lender conveys to a third party. The issue of solvency is of concern where, within one year of the delivery of the deed-in-lieu, the company is asked to insure a deed from the grantee of the deed-in-lieu. I cannot emphasize this enough. IN THAT INSTANCE THE CREDITORS' RIGHTS EXCLUSION CONTAINED IN THE TITLE POLICY INSURING THE LENDER AS GRANTEE IN THE DEED-IN-LIEU IS NO LONGER APPLICABLE BECAUSE IT ONLY APPLIED TO THE TRANSACTION INSURING THE DEED-IN-LIEU. IT DOES NOT APPLY TO A SUBSEQUENT TRANSACTION INSURING A THIRD PARTY.

In those jurisdictions or instances where the 1990 ALTA Policy Form is not being used and the 1970 ALTA Policy (rev. 10-17-84) is being used the creditors rights issue and the issue of solvency continues to exist and must be addressed where we are asked to insure a deed-in-lieu of foreclosure. In those instances you should review the prior subject matter contained within this manual, including the following clearance suggestions. [a] The Legal Issue. The principal creditors' rights issues relating to the delivery by a mortgagor to a mortgagee of a deed-in-lieu of foreclosure are substantially the same as the fraudulent conveyance and avoidance concerns as discussed above, i.e., whether the lender is paying or otherwise giving reasonably equivalent value for the conveyance. Title insurance considerations include (i) whether the deed is intended to be an absolute conveyance by the mortgagor to the mortgagee and not a new security instrument. Additional concerns (ii) include the effect of the deed on the mortgagor's equity or right of redemption, and (iii) the obtaining consents of all necessary parties to the transaction, such as shareholders, partners or trust beneficiaries.

The Form of Title Exception The following is a broad form of exception that may be set forth in the title insurance policy relating to a deed-in-lieu of foreclosure transaction unless certain title company requirements are satisfied and approved by a senior underwriter: [i] Any defect, lien or encumbrance arising by reason of the fact that said deed was given in satisfaction of a mortgage; or (ii) The effects of said transfer being a fraudulent transfer or preference in any proceedings in or related to any chapter of the Federal Bankruptcy Code or the effect of said transfer being invalid under any state insolvency or fraudulent conveyance laws.

[b]

The Clearance Requirements of the Title Company: If the prospective lender insured party is unwilling to accept such a broad exception, the title company may issue a policy without exception if all of the following conditions are satisfied. The form of the requirements should read as follows: "With regard to the request that we undertake to insure the deed-in-lieu of foreclosure free and clear of any exception relating to Federal or State insolvency or creditors' rights laws, we have several concerns, all of which are to be addressed in writing": (i) is the mortgagee paying or otherwise giving reasonably equivalent value for the conveyance? (ii) is the deed intended to be an absolute conveyance by the mortgagor to the mortgagee and not a new security instrument? (iii) what is the affect of the deed upon the mortgagors right of redemption? (iv) will the consents of all the parties to the transaction be obtained, including corporate shareholders or partners?

"We will consider issuing a policy free of the creditors rights exception if all of the following conditions are met to the companies satisfaction": (a) An Estoppel Affidavit is to be executed and acknowledged in recordable form by the grantor of the deed. The estoppel affidavit shall include representations that the deed is intended to be an absolute conveyance and not a mortgage, trust conveyance or security instrument of any kind; that the grantor is [was] fully aware of the consequences of delivery of the deed-in-lieu of foreclosure; that the delivery of the deed was not given as a preference; that there were no other persons, firms or corporations having an interest in the premises (other than the mortgagee) at the time of delivery of the deed; that the grantor is [was] solvent at the time of the delivery of the deed, will not be rendered insolvent thereby and further that there are no other creditors whose rights would be prejudiced by the conveyance;

(b)

The deed must contain a recital substantially to the effect that it is an absolute conveyance, the grantor having sold the land described therein to the grantee for fair and adequate consideration, such consideration being and including the full and complete satisfaction of all obligations secured by the mortgage (as described), and that the grantor declares that the conveyance is freely and fairly made, and that there are no agreements, oral or written, other than the deed, existing between the parties with respect to the land;

(c)

The Note or other evidence of indebtedness secured by the mortgage must be surrendered and canceled, and the mortgage securing such note or evidence of indebtedness must be released of record;

(d)

The grantor in the deed must surrender possession of the property to the grantee;

(e)

Evidence of corporate authority (including shareholders resolutions, where required) must be delivered;

(f)

The grantor must deliver an independent appraisal of the property satisfactory to the title company certified to by either a MAI or SRE appraiser. The appraisal should show that the property is not worth more than the amount of the unpaid principal balance of the mortgage plus accrued interest;

(g)

There can be no other circumstances, such as a leaseback with option to repurchase, or agreement to reconvey, which would imply the continued existence of the debt;

(h)

The grantor must not be insolvent at the date of the execution of the deed.

If less than all the conditions above set forth on (a) through (h) inclusive are not satisfied, it shall be absolutely necessary to obtain the approval of the Home Office prior to issuing a policy clear of a creditors rights' exception.

ALTERNATIVE PRESENTATION OF TITLE CONSIDERATIONS (l) Proof (by presentation of an independent appraisal) that the value of the property does not exceed the amount actually remaining due of the mortgage including accrued interest. This addresses bankruptcy and non-bankruptcy issues raised by "Durrett". Our concern is whether or not there is equity value in the premises over and above the mortgage balance. So long as the equity value in the property does not exceed the canceled debt and the further consideration of the deed-in-lieu includes both (i) the estimated cost of the foreclosure action and (ii) a full written release of the owner from the obligation of the note and cancellation of the mortgage, the transfer is not likely to be collaterally attacked. However, if the value or equity is in excess of the debt, then the transfer results in a diminution of the estate and is voidable. (2) Require an Agreement between the mortgagor and the mortgagee the minimum elements of which should include the following: (a) (b) (c) (d) acknowledgment of the indebtedness; acknowledgement of default; confirmation of the simultaneous execution of a deed to the mortgagee and satisfaction of the debt; warranties with respect to title that: (i) (ii) (iii) the mortgagor is the owner of the property; there are no leases, contracts of sale or other agreements affecting title (such as subordinate mortgages); owner has not suffered any lien or judgment (i.e., e.g. Judgment or Federal Tax Lien) whereby the premises have been encumbered in any way whatsoever; (iv) owner has not entered into any contract for or cause any work to be done or performed in or upon the premises which has or may result in the filing of a mechanics lien.

NB Because there is an absence of "cash" a bi-lateral agreement spelling out the terms of the transaction is preferable to an affidavit, although these issues could be addressed in an estoppel affidavit. Bear in mind that a written "agreement" may survive a subsequent bankruptcy of the borrower whereas an affidavit is clearly subject to disaffirmance. FROM THE BORROWER YOU WANT THE FOLLOWING REPRESENTATIONS: 3. Representation that the transaction is entered into voluntarily, free of any fraud, duress or undue influence. 4. Proof that the deed is being given unconditionally and absolutely; that there are no collateral side agreements to the delivery of the deed, such as repurchase options or contract to repurchase or management agreements or obligation for any future payments to the lender by the borrower which shows a continuing relationship. FROM THE LENDER YOU WANT THE FOLLOWING REPRESENTATIONS: 1. Acknowledgment that the transfer is an absolute conveyance of the mortgagor's right, title and interest in and to the premises, together with the appurtenances and that, upon acceptance, it is intended to convey all rights of possession as well as title. This goes to the issue of marketability and could appear as a recitation in the deed to be delivered. If the representations of the mortgagor are made in an affidavit, the mortgagee must execute a separate contemporaneous instrument evidencing the release of the mortgagor from further obligation; 2. A covenant that as consideration for the transfer, the mortgagee releases the mortgagor from any personal liability for the indebtedness; 3. Acknowledgment that the affidavit or "bi-lateral agreement" is made to induce the mortgagee to accept the conveyance of the property in lieu of foreclosure knowing that the title company will rely upon the statements made therein and thereon for the purpose of issuing its policy of title insurance; that the representations and warranties made in the agreement are

binding upon the parties their heirs, representative, successors and assigns.

ATTACHED ARE EXHIBITS TO BE USED IN CLEARANCE OF THIS ISSUE

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Chapter 13 - Page 1 DIVORCE Title

DIVORCE
GENERAL An action for divorce may be maintained by a husband or wife on any of the following grounds: 1) 2) 3) 4) 5) 6) Cruel and inhuman treatment; Abandonment for one or more years; The confinement of one of the parties in prison for a period of three or more consecutive years after marriage; The commission of an act of adultery with exceptions recorded in ∋171 of Domestic Relations Law; Husband and wife have lived apart pursuant to a decree or judgment of separation for a period of one or more years; The husband and wife have lived separate and apart pursuant to a written agreement of separation in a form required to entitle a deed to be recorded for a period of one or more years. (N.Y. Dom. Rel Law ∋ 170, 1977).

PROPERTY SUBJECT TO DISPOSITION IN DIVORCE, SEPARATION, ANNULMENT OR TO DECLARE NULLITY OF A VOID MARRIAGE The court may determine any question as to the title to property arising between the parties in an action for divorce, separation, annulment or to declare nullity of a void marriage. It may also make such direction, between the parties concerning the possession of the property, as in the court's discretion. Such direction may be made in the final judgment and/or by one or more orders from time to time before or subsequent to final judgment. When the title to real property is affected, a copy of such judgment, order or decree, duly certified by the clerk of the court, shall be recorded in the office of the recording officer of the county in which such property is situated. (N.Y. Dom. Rel. Law ∋ 234, 1977). Where a husband and wife acquire realty as tenants by entirety, their status changes to that of tenants in common by operation of a judgment of divorce. (Gajerwski v. Gajerwski, 382 N.Y.S. 2d 177, 52 App. Div. 2d 735 (1976)). Where the wife secures a divorce, all real property owned by her, or personal property in her possession, or under her control, is divested of the husband's interest; but the wife's inchoate dower right, if any, in the husband's real property is not affected. (N.Y. Dom. Rel. Law ∋176, 1977). FOREIGN DIVORCE Foreign state ex parte divorces must be recognized in this state, if adequate notice and opportunity to defend was given and the plaintiff was domiciled in the foreign state. (Williams v. North Carolina, 317 U.S. 287, 1942).

The finding of domicile in an ex parte divorce by a foreign state may be readjudicated later by this state. (Williams v. North Carolina, 325 U.S. 226, 1945).

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Chapter 13 - Page 2 DIVORCE Title

The finding of domicile in a divorce by a foreign state where both parties appeared may not be readjudicated later by this state. (Johnson v. Mulberger, 340 U.S. 581, 1951). A foreign ex parte divorce may not cut off defendants' right to support previously established in this state. (Estin v. Estin, 334 U.S. 541, 1948). New York may later grant alimony in spite of a foreign ex parte divorce obtained by the husband. (N.Y. Dom. Rel. Law ∋236, 1977). Court orders of foreign nations are respected only insofar as comity requires. Where a foreign country is but a brief haven for New York couples seeking divorce and the family resides in New York, there are important reasons for tipping comity considerations in favor of New York's power to enforce, supervise and modify the decree. (N.Y. Fam Ct. Act ∋ 466 (c); Santamaria v. Santamaria, 345 N.Y.S. 2d 906, 74 Misc. 2d 657 (1973)). A bilateral decree of divorce obtained in Mexico has been upheld as the matter of comity offends no public policy of the state and must be recognized. (Hambleton v. Palmer, 283 N.Y. S. 2d 404, 54 Misc. 2d 766 (1967)). ALIMONY The court may require the husband to provide for the support of the wife and the maintenance and education of the children. Such directions may be varied or annulled at any time and provisions for support of the wife must be annulled on proof of her remarriage. (N.Y. Dom. Rel. Law ∋∋236, 237, 240, 248, 1977). The husband may be required to give security for support payments, and in case of nonpayment his property may be sequestered in certain cases and a receiver appointed. (N.Y. Dom. Rel. Law ∋∋233, 243, 1977). EXPENSES The court may require a husband to pay the necessary expenses of the wife in prosecuting or defending an action for divorce or separation, or in proceedings to enforce payment of alimony or support. (N.Y. Dom. Rel. Law ∋∋237, 238, 1977).

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Chapter 13 - Page 1 DIVORCE Legal Bulletin

JUDGMENT UNDER SECTION 234 OF DOMESTIC RELATIONS LAW May title be insured where the court makes an order providing for the sale of property under the said section? Section 234 of the Domestic Relations Law states as follows: Section 234. Title to or occupancy and possession of property. In any action for divorce, for a separation, for an annulment or to declare the nullity of a void marriage, the court may (1) determine any question as to the title to property arising between the parties, and (2) make such direction, between the parties, concerning the possession of property, as in the court's discretion justice requires having regard to the circumstances of the case and of the respective parties. Such direction may be made in the final judgment, or by one or more orders from time to time before or subsequent to final judgment, or by both such order or orders and final judgment. Where the title to real property is affected, a copy of such judgment, order or decree, duly certified by the clerk of such judgment, order or decree, duly certified by the clerk of the court wherein said judgment was rendered, shall be recorded in the office of the recording officer of the county in which such property is situated, as provided by section two hundred ninety-seven-b of the real property law. Added L. 1962, C. 313, Section 10; amended L. 1963, c. 685, Section 5, both eff. September 1, 1963." An example of a recent attempt to accomplish a sale of a tenancy by the entirety pursuant to Section 234 is given in the Reycroft v. Reycroft case, Supreme Court Suffolk County May 1, 1975 which provided: "Ordered, adjudged and decreed that the defendant herein is hereby authorized to enter into a contract of sale for the marital premises known as 123 Burr Road, East Northport, New York, and further that the defendant along with any person empowered to act for the plaintiff herein may execute a deed conveying the interest in said premises to a third party." It is the opinion of this Company that such a title emanating from an order such as is made by Judge Geiler in the Reycroft case is not an appropriate use of Section 234. Under the authority of this Section only questions of title and possession may be determined by the Court. The type of title question that may be determined by the Court under Section 234 are those where one spouse asserts a superior title by reason of constructive trust, fraud or other such matters. Such matters can only be passed with the consent of General Counsel or Associate General Counsel. It cannot be used for liquidating a tenancy by the entirety or for that matter a resulting tenancy in common after the divorce. See Hendel v. Hendel, 44 App. Div. 532, 353 N.Y. Supp. (2) 454 (1974).

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Chapter 13 - Page 2 DIVORCE Legal Bulletin

The situation is quite different under Section 233 of the Domestic Relations Law. Where the spouse has obtained a judgment and a receiver or sequestrator is appointed we will consider insuring a deed out of such receiver or sequestrator where personal notice of the order is served on the spouse whose interest is being liquidated.

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Chapter 13 - Page 1 DIVORCE - RESTORATION OF RIGHTS OF FORMER SPOUSE UPON REMARRIAGE TO TESTATOR E.P.T.L. 5-1.4 Legal Bulletin

E.P.T.L 5-1.4 currently provides as follows: "If, after executing a Will, the testator is divorced, his marriage is annulled or its nullity declared or such marriage is dissolved on the ground of absence, the divorce, annulment, declaration of nullity or dissolution revokes any disposition or appointment of property made by the Will to the former spouse and any provision therein naming the former spouse as executor or trustee, unless the will expressly provides otherwise." This section has been amended, effective 9/1/79 to provide that any provisions, dispositions or appointments set forth in the testator's Will which were revoked solely by the operation of this section are revived by the testator's remarriage to his former spouse.

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Chapter 12 - Page 1 DESCRIPTIONS Title

DESCRIPTIONS - AFFECTED BY A PUBLIC ROAD
1. Dedication Whenever land is dedicated to a town for highway purposes therein, the town superintendent may with the consent of the town board, either with or without a written application therefore, and without expense to the town, make an order laying out such highway. This order will commence upon filing and recording in the town clerks' office with such order a release of the land from the owner thereof. (N.Y. High. Law ∋171, Supp. 1977-78). A grant of land for street purposes does not convey fee and the owner is entitled to recover whatever it is worth if it is subsequently appropriated, but is not entitled to be paid more than damages actually suffered. (Heyert v. Orange & Rockland Utilities, Inc. N.Y.S. 2d 352, 271 N.Y.S. 2d 201, 218 N.E. 2d 263 (1966)). 2. Apportionment of Vacated Streets The town superintendent may, upon written application and with written consent of the town board, make an order discontinuing a highway which has become useless, and file with the application, consent and order a release from all damages from the owners of the lands affected thereby. The consideration for such release shall not exceed $300.00 from any one claimant, or $1,000.00 from all claimants. An order of the town superintendent shall be final and the town clerk shall record the order in the office of the clerk of the county where such lands are located. (N.Y. High. Law ∋∋ 171, 172, 1962). AREAS COMPUTED TO STREET CENTERS Where a grantor divides his property into lots which border on a street or highway and executes conveyances which describe the property as abutting the street, the grant is deemed to pass the fee to the center line of the street. But when the deed describes the grant as starting at a corner of an intersection, and then running along parallel to or bounding on a street or streets to the beginning point, the grant is limited to the exterior line of the street. (City of Albany v. State, 321 N.Y. S. 2d 877, 28 N.Y. 2d 352, 270 N.E. 2d 705 (1971)). NB: See deeds this manual MEMORANDUM AS TO EXCEPTIONS BASED ON LOCATION OF FENCES, HEDGES, RETAINING WALLS, POSSESSION ALONG PERIMETER LINES We must consider the following: 1. Do such fences, hedges, retaining or possession wall exclude the owner of

the premises from any portion of the premises to be insured. What is the extent of the variation from the title line?

Chapter 12 - Page 2 DESCRIPTIONS Title

2. 3. 4.

By whom were such fences, hedges, etc. erected? When were same erected? How are our premises improved? How are the adjoining premises improved?

AS TO FENCES Obviously, fences cannot be exactly on line. A line has no width or thickness; a fence has. Even if originally placed on the property line, fences, due to the forces of the elements and nature, will not long remain so and will vary after a time. If the placement of a fence excludes our owner from possession of a part of the premises we must next consider (A) the extent of the variation; (B) whose fence is it; (C) when erected; (D) what are the other physical conditions of our plot or the adjoining plot. But if the fence, though not on the line, does not exclude our owner from possession by being record title." This would be so even if such fence is that of the neighbor, whether the fence is new or old, and whether the variation is small or great. If it could be established that the fence belongs to our owner or was erected by such owner or his predecessor even the exception "Fence is not on line or record title" may be considered to be omitted in these circumstances. Our owner may place his fences where he pleases within his own plot provided that he does not exclude himself from possession and does not permit the adjoining owner to assume physical possession up to the fence. We will now consider the situation where a fence excludes our owner from a strip of land which is part of the premises we are asked to insure. If the variance is less than 12 inches we use the exception "variations between location of fences and lines of the record title." If the variance is more than 12 inches we decline to insure the strip outside of the fence and say "no title is insured to ----------." Both exceptions are intended to exclude the strip from coverage by our policy, the former being used for the usual situation of a more or less minor variation, the latter for the one which gives us pause and some degree of apprehension. We will consider that if the fence was erected by the neighbor, his claim of title will extend to the fence line, and if erected more than 15 years ago, his claim of title may have ripened into a valid adverse title, particularly if this strip is substantially improved with the rest of the neighbor's plot or cultivated as part of it. If in this situation, we will not remove the exception without a satisfactory disclaimer by the neighbor and the removal of the fence to the line of the record title. If the fence is ours and same was erected less than 15 years ago, we will pass the exception provided the fence is moved to the correct line. No disclaimer from the neighbor will be necessary. If the fence is ours and same was erected more than 15 years ago, we will require a disclaimer from the neighbor if the physical facts show the neighbor using the strip for any purpose. If not in use by the neighbor, where the fence is ours, and same was erected more than 15 years ago, we will pass the exception upon the removal of the fence and its placement on the line. If erected by the neighbor, even if less than 15 years ago, a disclaimer should be obtained before we omit the exception, for the claim of title may in course ripen into an adverse title.

Chapter 12 - Page 3 DESCRIPTIONS Title

AS TO HEDGES "It cannot be held that a hedge is a substantial enclosure," said Judge Stoddard in Declade v. Manno, N.Y. Law Journal 10/8/53, P 694. See also 101 N.Y.S. 2d 716. "Enclosure of 50 foot strip as part of main property by hedge sufficient to constitute enclosure." McCosker v. Rollie Estates, 7 A.D. 2d 865. The above is sufficient to show that there is at least a lack of unanimity as to the effect of a hedge which is off the line. A hedge has width, thickness and life. It grows towards the sun and it is never intended to mark a mathematical line. Yet it can be a title problem! On the whole, we should give it almost the same effect as though it were a fence, keeping in mind that a hedge is essentially ornamental in character and accordingly it can be treated with a degree of liberality in the disposition of exceptions based upon it. AS TO WALLS - POSSESSION WALLS, RETAINING WALLS In farm titles, walls are usually erected to mark the exterior lines and we should not insure beyond such walls. In fact, in farm titles the exact location of farm lines where not marked by substantial walls or fences should not be insured, as disputes over the location of farm lines are not infrequent, and without the aid of walls marking such lines, exact location cannot easily be determined. Retaining walls however are generally erected to buttress the slope of land, and it is not material that such retaining walls are inside our parcel, provided that our owner or predecessor in title erected them. If however, such retaining walls support adjoining land and are on our parcel, a disclaimer must be obtained from the adjoining owner to avert a claim of possession of the adjoining owner. The above guides should be used with a degree of circumstances for there is no substitute for judgment; nor is it possible by categorizing to foresee that which cannot be foreseen and provide a rule to cover each contingency which may arise. The matter does not easily lend itself to standardization, no more than does knowledge, or acumen in discerning situations behind which trouble may lurk.

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Chapter 17 - Page 1 EXECUTIONS General

EXECUTIONS
An execution is a judicial writ issuing from the court where the judgment is rendered and directed to an officer. The execution runs against the body or goods of a party, by which the court's judgment is enforced. (33 C.J.S. Executions ∋1). In New York, the writ of execution is statutory, (Rhoades v. Robles, 145 N.Y.S. 2d 286 (1955) and is the only method of enforcing a money judgment in an action at law. The person in whose favor a judgment is rendered has the exclusive right to and control of the issuance of execution and may order it at their option. (33 C.J.SD. Executions ∋14). Execution may also be issued at the instance of the assignee of the judgment. Generally, a writ of execution may be issued against any party against whom judgment can be rendered but it cannot issue against one who is not a party to the action. (33 C.J.S. Executions ∋15). If a judgment debtor dies, an execution upon a money judgment cannot be levied upon any debt owed to the deceased or upon any property in which he had an interest. In addition, no enforcement procedure can be undertaken unless the surrogate court grants permission. A judgment lien existing upon real property at the time of a judgment debtor's death will expire two years after the death or ten years after the judgment roll has been filed, whichever is later. (N.Y. Civ. Prac. Law ∋5208, 1978). An execution may be issued from the court by the clerk or attorney of the judgment creditor to the sheriffs of one or more counties of New York, directing them to satisfy the judgment out of the real and personal property of the judgment debtor and debts due to him. (N.Y. Civ. Prac Law. ∋ 5230, 1978). Notice of the judgment must be served on the party against whom it is rendered before the writ can issue. (Place v. Albanese, 342 N.Y.S. 2d 699 (1973)). Court permission is not necessary to authorize the issuance of a writ. (Mineola Plumbing Supply Co. v. Taylor, 113 N.Y.S. 2d 862 (1952)). However, it is necessary if the statutory time to issue executions has elapsed. (Shire v. Bornstein, 174 N.Y.S. 2d 645 (1958); Stanley Funding Corporation v. Kotcher, 41 N.Y.S. 2d 877 (1943)). The order to issue execution must conform to the usual requirements of a valid order but no technical form is necessary. (Rondout National Bank v. Shapee, 79 N.Y.S. 2d 611 (1948)).

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Chapter 17 - Page 2 EXECUTIONS General

The execution must not go beyond the territorial jurisdiction of the court which rendered the judgment. (American Metal Clinrax, Inc. v. Seaboard Diecasting Corp., 252 N.Y.S. 2d 475 (1964)). The execution may issue immediately after rendition of the judgment but not before the obligation of the defendant has matured. (33 C.J.S. Executions ∋ 66). The execution must state the sum of money to be made and the writ should command the officer to make a levy. (33 C.J.S. Executions ∋∋ 75, 76). The writ must direct a levy on personal property first. (Bryant v. Trutnel Realty Corp. 193 N.Y.S. 2d 533 (1959)). Generally, every kind of property or interest in that property which is not exempt by state law may be reached by an execution issued on a judgment. (Fishman v. Sanders, 258 N.Y.S. 2d 380 (1965)). Levy can be made on personal property or on real property. (N.Y.Civ. Prac. Law ∋∋ 5232, 5236, 1978). The levy of an execution consists of acts by which an officer sets apart and appropriates a part or all of the judgment debtor's property in order to satisfy the debt. The execution cannot be levied on the debtor's property, either real or personal, if the judgment has been satisfied or an execution against the person has been perfected. (33 C.J.S. Executions ∋∋88, 89; N.Y. Civ. Prac. Law ∋ 5230 (b), 1978). A levy of execution is necessary in order to conduct an execution sale but if the judgment constitutes a lien on the land, levy is unnecessary to conduct an execution sale. (Oysterman's Bank & Trust Co. v. Weeks, 313 N.Y.S. 2d 535 (1970)). The levy must be made by an officer who is qualified to act under the writ. (33 C.J.S. Executions ∋92). The levy must be timely made on or before the return day in order to be valid because an officer has no authority to make a levy after the return day. (Garro v. Republic Sheet Metal Works, 129 N.Y.S. 2d 568 (1954)). An officer should notify the judgment debtor of the issuance of the writ of execution or make a demand on him for payment of the debt before he can levy upon the property. The debtor can select property on which he chooses the levy to be made. (33 C.J.S. Executions ∋ 96). If the officer levies upon personal property, he must reduce that property to possession, if possible; he must at least bring it under his immediate control. (N.Y. Civ. Prac. Law ∋ 5232, 1978). An execution creates a lien. (In re Livingston's Estate, 211 N.Y.S. 2d 896 (1961)). The lien of an execution is a right by law to charge the property of the judgment debtor subject to levy and sale with the payment of the debt. (33 C.J.S. Executions ∋ 123). The execution must direct that only the property in which the judgment debtor has an interest is to be sold. Each sheriff must keep a record of the executions delivered to him. (N.Y. Civ. Prac. Law ∋ 5230,1978).

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Chapter 17 - Page 3 EXECUTIONS General

If personal property is sold, the proceeds shall be distributed to the judgment creditor and any excess shall be paid to the judgment debtor. However, fees, expenses and any taxes levied upon the sale, delivery, transfer or payment of the property must be satisfied first. (N.Y. Civ. Prac. Law ∋ 5233, 1978). If real property is levied upon, it shall be sold by the sheriff at a public auction between the 56th and 63rd day after the first publication of a copy of the notice of sale. A printed notice of the time and place of the sale containing a description of the property must be posted at least 56 days before the sale in three public places in the town where the property is located. After the fees, expenses and any taxes levied on the sale, transfer or delivery have been deducted, the sheriff shall: 1) distribute the proceeds to the judgment creditors who have delivered executions against the judgment debtor to the sheriff before the sale and 2) pay over any excess to the judgment debtor. (N.Y. Civ. Prac. Law ∋ 5236, 1978). The purchaser of property sold at an execution sale may recover the purchase money from the judgment creditor's who received the proceeds, if the purchaser must return the purchased property because of some irregularity in the sale or if the judgment upon which the sale was based is vacated, reversed or set aside. The judgment creditor may move, without notice, for an order restoring any lien or priority affected by the sale. (N.Y. Civ. Prac. Law ∋5237, 1978). Within ten (10) days after the sale, the sheriff shall execute and deliver to the purchaser proofs of: 1) publication, 2) service, 3) posting of the notice of sale. In addition, he will deliver to the purchaser a deed which will convey the right, title and interest sold. (N.Y. Civ. Prac. Law ∋5236, 1978). An execution shall be returned to the clerk of the court from which it is issued within 60 days after issuance. The time may be extended in writing for a period of not more than sixty (60) days by an attorney for the judgment creditor. (N.Y. Civ. Prac. Law ∋ 5230, 1978). A return is a short official statement of the officer, indorsed on the writ or attached to it, or how he has complied with the writ or why he has done nothing. It is the duty of the officer to whom an execution is directed to make a proper return. (33 C.J.S. Executions ∋∋ 314-330). The return must be in writing on the writ itself or on a paper attached to it and signed by the officer. In New York, the return must be filed; mailing a return is not sufficient compliance. (Smith v. Greaty, 109 N.Y.S. 738 (1906)). As a general rule, a failure to make a return or defects in the return do not invalidate the

title of a purchaser at execution sale. (33 C.J.S. Executions ∋∋253-265).

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The right to redeem from an execution sale is purely statutory in the absence of an agreement between the parties. (Application of Burdikoff, 296 N.Y.S. 609, 251 App. Div. 826 (1937)). Only those persons designated in the statute have the right to redeem although usually the redemption statutes authorize redemption by the judgment or execution debtor and his assignee or grantee. A person who has a statutory right to redeem may waive such rights or may, by his acts or conduct, be estopped to claim it. (33 C.J.S. Executions ∋ 254). A person who seeks to redeem must exercise the right within the time fixed in the statute, complying with all statutory provisions as to tender, deposit of money or payment. (33 C.J.S. Executions ∋ 257). The officer who makes the sale or the court clerk is a proper party to whom payment may be made. In addition, redemption can be made from the person from whom it is sought. (33 C.J.S. Executions ∋258 (b)). The statutory provisions for redemption must be followed. (33 C.J.S. Executions ∋259 (a)). Unless the statute requires it, formal notice of an intention to exercise the right to redeem is not necessary. (33 C.J.S. Executions ∋ 259 (b)). Generally, a redemption by the debtor, his successor in interest or the owner will vacate or destroy the effect of the execution sale. (33 C.J.S. Executions ∋260). Redemption by the debtor or his successor in interest releases the title from the consequences of the execution sale but it restores the original liens. (33 C.J.S. Executions ∋263(a)). A person who has complied with the statutory redemption requirements may be entitled to a deed of the property either from the proper officer or from the purchaser at execution sale. (33 C.J.S. Executions ∋264). A stay of execution is the stopping of execution on a judgment or of a creditor's right to issue execution, for a limited period. In New York, the stay means that no execution can issue on a judgment. (Bono Sawdust Supply Co. v. Hahn s. Golin, 155 N.Y.S. 2d 510 (1956)).

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Chapter 14 - page 1 EASEMENTS Title

Cross Reference with Chapter 26 page 23

EASEMENTS
DEFINED A right which one person has to use the land of another or to have the land of another used in a particular way. G.L & P.J. R.R. Co. v. N.Y. & G.L. R.R. Co., 134 N.Y. 435 (1892) EASEMENTS APPURTENANT AND IN GROSS a. An easement is appurtenant when it is attached to or exists for the benefit of land. (1) Cannot be served from dominant tenement and passes with a conveyances thereof without express mention, Law of Easements & Licenses in Land, Revised Ed., 9.01[1] n.8. The dominant and servient tenements need not be contiguous. Cady v. Springfield Water Works, 134 N.Y. 118 (1892) (3) A person who succeeds to the possession of the dominant estate is entitled to enjoy any easement appurtenant to that property [Circuit City Stores, Inc. v. Muss, 151 AD2d 714, 715, 543 NYS2d 147, 148, lessee of easement holder entitled to make use of easement); 2 American Law of Property, sec. 8.71 (1952)].

(2)

(4) Tax sale that operates to extinguish an appurtenant easement not included in the assessment constitutes a taking of the easement holder's property without due process of law [Clove Lakes, Serv. Corp. v. Greif Bros. Cooperage Corp. , 74 Misc 2d 1036, 1038, 346 NYS2d 668, 670 (Sup. Ct. 1973)]. b. An easement in gross is one which is held and enjoyed by a person distinct from the ownership of specific land or of a dominant tenement. Saratoga State Waters Corp. v. Pratt, 227 N.Y. 429 (1920) CREATION OF EASEMENTS a. An easement cannot be created by parol. Nellis v. Munson, 108 N.Y. 453 (1888)

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Chapter 14 - page 2 EASEMENTS Title

(1)

An oral agreement to grant an easement is unenforceable Gracie Sq. Realty Corp v. Choice Realty Corp., 305 N.Y. 271 (1953)

b.

By express grant or express reservation (1) A reservation of an easement in favor of a stranger is void.

c.

By implied grant - quasi-easements. (1) (2) Apparent and visible Reasonably necessary Paine v. Chandler, 134 N.Y. 385 (1892)

d.

By implied reservation. (1) (2) Apparent and visible Strictly necessary Wells v. Garbut, 132 N.Y. 430 (1892) Reynolds v. Gorton, 213 N.Y.S. 2d 561 (1960)

e.

By prescription - an adverse use for 10 years. CPLR ∋212(a) (1) The 10 year period went into effect with the CPLR on September 1, 1963. Causes of action arising since then are governed by CPLR 212(a). Causes of action which arose before that date are still governed by the 15 year period set by CPA 34. CPLR 218. This avoids the constitutional problem inherent in ex post facto abbreviating the period of limitations, particularly when the period of limitation extinguishes the right as well as the remedy. Jansen v. Sawling, 37A.D.2d 635 (1971) (2) In order to acquire an easement by prescription there must have been open, notorious, continuous and uninterrupted use for the statutory period. The period is derived from the statute of limitations applicable to actions to recover real property. Klin Co. v. N.Y. Rapid Transit Corp., 271 N.Y. 376 (1936)

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Chapter 14 - page 3 EASEMENTS Title

(3)

The statutory requirements for adverse possession have no application to prescription. DiLeo v. Pecksto Holding Corp., 304 N.Y. 505 (1952)

(4)

In 1945 plaintiffs acquired a wood lot remote from the public highway and made use of dirt track running over private parcels to haul out timber periodically. Twenty-five years later plaintiffs sought a judgment that they had acquired a prescriptive easement. (a) Prescription does not arise where the use was not continuous but only seasonal. "The adverse use need not be on a daily basis but it must be such that an owner should recognize that a hostile claim is asserted." Prescription does not arise where permission to use the road was permitted as a matter of courtesy among neighbors. "Where permission to use the land can be implied from the beginning, no adverse user may arise." Jansen v. Sawling, 37 A.D.2d 635 (1971)

(b)

(5)

A has used a driveway encroaching upon his neighbor's property such as that a prescriptive easement will shortly be perfected. A conveys his parcel to B but the deed does not include the alleged driveway easement. B continues the use to complete the prescriptive period begun by A. B has not acquired a prescriptive easement. B cannot "tack" his use onto the time accumulated by A where the deed did not include the alleged easement and there was no proof the grantor intended to include it. Jacobs v. Lewicki, 12 A.D.2d 625 (1960), aff'd 10 N.Y.2d 778

(6)

An easement of light, air and prospect cannot be acquired by prescription. (a) An easement of light and air can be acquired by agreement. Mannino v. Conoco Realty Corp., 86 N.Y. S.2d 855 (1949) Harte v. Empire State Bldg., Corp., 219 N.Y.S.2d 391 (1961)

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Chapter 14 - page 4 EASEMENTS Title

EXTINGUISHMENT OF EASEMENTS a. b. By release, which must be in writing. G.O.L. ∋5-703 By abandonment-which requires proof of an unequivocal intention to abandon and some overt act or failure to act which carries the implication that the owner neither claims nor retains any interest in the easement. Mere non-user is insufficient. Gergig v. Zumpano, 7 N.Y.2d 327 (1960) c. By prescription Woodruff v. Paddock, 130 N.Y. 618 (1892) d. e. By merger By operation of Recording Act where easement originally created by grant or reservation. Recording Act not applicable where easement created by prescription. By termination of the necessity therefor when easement was created solely by necessity. (1) Often enough during nineteenth century adjoining land owners would each construct a building but design them to share a single staircase winding up inside both over the property line. To solve problem of trespass should a later dispute cause one of them to erect a barrier across the property line, law gave each an easement by necessity over the other. If one building accidentally burned down or the neighbor decided to replace it entirely, there was no need to provide any longer for a common stairway; the easement by necessity terminated. Language in New York flatly says that an easement created by grant, express or implied can be extinguished only by abandonment, conveyance, condemnation or prescription. Gerbig v. Zumpano, supra. Presumably then an easement created by an implied reservation upon the basis of strict necessity would terminate when the necessity for it terminated. See 3d supra.

f.

(2)

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Chapter 14 - Page 1 EASEMENTS - WIRES WIRES Legal Bulletin

1.

The unexplained existence of telephone or other utility poles or wires on the property under examination may make the title unmarketable. Clark v. Riverhead Savings Bank, 260 App. Div. 1022, Aff'd. 286 N.Y. 586. However, when the survey or inspection discloses such a situation, careful consideration must be given to the facts before the exception is framed. if the wires are merely lead-in wires to the house on the premises under examination, no exception will be made. Even if the wires cross the premises and run to other property, we will omit the exception if we are furnished with a letter from the utility company which maintains them or will remove them on request. In any event we must avoid general exceptions like: "Rights of Utility Companies to maintain wires or poles on, over and across the premises." The exception should be clear, specific and concise. For example: "Possible easement to maintain telephone wire from pole in street across the premises described in Schedule 'A' to the premises in the rear thereof", or: "Possible easement to maintain power line along the rear boundary of the premises described in Schedule 'A'. When inspection or survey discloses telephone wires crossing or running along the boundaries of a property, we will make no exception whatsoever in reports affecting New York City property unless we find a recorded agreement authorizing the maintenance of such wires. Where inspection or survey discloses power lines crossing the property, an exception should be inserted, but the exception should be specific and as concise as possible, for example: "Power line runs above roof along east boundary". If possible, the reader should assemble the facts and consult counsel in each case to see whether even such an exception may be disregarded.

2. 3. 4.

5. 6.

7.

8.

Chapter 14 - Page 1 EASEMENTS Legal Bulletin

DEFINED Easement is privilege without profit which one has for benefits of grantee's estate and passes with estate to subsequent grantees and is inheritable. Plattsburg Gas and Electric Co. v. Miller, 206 N.Y. Supp. 42 Reversed 207 NYS 335 DISCONTINUED STREET Under the Street Closing Act (Chapter 1006, Laws of 1895, now New York Charter, Appendix III), when a street (public street) is discontinued, both public and private easements are destroyed. The street closed must have been a public street. In the Matter of Mayor etc., of New York (Walton Avenue), 131 A.D. 696, affirmed 197 N.Y. 518. Barber v. Woolf, 216 N.Y. 7 Stirnweis v. Cacioppo 258 N.Y. 68 (Cardozd) PUBLIC STREET Definition of what is not a public street. Matter of Wallace Avenue, 222 N.Y. 139.

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ENCROACHMENTS
INTRODUCTION Generally, an encroachment will render title unmarketable and justify the rejection of title. Stokes v. Johnson 57 NY 673 Antonelli v. Morgilli 265 NY 462 A vendor under a contract which is silent as to possible encroachments must deliver a title free of any encroachments which will render title unmarketable. McPherson v. Schade 149 NY 16 Place v. Dudley 41 AD 540, 58 NYS 671 Reynolds v. Wynne 121 AD 272, 105 NYS 849 A contract which provides that the property is sold subject to any state of facts an accurate survey would show provided the same does not render title unmarketable, merely restates the law and adds nothing to the contract. A vendee under a contract which provides that the property is sold subject to any state of facts an accurate survey would show, must take title even though the survey shows such encroachments as may render title unmarketable. McCarter v. Crawford 245 Y 43 Manhattan Life Ins. Co. v. Wall Investing Corp. 131 Misc. 363, 226 NYS 717, Aff'd. 223 AD 833 228 NYS 845 A contract which provides that the premises are sold subject to the state of facts shown on a specific survey is binding on the buyer even though the survey shows encroachment which may render the title unmarketable. Kreshover v. Berger 135 AD 27, 119 NYS 737 McCarter v. Crawford 245 NY 43 The seller can best protect himself by making his survey part of his contract and providing specifically that the property is sold subject to the state of facts shown thereon. A buyer should always consult his title company with respect to problems arising from encroachments. In many instances, for a small additional premium, he will be able to obtain some kind of insurance that will make his purchase reasonably safe. There is no mathematical formula or absolute legal rule by which one can determine that a particular encroachment makes a title unmarketable. The only rule of law that can be deduced from the cases is that there is no rule. Each encroachment case is peculiar to itself. Obviously, the materiality of an encroachment

depends on its nature, its relation to the use and enjoyment of the premises, the cost of removal, the right to maintain it and other such factors

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Chapter 15 - Page 2 ENCROACHMENTS General

The problem of fences and hedges off the line of record title is one of the most difficult problems to deal with at a title clearance level. the underwriter must use both intelligence and imagination in resolving the problem and determining whether affirmative coverage can be afforded. In deciding whether he should permit his client to enter into the contract, the attorney must take into consideration the generally accepted standards of the real estate market. He must consider whether the nature, extent or location of the encroachment will disturb possession or affect the use, the possibility that the encroachment may be ordered removed, the cost of removal and whether a mortgage can be obtained despite the encroachment. If a fence hedge or retaining wall is off line by more than one foot adjoining neighbor may claim possession of the disputed ground. For this reason certain guidelines are suggested in evaluating each particular case. CLEARANCE PROCEDURE In order to clear and/or remove the exception we will need the following information, preferably by affidavit, in advance of closing: When was it erected? By whom and/or at whose expense? What is the affected area? (grass shrubs plants, surfaced area, or any improvement) Has there been any discussion or dispute with the neighbor about the affected area? Will the neighbor state in writing, preferably by affidavit of disclaimer, that no claim of possession or title is made with respect to the affected area? Pictures of the affected area are to be procured If the pictures show a substantial enclosure along the entire property line an affidavit of disclaimer will have to be executed and delivered to clear exception. Where the pictures do not show substantial enclosure, the above are to be considered and if permitting, the exceptions may be passed on case law. Spadaro v. Putter, 108 NYS 2d 343

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Chapter 15 - Page 3 ENCROACHMENTS General

The court held therein that where the hedge was planted on the boundary line but gradually extended onto adjoining land to the extent of one foot or less . . . "there was no substantial permanent enclosure as to vest plaintiff with adverse title to the one foot strip. However, a prescriptive right of usage arose in the nature of an easement that permitted the hedge to continue until it died or was removed by the plaintiff. For policy on fences, hedges and retaining walls see T.G. Board of Counsel Minutes of 2/7/62 under "fences and hedges" this index. REQUEST FOR AFFIRMATIVE COVERAGE No affirmative insurance will be given covering non-structural encroachments. All other cases are to be considered on a case by case basis. One of the following should be used. (1) (2) (3) (4) Policy to issue will affirmatively insure (same) may remain for so long as the building shall continue to exist in its present location. Policy to issue shall affirmatively insure that (same) may remain as presently located for the remaining life of the structure. Policy to issue shall insure against loss or damages occasioned by enforced removal of said encroachment by reason of injunctive relief. As to encroaching wall of building: "But this policy insures that the encroachment may remain so long as the building stands." For alternative forms of coverage refer to Title Insurance Underwriting Principals and Exception Language. BUILDING ENCROACHMENTS ON STREET 1. So common - advisable to sell subject to them See English Speaking Union v. Payson, 11 Misc. 2d 669, 174 NYS2d 775 2. May make title unmarketable Jennings v. Bauman, 214 AD 361, 212 NYS 334, aff'd 243 N.Y. 532 Acme Realty Company v. Schinasi, 215 N.Y. 495

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Chapter 15 - Page 4 ENCROACHMENTS General

3.

But many such encroachments may remain, pursuant to statute, until removed Gen. City L., Sec. 38-a; Town L., Sec. 130; Village L., Sec. l89 (46) (b) (c) (e); N.Y.C. Adm. Code, Secs. C26-407.1 et seq.

FENCES AND HEDGES - OUT OF POSSESSION - CLEARANCE "Out of possession" or adverse possession issues arise whenever a fence or hedge is located one (1) foot or more inside the property perimeter line of the property to be insured [Spadaro v. Putter, 108 NSY2d 343]. Factual circumstances need to be determined on a case by case basis. These may enable the title underwriter and insurer to "remove" or "insure over" the risk. Before undertaking either require the following questions be answered and sworn to in affidavit form : 1. when was the fence or hedge erected? 2. by whom or at whose expense? 3. was the location mutually agreed upon by the adjoining owners? 4. has there been any dispute as to the location erection? 5. will the adjoining owner execute a disclaimer to the affected area? NB New York does not generally recognize the doctrine of consentable boundary line as does Pennsylvania law. PRIOR TG BOARD OF COUNSEL MEMORANDUM Where examination of title indicates title exceptions may be required based upon the location of fences, hedges, and retaining walls or, there exists a possession issue along property perimeter lines please refer to TG Board of Counsel [BC] minutes of February 7, 1962, page 7 as reproduced and set forth in Chapter 12, DESCRIPTIONS, page 1, Title, of this manual. See also Spadaro v. Putter, 108 NYS2d 343

Chapter 15 - Page 1 ENCROACHMENTS Legal Bulletin

ON STREET When wall may remain. See Chap. 646, Laws of 1899, for New York and Bronx. See Chap. 473, Law of 1897, for Brooklyn. Encroachments by overhang of bay window, cornices and trim, fence, stone stoop and cellar steps constitute sufficient cause for rejection of title. Jennings v. Baumann, 214 A.D. 361. Affirmed 243 N.Y. 532. See Also Klimas v. Brunbach, 116 Misc. 299. Gelman v. Herrman, 118 Misc. 290 Encroachment on street (according to the plaintiff two inches and according to defendants three-eighths of an inch) renders a title unmarketable. Judge Mullan said "It is not clear how or where a line necessarily arbitrary, can be drawn." Perlman v. Stellwagen, 187 N.Y. Supp. 845. ON ADJOINING PROPERTY (ABUTTING WALLS) See Section 992, Civil Practice Act (formerly Sec. 1499, Code of Civil Procedure) providing that where a building encroaches not more than six inches on adjoining property, and a building has been erected by the adjoining owner abutting the encroaching building, such encroaching wall may remain undisturbed, unless an action is commenced within one year. Walls must abut. Held not to apply where a considerable vacant space was left between the rear end of the building and the encroaching wall. Bergman v. Klein, 97 A.D. 15. The section applies notwithstanding the fact that the abutting walls are not of the same depth. Volz v. Steiner, 67 A.D. 504.

Chapter 15 - Page 2 ENCROACHMENTS Legal Bulletin

ON ADJOINING PROPERTY In each of the following cases the title was held to be unmarketable by reason of an encroachment of the wall of the building (contracted to be sold) on adjoining property of from one-half an inch to three inches: Bowie v. Brahe, 4 Duer 676 (encroachment 1 7/8 inches). Reynolds v. Wynne, 121 A.D. 272 (encroachment 1/2 to 3 inches). Wilhelm v. Federgreen, 157 N.Y. 713 (encroachment 2 inches). Stevenson v. Fox, 167 N.Y. 599 (encroachment 2 inches). Hennig v. Smith, 151 N.Y. Supp. 444 (encroachment 3 inches) Stokes v. Johnson, 57 N.Y. 673 (encroachment 1 1/2 inches). Kreshover v. Berger, 135 A.D. 27 (encroachment 1 to 1 3/4 inches). Snow v. Monk, 81 A.D. 206 (encroachment 2 inches). BY ADJOINING BUILDING Held where adjoining building encroached 1 to 3 1/2 inches on premises contracted to be sold, the title was unmarketable. Klim v. Sachs, 102 A.D. 44 Place v. Dudley, 41 A.D. 540 1 1/2 in by adjoining bld - Reduced frontage

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Chapter 16 - Page 1 ESTATES IN LAND Title

ESTATES IN THE LAND
FEE SIMPLE ABSOLUTE 1. 2. The word "heirs" or other words of inheritance are no longer required to create or convey an estate in fee. EPTL 2-1.4 The Rule in Shelley's Case has been abolished in New York. EPTL 6-5.8 "To A for life remainder to A's heirs" or "To A for life remainder to the heirs of his body" - A takes a life estate and the heirs take as purchasers. FEE ON LIMITATION EPTL 6-1.1 (SOMETIMES KNOWN AS A FEE ON SPECIAL LIMITATION OR A FEE SIMPLE DETERMINABLE) 1. How created a. By use of words denoting the running of time, e.g., "so long as," "while", "during," "until," etc. Thus a deed or will "to B and his heirs until Gloversville becomes a village" creates a fee on limitation even though the event may be unrelated to the use of the land. Leonard v. Buss, 18 N.Y. 96 (1858) b. Upon the disposition of a fee on limitation by will or deed that which is left in its creator or his successors in interest is a possibility of reverter. EPTL 6-3.2 (a) (1) (B); 6-4.5

2.

The fee on limitations terminates automatically upon the occurrence of the specified event. Re-entry or other affirmative act by the creator is not required. Leonard v. Burr, 18 N.Y. 96 (1958)

3.

The possibility of reverter remaining in the creator or his successors in interest is descendible, devisable and alienable. It is not subject to the rule against perpetuities. Nicholas v. Haehn, 187 N.Y. S.2d 773 (1959); EPTL 6-5.1

4.

Enforcing right to recover possession - RPAPL ∋ 612: a. An action to recover possession founded upon a reverter incident to a fee on special limitation cannot be maintained unless:

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Chapter 16 - Page 2 ESTATES IN LAND Title

(1)

Within 10 years after revert occurs plaintiff has served written demand that possession be delivered and commenced his action within 1 year thereafter, or If no demand served, commenced an action within 10 years after revert occurred.

(2) b.

If no action commenced within required period, it shall be conclusively presumed that possibility of reverter was extinguished.

FEE ON CONDITION EPTL 6-1.1 (SOMETIMES CALLED A FEE SIMPLE SUBJECT TO A CONDITION SUBSEQUENT. 1. How created a. By use of hypothetical words or conditional words such as "provided that," upon condition that," "but if," etc. Thus a deed or will "to B and his heirs but if liquor should ever be consumed on the premises the creator or his heirs may re-enter and reclaim the estate" creates a fee on condition. Upon the disposition of a fee on condition that which is left in the creator or his successors in interest is a right of reacquisition. EPTL 63.2(a) (1) (C); 6-4.6 (Also known as a right of re-entry).

b.

2.

At common law the grantee's estate did not terminate automatically upon the breach of the condition. The right was exercisable only by the creator and his heirs. In fact at common law the attempt to assign the right would extinguish the right and cancel the condition. The right was only exercisable by the creator of his heirs. Uppington v. Corrigan, 151 N.Y. 143 (1896); Fausett v. Guisewhite, 16 A.D.2d 82 (1962). The right of reacquisition today is descendible, devisable and alienable. EPTL 6.5-1 It is not necessary to reserve expressly a right of reacquisition to create fees on condition. A deed to B and his heirs upon express condition that liquor not be consumed upon the premises should suffice. Absent, however, an express reservation of a right of reacquisition a particular transaction may be read as creating a covenant. E.g., A owned a parcel of land and sold off half of it to B. The deed from A to B was upon express condition that no liquor should be sold upon the premises. A's heirs were no longer resident in the area; albeit the people who bought the remaining part of A's land were, they were not concerned with what occurred on B's parcel. The successors sued to enforce the right of reacquisition. Held, absent the express reservation of a right of reacquisition, given the policy that the law abhors a forfeiture and granted that A's heirs had moved away and really were not concerned, the deed from A to B created not a condition but a covenant.

3.

Post v. Weil, 115 N.Y. 361 (1889)

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Chapter 16 - Page 3 ESTATES IN LAND Title

4.

Problems about a fee on limitation can also arise if the right of reacquisition clause is unartfully drawn. a. A conveyed land to a school district by way of a deed in which it was provided that it "is made and accepted subject to the following conditions and reservations viz: . . . and whenever the property shall cease to be used for school purposes it shall revert to A or his heirs." At face value the word "revert" seems to mean a possibility of reverter, in which case the deed created a fee on limitation. Crucial instead was the fact that the estate was conveyed on condition and nowhere did words like "so long as" appear. Held, the deed gave rise to a fee on condition leaving a right of reacquisition in A or his heirs. Fausett v. Guisewhite, supra b. A conveyed land to a city on the express condition that it be used as a park site. The deed also specified "and in the event of the discontinuance of the use as a park all of the same shall immediately revert to A or his heirs." Held, given the call for a condition, the deed created a fee on condition leaving a right of reacquisition in A or his heirs. Grant v. Koeniq, 39 A.D.2d 1000 (1972)

5.

Prior to the breach of condition the creator can waive the right of reacquisition. If the creator is dead, his heirs can waive the right prior to or even after the breach of condition. Trustees of Calvary Presbyterian Church v. Putnam, 249 N.Y. 111 (1928) a. A had conveyed land to a city upon express condition that the land be used as a park site. The city resolved to discontinue the park use. The heirs of A by quitclaim deed transferred their right of reacquisition to the local VFW but this deed contained the words "to extinguish a right of reversion." The city then deeded the parcel to the VFW and A's heirs. A taxpayer sought to set aside the city deed because the city had acquired a fee simple which, being a park, it could not deed away because a trust obligation arose. Issue: did the words in the deed by A's heirs constitute a waiver of their right of reacquisition thereby converting the parcel into a fee simple before the city deeded it back? Held, in light of the circumstances, the words did not constitute a waiver but rather were meant to describe the interest the heirs transferred. While the city could not sell a fee simple without competitive bidding, it could convey the park back to the owners of

the right of reacquisition since they had the right to such a

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Chapter 16 - Page 4 ESTATES IN LAND Title

reconveyance upon breach of condition. The title of the VFW would not depend upon the deed from the city to it. Grant v. Koeniq, supra 6. Enforcing right of re-entry RPAPL ∋ 612: a. An action to record possession founded upon a claim of breach of a condition subsequent cannot be maintained unless: (1) Within 10 years after breach occurs plaintiff has served written demand that possession be delivered and commenced his action within 1 year thereafter, or If no demand served, commenced an action within 10 years after breach occurred.

(2) b. c.

If no action commenced within required period, it shall be conclusively presumed that right was extinguished. Why the need for RPAPL ∋612 when, once the event occurs to terminate the estate, it would appear that the occupant could begin to perfect a new title by way of adverse possession to which a period of 10 years also applies? Because possession which is not hostile at its inception does not become adverse by reason of a subsequent claim of right. City of N.Y. v. Coney Island Fire Dept., 259 App. Div. 286 (1940), aff'd 285 N.Y. 535

EFFORTS TO MODIFY THE SEVERITY OF BOTH THE FEE SIMPLE ON SPECIAL LIMITATION AND THE FEE SIMPLE SUBJECT TO A CONDITION. 1. Background a. If years ago a parcel was conveyed "so long as used exclusively as the site of residence" (or "but if . . .") and the neighborhood has since become an industrial one, the value of the parcel may be destroyed. The incumbent owner can breach the condition and risk forfeiting his estate, an impractical solution to the economic impasse. Note also that the same parcel might have been conveyed by a deed in which the grantee for himself, heirs, assigns and successors covenanted to use the parcel exclusively as the site of a residence. In this instance, however, the promise would have had to benefit land

b.

retained by the grantor out of which the burdened estate was carved.

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The beneficiaries of that promise now occupying the land benefitted by the promise could not expect an equity court to compel compliance of it if the neighborhood had substantially changed, enforcement would work undue hardship or enforcement would achieve no practical purpose. c. The trend in New York has been gradually to change the forfeiture effect of "so long as" and "but if" estates by grafting onto them the doctrine of reason associated with the law of covenants. Note carefully that these reforms apply to restraints upon the use of land. Be careful to distinguish a conveyance "so long as used as the site of a residence only" and "so long as no liquor is consumed upon the premises."

d.

2.

Recording Declaration of Intention to Preserve Restrictions on Use of land R.P.L. ∋ 345 a. A condition subsequent or special limitation on restricting the use of land shall be extinguished and the rights incident thereto shall be unenforceable unless a declaration of intention to preserve it is recorded not less than 27 nor more than 30 years after the condition subsequent or special limitation was created. (1) With respect to a condition subsequent or special limitation created prior to September 1, 1931, the declaration may be recorded on or before September 1, 1961. Renewal declarations may be recorded at 10 year intervals.

(2) b.

This section shall not apply where the condition subsequent or special limitation was created in favor of: (1) (2) (3) (4) (5) The U.S., the State of New York or any government subdivision or agency of either. The owner of a reversion following a life estate. The owner of a reversion following an estate for less than 100 years. The owner of a reversion on a lease of communication, transportation or transmission lines. A mortgage or contract-vendor of land, or the holder of any

other security interest in land.

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Chapter 16 - Page 6 ESTATES IN LAND Title

c.

This section shall not apply where prior to the time for recording the initial declaration or renewal declaration, the person entitled to record the same has validly entered into possession or obtained a judgment for recovery of possession of the land. The extinguishment of the restriction by this section shall not affect: (1) The enforcement of the same restriction by an action for damages or for an injunction to the extent that it is also imposed by covenant, promise or negative easement. A condition subsequent or special limitation and the rights incident thereto which does not involve a restriction on the use of land.

d.

(2)

e.

Bd of Ed etc v. Miles, 15 N.Y.2d 364 (1965) Where possibility of reverter arising in 1854 "matured" after Sept. 1, 1961 and no declaration of intention to preserve restriction recorded prior thereto, application of R.P.L. ∋ 345 to extinguish the reverter would be unconstitutional as impairing the obligation of the contract contained in the deed and as a deprivation of property without due process of law. No showing that the statute comes within the police power and therefore no constitutional basis for applying the statute retroactively.

3.

Special Limitation or Condition Subsequent Restricting the Use of Land, Created on or After September 1, 1958. RPAPL ∋ 1953 a. The automatic reverter and the right of entry are abolished. Upon the occurrence of the event or the breach of the condition, an action may be maintained to compel a conveyance of the land. (1) (2) Relief granted only to protect a substantial interest in enforcement of the restriction. The action is subject to any defense which might be raised in an action to enjoin a violation of the restriction if it were created by covenant. The court may deny the relief sought, impose conditions upon the granting thereof or grant alternative relief as in an action for an injunction. It may enjoin the breach of the restriction as an alternative to compelling a reconveyance. If it directs a reconveyance, it may be upon such terms as is required to prevent unjust enrichment.

(3)

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Chapter 16 - Page 7 ESTATES IN LAND Title

b.

This section does not apply to: (1) (2) Restrictions created by lease for a term less than 100 years. Restrictions in a conveyance or devise for benevolent, charitable, educational, public or religious purposes.

4.

Codification of Equitable Doctrines - RPAPL ∋ 1951 a. Restrictions affecting the use of land shall not be enforced by injunction or judgment compelling reconveyance if restriction is of no actual and substantial benefit to person seeking to enforce it either because its purpose has already been accomplished or is not capable of being accomplished due to change conditions, or for any other reason. In such case the court may decree the extinguishment of the restriction upon the payment of damages.

5.

Action for Relief from Pre-September 1, 1958 Special Limitation or Condition Subsequent Restricting the Use of Land - RPAPL ∋ 1954 a. b. This section applies to special limitations and conditions subsequent created prior to September 1, 1958. Owners of land subject to a special limitation or condition subs. may maintain an action to obtain a judgment that the restriction be deemed to create only a cause of action to compel a conveyance, subject to equitable defenses. (1) Relief may be granted if primary purpose of special limitation or condition subsequent was to restrict the use of land and unreasonably limits the use and development of land or unreasonably impairs the certainty of titles. Relief shall not be granted if the restriction has already been breached. In such case, however, the cause of action to recover possession or enforce the right of entry must be asserted in the same action or commenced within six months thereafter.

(2)

6.

Action for relief from Special Limitation or Condition Subsequent Restricting Use of Land Held for Charitable Purposes - RPAPL ∋ 1955 a. An action may be maintained to obtain relief from restrictions limiting the use of land held for charitable purposes to such purposes.

b.

The relief granted is discretionary with the court.

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c. d.

The section shall apply to special limitations or conditions subsequent created before or after September 1, 1958. Limitations: (1) No action under this section shall be commenced until expiration of two years from the creation of the special limitation or condition subsequent. The Attorney General must be party to such action. This section does not apply where: (a) (b) Rights have accrued because of a breach prior to September 1, 1958 The conveyance creating the restriction was made by the U.S., the State of New York or any governmental unit, subdivision or agency of either.

(2) (3)

ENFORCEMENT RPAPL ∋ 2001, eff. September 1, 1963 - limits the time in which an action can be brought to enforce covenants restricting the use of land with respect to structures that may be built thereon to a period of two years after the completion of the structure. ESTATES IN FEE TAIL - E.G. "TO A AND THE HEIRS OF HIS BODY" 1. Abolished in New York - EPTL 6-1.2 - A takes a fee simple absolute. a. Distinguish between "To A and the heirs of his body" (A takes a fee simple absolute) and "To A for life remainder to the heirs of his body" (A takes a life estate and the heirs take as purchasers). A contingent limitation on a fee may be limited to take effect on the death of the first taker without issue. (To A and the heirs of his body, but if A dies leaving no heirs of his body then to B.)

b.

LIFE ESTATES 1. 2. A grant of life estate must be executed with the same formalities as a grant of a fee. R.P.L. ∋ 243 No limitation upon creation of successive legal life estates other than that imposed by the rule against perpetuities. R.P.L. ∋ 43 repealed April 12, 1960.

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Chapter 16 - Page 9 ESTATES IN LAND Title

3.

Estates pur autre vie - e.g. "To A for the life of B." a. b. c. If A predeceases B the residue of A's estate vests in his personal representative as personal property. EPTL 6-1.3 "To A for the life of B and then to C for life" - now valid. R.P.L. ∋ 44, repealed April 12, 1960 "To A for lives of B, C and D remainder to E" - now valid. R.P.L. ∋ 45 repealed April 12, 1960.

4. 5.

An attempt by a life tenant to convey a fee no longer results in a forfeiture. R.P.L. ∋ 247 Duties of Life Tenant a. Must defray all periodic charges such as taxes, water, rent and interest on incumbrances. Wade v. Malloy, 16 Hun 226 (1878) (1) When real property held by a person for life is encumbered by a mortgage or other lien the interest on which should be paid by the life tenant, and he neglects or refuses to pay such interest, the remainderman may do so and recover from the life tenant the amount thereof together with interest from the time of payment. R.P.L ∋ 269

b. c.

Need not pay the principal of a mortgage. Must make such ordinary repairs as are necessary to prevent waste. Peerless Candy Co. v. Kessler, 123 Misc. 361 (1924)

d.

Need not make permanent improvements. Stevens v. Melcher, 152 N.Y. 551 (1897)

e.

Is liable for voluntary or permissive waste. RPAPL ∋ 801

COURTESY ABOLISHED R.P.L ∋ 189 DOWER Dower abolished where either marriage or seisin of estate of inheritance, or both,

occurred after Sept 1, 1930. R.P. L. Sec. 190

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Chapter 16 - Page 10 ESTATES IN LAND Title

ESTATES AT WILL 1. 2. An estate at will is one that at common law may be terminated at any time by either landlord or tenant and which has no fixed duration. How Created a. By express agreement Burns v. Bryant, 31 N.Y. 452 (1865) b. By a tenant taking possession under an unenforceable oral lease provided no installment of rent is paid. Talamo v. Spitzmiller, 120 N.Y. 37 (1890) 3. Termination a. b. Landlord must give tenant written 30-day notice. R.P.L. ∋ 228 By abandonment or attempted assignment by tenant.

ESTATES AT SUFFERANCE 1. An estate at sufferance arises when a tenant wrongfully holds over after the expiration of his term, but without asserting a claim to a superior title. Restatement, Law of Property, ∋ 22 Termination a. Landlord must give tenant written 30-day notice. R.P.L. ∋ 228 Smith v. Littlefield, 51 N.Y. 539 (1873)

2.

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Chapter 17 - Page 1 EXECUTIONS General

EXECUTIONS
An execution is a judicial writ issuing from the court where the judgment is rendered and directed to an officer. The execution runs against the body or goods of a party, by which the court's judgment is enforced. (33 C.J.S. Executions ∋1). In New York, the writ of execution is statutory, (Rhoades v. Robles, 145 N.Y.S. 2d 286 (1955) and is the only method of enforcing a money judgment in an action at law. The person in whose favor a judgment is rendered has the exclusive right to and control of the issuance of execution and may order it at their option. (33 C.J.SD. Executions ∋14). Execution may also be issued at the instance of the assignee of the judgment. Generally, a writ of execution may be issued against any party against whom judgment can be rendered but it cannot issue against one who is not a party to the action. (33 C.J.S. Executions ∋15). If a judgment debtor dies, an execution upon a money judgment cannot be levied upon any debt owed to the deceased or upon any property in which he had an interest. In addition, no enforcement procedure can be undertaken unless the surrogate court grants permission. A judgment lien existing upon real property at the time of a judgment debtor's death will expire two years after the death or ten years after the judgment roll has been filed, whichever is later. (N.Y. Civ. Prac. Law ∋5208, 1978). An execution may be issued from the court by the clerk or attorney of the judgment creditor to the sheriffs of one or more counties of New York, directing them to satisfy the judgment out of the real and personal property of the judgment debtor and debts due to him. (N.Y. Civ. Prac Law. ∋ 5230, 1978). Notice of the judgment must be served on the party against whom it is rendered before the writ can issue. (Place v. Albanese, 342 N.Y.S. 2d 699 (1973)). Court permission is not necessary to authorize the issuance of a writ. (Mineola Plumbing Supply Co. v. Taylor, 113 N.Y.S. 2d 862 (1952)). However, it is necessary if the statutory time to issue executions has elapsed. (Shire v. Bornstein, 174 N.Y.S. 2d 645 (1958); Stanley Funding Corporation v. Kotcher, 41 N.Y.S. 2d 877 (1943)). The order to issue execution must conform to the usual requirements of a valid order but no technical form is necessary. (Rondout National Bank v. Shapee, 79 N.Y.S. 2d 611 (1948)).

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Chapter 17 - Page 2 EXECUTIONS General

The execution must not go beyond the territorial jurisdiction of the court which rendered the judgment. (American Metal Clinrax, Inc. v. Seaboard Diecasting Corp., 252 N.Y.S. 2d 475 (1964)). The execution may issue immediately after rendition of the judgment but not before the obligation of the defendant has matured. (33 C.J.S. Executions ∋ 66). The execution must state the sum of money to be made and the writ should command the officer to make a levy. (33 C.J.S. Executions ∋∋ 75, 76). The writ must direct a levy on personal property first. (Bryant v. Trutnel Realty Corp. 193 N.Y.S. 2d 533 (1959)). Generally, every kind of property or interest in that property which is not exempt by state law may be reached by an execution issued on a judgment. (Fishman v. Sanders, 258 N.Y.S. 2d 380 (1965)). Levy can be made on personal property or on real property. (N.Y.Civ. Prac. Law ∋∋ 5232, 5236, 1978). The levy of an execution consists of acts by which an officer sets apart and appropriates a part or all of the judgment debtor's property in order to satisfy the debt. The execution cannot be levied on the debtor's property, either real or personal, if the judgment has been satisfied or an execution against the person has been perfected. (33 C.J.S. Executions ∋∋88, 89; N.Y. Civ. Prac. Law ∋ 5230 (b), 1978). A levy of execution is necessary in order to conduct an execution sale but if the judgment constitutes a lien on the land, levy is unnecessary to conduct an execution sale. (Oysterman's Bank & Trust Co. v. Weeks, 313 N.Y.S. 2d 535 (1970)). The levy must be made by an officer who is qualified to act under the writ. (33 C.J.S. Executions ∋92). The levy must be timely made on or before the return day in order to be valid because an officer has no authority to make a levy after the return day. (Garro v. Republic Sheet Metal Works, 129 N.Y.S. 2d 568 (1954)). An officer should notify the judgment debtor of the issuance of the writ of execution or make a demand on him for payment of the debt before he can levy upon the property. The debtor can select property on which he chooses the levy to be made. (33 C.J.S. Executions ∋ 96). If the officer levies upon personal property, he must reduce that property to possession, if possible; he must at least bring it under his immediate control. (N.Y. Civ. Prac. Law ∋ 5232, 1978). An execution creates a lien. (In re Livingston's Estate, 211 N.Y.S. 2d 896 (1961)). The lien of an execution is a right by law to charge the property of the judgment debtor subject to levy and sale with the payment of the debt. (33 C.J.S. Executions ∋ 123). The execution must direct that only the property in which the judgment debtor has an interest is to be sold. Each sheriff must keep a record of the executions delivered to him. (N.Y. Civ. Prac. Law ∋ 5230,1978).

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Chapter 17 - Page 3 EXECUTIONS General

If personal property is sold, the proceeds shall be distributed to the judgment creditor and any excess shall be paid to the judgment debtor. However, fees, expenses and any taxes levied upon the sale, delivery, transfer or payment of the property must be satisfied first. (N.Y. Civ. Prac. Law ∋ 5233, 1978). If real property is levied upon, it shall be sold by the sheriff at a public auction between the 56th and 63rd day after the first publication of a copy of the notice of sale. A printed notice of the time and place of the sale containing a description of the property must be posted at least 56 days before the sale in three public places in the town where the property is located. After the fees, expenses and any taxes levied on the sale, transfer or delivery have been deducted, the sheriff shall: 1) distribute the proceeds to the judgment creditors who have delivered executions against the judgment debtor to the sheriff before the sale and 2) pay over any excess to the judgment debtor. (N.Y. Civ. Prac. Law ∋ 5236, 1978). The purchaser of property sold at an execution sale may recover the purchase money from the judgment creditor's who received the proceeds, if the purchaser must return the purchased property because of some irregularity in the sale or if the judgment upon which the sale was based is vacated, reversed or set aside. The judgment creditor may move, without notice, for an order restoring any lien or priority affected by the sale. (N.Y. Civ. Prac. Law ∋5237, 1978). Within ten (10) days after the sale, the sheriff shall execute and deliver to the purchaser proofs of: 1) publication, 2) service, 3) posting of the notice of sale. In addition, he will deliver to the purchaser a deed which will convey the right, title and interest sold. (N.Y. Civ. Prac. Law ∋5236, 1978). An execution shall be returned to the clerk of the court from which it is issued within 60 days after issuance. The time may be extended in writing for a period of not more than sixty (60) days by an attorney for the judgment creditor. (N.Y. Civ. Prac. Law ∋ 5230, 1978). A return is a short official statement of the officer, indorsed on the writ or attached to it, or how he has complied with the writ or why he has done nothing. It is the duty of the officer to whom an execution is directed to make a proper return. (33 C.J.S. Executions ∋∋ 314-330). The return must be in writing on the writ itself or on a paper attached to it and signed by the officer. In New York, the return must be filed; mailing a return is not sufficient compliance. (Smith v. Greaty, 109 N.Y.S. 738 (1906)). As a general rule, a failure to make a return or defects in the return do not invalidate the

title of a purchaser at execution sale. (33 C.J.S. Executions ∋∋253-265).

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Chapter 17 - Page 4 EXECUTIONS General

The right to redeem from an execution sale is purely statutory in the absence of an agreement between the parties. (Application of Burdikoff, 296 N.Y.S. 609, 251 App. Div. 826 (1937)). Only those persons designated in the statute have the right to redeem although usually the redemption statutes authorize redemption by the judgment or execution debtor and his assignee or grantee. A person who has a statutory right to redeem may waive such rights or may, by his acts or conduct, be estopped to claim it. (33 C.J.S. Executions ∋ 254). A person who seeks to redeem must exercise the right within the time fixed in the statute, complying with all statutory provisions as to tender, deposit of money or payment. (33 C.J.S. Executions ∋ 257). The officer who makes the sale or the court clerk is a proper party to whom payment may be made. In addition, redemption can be made from the person from whom it is sought. (33 C.J.S. Executions ∋258 (b)). The statutory provisions for redemption must be followed. (33 C.J.S. Executions ∋259 (a)). Unless the statute requires it, formal notice of an intention to exercise the right to redeem is not necessary. (33 C.J.S. Executions ∋ 259 (b)). Generally, a redemption by the debtor, his successor in interest or the owner will vacate or destroy the effect of the execution sale. (33 C.J.S. Executions ∋260). Redemption by the debtor or his successor in interest releases the title from the consequences of the execution sale but it restores the original liens. (33 C.J.S. Executions ∋263(a)). A person who has complied with the statutory redemption requirements may be entitled to a deed of the property either from the proper officer or from the purchaser at execution sale. (33 C.J.S. Executions ∋264). A stay of execution is the stopping of execution on a judgment or of a creditor's right to issue execution, for a limited period. In New York, the stay means that no execution can issue on a judgment. (Bono Sawdust Supply Co. v. Hahn s. Golin, 155 N.Y.S. 2d 510 (1956)).

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Chapter 19 - Page 1 FORECLOSURE Title

FORECLOSURE
GENERAL If final judgment has been awarded to the plaintiff to recover a mortgage debt, he cannot maintain an action to foreclose the mortgage unless an execution has been issued upon the judgment against the defendant's property. The execution must be issued to the sheriff of the county where he resides if he resides in New York. If he resides out of New York, it must be issued to the Sheriff where the judgment roll is filed. (N.Y. Real Prop. Acts Law ∋1301, 1963). Each of the persons, whose interest is claimed to be subject and subordinate to plaintiff's lien, shall be made a party defendant. (N.Y. Real Prop. Acts Law ∋1311, 1963). In an action to foreclose a mortgage, the plaintiff must join all the parties whose interests are subordinate to that of the mortgagee. (G.B. Seely's Son, Inc. v. Fulton-Edison, Inc., 382 N.Y.S. 2d 516 (1976)). If the defendant fails to answer within the required time or if he admits the plaintiff's rights, the court shall ascertain and determine the amount due. (N.Y. Real Prop. Acts Law ∋1321, 1963). The plaintiff must file in the clerk's office of each county where the property is situated, a notice of the pendency of the action. The notice must be given at least twenty days before a final judgment directing a sale is given and must specify: 1) the date of the mortgage; 2) the parties; and 3) time and place of recording. (N.Y. Real Prop. Acts Law ∋1331, 1963). The judgment must direct that the mortgaged premises or a sufficient amount to discharge the debt, the expenses and costs of the sale and action, be sold by or under the direction of the sheriff of the county. If the mortgage debt is not all due and the mortgaged property is so circumstanced that it can be sold in parcels without injury to the interests of the parties, the final judgment shall direct that no more of the property should be sold than is sufficient to pay the sums due. (N.Y. Real Prop. Acts Law ∋ 1351, 1963). The primary purpose of a mortgage foreclosure judgment is to divest the mortgagor of the ownership of the mortgaged property and make it or the proceeds of the sale of the property available to the mortgagee in satisfaction of his claim against the mortgagor. (Da Costa v. Hamilton Republican Club of Fifteenth Assembly Dist., 65 N.Y.S. 2d 500 (1946)). The right to redeem is an essential part of a mortgage. (Wallace v. McCabe, 245 N.Y.S. 2d 854 (1963)).

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Chapter 19 - Page 2 FORECLOSURE Title

After the property has been sold, the officer conducting the sale shall execute a deed to the purchaser. Before a deed can be executed to the purchaser, however the deed must be recorded. This conveyance vests in the purchaser the same estate that would have vested in the mortgagee if the equity of redemption had been foreclosed. (N.Y. Real Prop. Acts. Law ∋1353, 1963). The officer who conducts the sale shall pay the expenses of the sale out of the proceeds. He must then pay to the plaintiff or his attorney the amount of the debt, interests and costs. All surplus moneys arising from the sale shall be paid into the court by the officer conducting the sale within five days from the date it is received. (N.Y. Real Prop. Acts Law ∋1354, Supp. 1978). DEFICIENCY JUDGMENT The procedure for bringing a motion for a deficiency judgment simultaneously with that of a motion to confirm the foreclosure sale is permissive and not mandatory. (Seiden v. Chagon, 306 N.Y.S. 2d 847 (1970)). If the foreclosure sale results in a deficiency, the deficiency judgment may be entered against the personal estate of the deceased obligor or as a guarantor of the mortgage debt and the amount may be recovered out of the assets of the estate. (Jemzura v. Jemzura, 369 N.Y.S. 2d 400 (1975)). The deficiency judgment shall be for an amount equal to the sum of the amount owing by the party liable, as determined by the judgment, with interest plus costs and disbursements of the action plus an amount owing on all prior liens and encumbrances with interests - the market value as determined by the sale price. (N.Y. Real Prop. Acts Law ∋1371, 1963). A deficiency judgment may be entered following a sale of the mortgaged premises under valid judgment of foreclosure and sale and the distribution of the proceeds if there is an adjudication of personal liability in the foreclosure judgment. (Cassia Corp. v. North Hills Holding Corp., 118 N.Y.S. 2d 220 (1953)). NON-JUDICIAL SALE A mortgage upon real property situated in New York in which a power to sell the mortgaged property upon default is given to the mortgagee or any other person, may be foreclosed if: a) default has been made in a condition of the mortgage so that the power to sell has become operative;

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Chapter 19 - Page 3 FORECLOSURE Title

b)

an action has not been brought to recover the debt secured by the mortgage; if it has been brought, it must be: discontinued; or found that the final judgment was rendered against the plaintiff; or 3) an execution issued upon a judgment for the plaintiff was returned wholly or partly unsatisfied; the mortgage has been recorded in the proper book for recording mortgages, in the county where the property is located; the first notice is published within the time in which an action could be maintained to foreclose such mortgages. (N.Y. Real Prop. Acts Law ∋ 1402, 1963). 1) 2)

c) d)

The person entitled to execute the power of sale must give notice that the mortgage will be foreclosed by sale of the mortgaged property at a time and place specified in the notice. A copy of the notice must be: 1) published at least once in each of the twelve weeks preceding the sale; 2)fastened up at least 84 days before the day of sale in a conspicuous place near the courthouse entrance; 3) delivered at least 84 days before the day of sale, to the clerk of each county wherein the mortgaged property is situated; and 4) served upon the mortgagor. (N.Y. Real Prop. Acts Law ∋1402, 1963). Service of the notice of the sale must be made: a) upon the mortgagor, his wife, widow, executor or subsequent grantee by delivering a copy of the notice to the person or by leaving it at his dwelling house with a person of suitable age and discretion, at least 14 days before the sale; b) upon any other person by mail at least 28 days before the day of sale. (N.Y. Real Prop. Acts Law ∋1403, 1963). The notice of sale must specify: 1) the names of the mortgagor, mortgagee and each assignee of the mortgage; 2) the date of the mortgage and the time and place it is recorded; 3) the sum claimed to be due upon the mortgage at the time of the first publication of the notice; and 4) a description of the mortgaged property, conforming substantially to that contained in the mortgage. (N.Y. Real Prop. Acts Law ∋1405, 1963). The sale must be a public auction in the daytime on a day other than Sunday or a public holiday in a county in which the mortgaged property is located. (N.Y. Real Prop. Acts Law ∋1407, 1963). The mortgagee or his assignee may purchase the mortgaged property at the sale if done fairly and in good faith. (N.Y. Real Prop. Acts Law ∋1407, 1963). If the sale is made to a purchaser in good faith, it acts as a bar to all claims or equity of redemption to the property upon the following persons: 1) the mortgagor his heir, devisee, executor or administrator; 2) each person claiming under any of them, by virtue

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Chapter 19 - Page 4 FORECLOSURE Title

of a title or of a lien by judgment or decree, subsequent to the mortgage, upon whom the notice of sale was served; 3) every person so claiming, whose assignment, mortgage or other conveyance was not duly recorded in the proper book for recording the same in the county or whose judgment or decree was not duly docketed in the county clerk's office at the time of the delivery of a copy of the notice of the sale; 4) every other person, claiming under a statutory lien or incumbrance, created subsequent to the mortgage, attaching to the interest or title of any person; and 5) the wife or widow of the mortgagor upon whom notice of the sale was served where the lien of the mortgage was superior to her contingent or vested right of dower, or her estate in dower. (N.Y. Real Prop. Acts Law ∋1411, 1963).

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Chapter 19 - Page 1 FORECLOSURE 1 NOTICE OF SALE Legal Bulletin

1.

NOTICE OF SALE HISTORY. The provisions for publishing notice of sale of real property pursuant to a judgment have been transferred from Section 986 of the Civil Practice Act to Section 231 of the Real Property Actions and Proceedings Law. The provisions for sale of real property by virtue of an execution have been transferred from Section 712 of the Civil Practice Act to Section 5236, Civil Practice Law and Rules. Changes have been made in both sections. These took effect on September 1, 1963. Section 231 of the Real Property Actions and Proceedings Law was further amended by Chapter 230 of the Laws of 1964, effective March 29, 1964 and Section 5236, Civil Practice Law and Rules was further amended by Chapter 347 of the Laws of 1964, effective September 1, 1964, other changes have been made subsequently as noted herein. IN NEW YORK CITY. the requirement that the publication be made in two newspapers twice a week for three weeks has been amended so that since September 1, 1963 publication in only one newspaper is required. In New York County the publication is required to be in the New York Law Journal. (Section 91 of the Judiciary Law.) However in Bronx County the publication must still be in two newspapers twice a week for three weeks. One of these newspapers must be the New York Law Journal. IN CITIES AND VILLAGES. a. The provisions for publishing once a week for six weeks in a weekly newspaper of the City or village in which the property lies, or in an adjoining city or village if no paper is published in the city or village in which the property lies, have been changed to require publication once a week for only four weeks. *Effective September 1, 1973 (Laws of 1972 Chapter 892 Paragraph 10) "first class" was deleted from all references to Villages in Section 231 (RPAPL) and referred only to incorporated villages.

2.

3.

b.

4.

OUTSIDE OF CITIES AND VILLAGES IN WHICH A NEWSPAPER IS PUBLISHED. a. Before September 1, 1963. Before this date notice of sale pursuant to a judgment was required in the same manner as in a sheriff's sale by virtue of an execution. Section 712, C.P.A., provided for publication once a week for six weeks in a newspaper in the county in which the property lies, or, if there is none in the county, in a newspaper in an adjoining county. In addition the section called for posting at least 42 days before the sale in three public places in the town or city where the property lies.

Chapter 19 - Page 2 FORECLOSURE 1 NOTICE OF SALE Legal Bulletin

b.

Between September 1, 1963 and March 28, 1964. During this period Section 5236, Civil Practice Law and Rules required four publications once in each period of 14 days during the 56 days preceding the sale. Posting was required to be made at least 56 days preceding the sale. In addition personal service or service by registered or certified mail at least 10 days before the sale must be made on all judgment creditors or mortgagees who acquire liens on the property up to 20 days before the sale.

c.

On or after March 29, 1964. The amendment of this date eliminated from Section 231, Real Property Actions and Proceedings Law, the reference to an execution sale by a sheriff. Notice of the time and place of a sale pursuant to a judgment (if the premises are outside of a city or an incorporated village of the (first class) * in which a newspaper is published), must now be published once a week for four successive weeks in a newspaper in the county where the property is located, or if there is none, in a newspaper published in an adjoining county and must be posted at least 28 days before the sale in three public places in the town where the property is located and if the sale is held in another town or city, in three public places in such other town or city. It is no longer necessary to serve the notice of sale pursuant to a judgment personally or by registered or certified mail on judgment creditors or mortgagees. However the statute provides that prior to September 1, 1964 notice of sale may be given either pursuant to the amendment or to the law in force just before the enactment of the amendment.

5.

POSTPONEMENT OF SALE IN ALL CASES. If the officer appointed to make the sale does not appear, the attorney may make application to have another appointed to make such sale and postpone the sale for a period not to exceed four weeks. Notice must be posted where required and notice must be published in the same newspaper once at least three days prior to the postponed date (Section 231 sub. 3 RPAPL). WHEN THE SALE MUST BE HELD. If the publication is for three weeks, the sale must be had between the 21st day and the 28th day after the day of the first publication. If the publication is for four weeks, the sale must take place between the 28th and 35th day after the first publication. When the publication is once in 14 days during the 56 days preceding the sale, the sale must be had between the 56th and 63rd days after the first publication. (Section 231 sub. 2(a) and (b)).

6.

Chapter 19 - Page 3 FORECLOSURE 1 NOTICE OF SALE Legal Bulletin

7.

EXECUTION SALE. Section 5236, Civil Practice Law and Rules effective September 1, 1964 requires four publications by a Sheriff pursuant to an execution. Notice of Sale is still required to be given personally or by registered or certified mail to judgment creditors and mortgagees. NOTE: Recommended Practices Bulletin No. 1-(59) gives special attention to the counties wherein the New York Law Journal can be a newspaper of publication.

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Chapter 19 - Page 1 FORECLOSURE 2 SERVICE OF SUMMONS PERSONAL SERVICE ON A NATURAL PERSON Legal Bulletin

1.

CPLR Section 308, prescribes how personal service of a summons upon a natural person may be made. The most important provision permits service of the summons on such defendant by delivering the summons to a person of suitable age and discretion at the defendant's place of business or home and by mailing another copy to the defendant, without need of showing any preliminary effort to deliver the summons to the defendant in person. It is personal service, though not by personal delivery. No prior efforts need be made to effect service by personal delivery. NB Cross reference this section with Chapter 26 page 3 this manual. CPLR Section 308 provides that "personal service" may be made within the state by any of the following methods: (a) (b) By personal delivery to the defendant. Except in matrimonial action by delivery within the state to a person of suitable age and discretion at defendant's actual place of business, dwelling place or usual place of abode, and by mailing to the defendant's last known residence, proof of service must be filed within twenty (20) days, and service is not complete until ten (10) days after such filing. Except in matrimonial actions, by delivery to an agent designated under Rule 318. Except in matrimonial actions, if service cannot be made with due diligence pursuant to (a) and (b) supra, by affixing the summons to the defendant's door at his actual place of business, dwelling place or usual place of abode and mailing to his last known residence. Here, too, proof must be filed within twenty (20) days and service is not complete until ten (10) days after such filing. In such manner as the court directs if service cannot be made pursuant to the preceding paragraphs.

2.

(c) (d)

(e) 3.

CPLR 308 requires since January 1, 1978, additional notice of default judgments against natural persons. The foreclosing attorney who seeks to enter a default judgment against all natural persons, must do so at least twenty days prior to the entry of the default judgment: 1) Mail a copy of the summons, by first class mail to defendant(s) at his (her) last known residence address.

Chapter 19 - Page 2 FORECLOSURE 2 SERVICE OF SUMMONS PERSONAL SERVICE ON A NATURAL PERSON Legal Bulletin

2)

If this letter is returned as undeliverable prior to the entry of judgment, or if the residence address is unknown then it may be mailed to the defendant(s) in care of the place of employment, if known, in an envelope bearing the legend, "personal and confidential", and may not indicate that the letter is from an attorney or concerns an alleged debt. If no residence or place of employment is known then it can be mailed to any other known address. In addition, an affidavit of mailing executed by the person who did the required mailing must be filed with the judgment.

3) 4)

It appears that the above requirements must all be accomplished 20 days before entry of judgment. Since this new section appears in the CPLR under a section dealing with personal service, a failure to observe the new provisions will probably be held to be jurisdictional and not curable after the passage of one year. 4. CPLR Section 306, which prescribes proof of service has been amended, and the requirements of proof have been amplified and specified in an attempt to eliminate so called "sewer service". This section now provides: (a) General: Proof must specify the papers served; the person served; date, time and address or if no address, the place and manner of service and facts showing that service was made by an authorized person in an authorized manner. Personal Service: Proof when service is pursuant to Paragraph 2(a) (b) and (c), supra, must include in addition to other requirements, description of person served including sex, skin color, hair color, approximate age, approximate weight and height and other identifying features. Other Service: Proof when service is pursuant to Paragraph 3 (d), supra, must specify dates, addresses and times of attempted service pursuant to Paragraphs 3 (a), (b) or (c), supra. Form: Proof to be by certificate if service made by sheriff or other public officer and by affidavit for any other person. Admission of Service: Must be in writing.

(b)

(c)

(d) (e)

Chapter 19 - Page 3 FORECLOSURE 2 SERVICE OF SUMMONS PERSONAL SERVICE ON A NATURAL PERSON Legal Bulletin

5.

A defendant served under Paragraph 2 (a), (b), (c), (d) or (e) supra has thirty (30) days after service is complete in which to answer or appear under CPLR Rule 320 (a) and CPLR 3012 (c). CPLR 317 gives the court the power to permit a defendant served "other than by personal delivery" to defend the action within five (5) years under certain conditions and to order restitution if the defense is successful. If we determine to insure the plaintiff in an action in which a defendant was served "other than by personal delivery" of the summons, the following exception must appear in the report or policy: "The defendant hereinafter named was served in the action mentioned by means other than by personal delivery of the summons." This policy does not insure against any rights the said defendant may have under CPLR 317. Defendant: Action - Plaintiff: - Defendants: Court: Index No.: Object of Action: This exception will be passed if we are asked to insure a subsequent purchaser or mortgagee provided that no motion to open the default of such defendant is pending."

6.

7.

PROCESS - WHO MAY SERVE (a) Although CPLR 2103 (a) provides that process and other papers may be served by any person not a party, of the age of eighteen years or over. The General Business Law, Section 89-b defines who is categorized as a process server. Included in the category are persons other than attorneys who are paid to serve papers or who have served papers in at least five actions in the year proceeding the service in question. However, the section creates no licensing requirement. New York City Local Law No. 80 creates a licensing requirement but failure to obtain such license does not invalidate service. The General Business Law, Section 89-c, prescribes the maintenance of specified records by process servers. This section is penal in nature, but non-compliance by the process server will not invalidate

(b)

service.

Chapter 19 - Page 3 FORECLOSURE 2 SERVICE OF SUMMONS PERSONAL SERVICE ON A NATURAL PERSON Legal Bulletin

8.

NON PRO TUNC - ORDER OF PUBLICATION

Prior to January 1978, under the old law an order directing service of summons by publication on a non-resident defendant without the State which conforms to the statute in every respect except for a clerical error, is irregular merely and not void. Where the defendant is fully apprised that her interest in property may be cut off by a judgment, irregularity may be cured by a nunc pro tunc order even after judgment of foreclosure. Mishkind-Feinberg Realty Co. v. Sidorsky, 189 N.Y. 402.

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Chapter 19 - Page 1 FORECLOSURE 3 SERVICE OF SUMMONS ON CORPORATION Legal Bulletin

1.

FORMER METHOD OF SERVICE ON DOMESTIC CORPORATION. Prior to September 1, 1963, the requirements for service on a domestic corporation differed from the requirements for service on a foreign corporation. Originally service on a domestic corporation could be made only on the president, secretary, clerk, treasurer, director or managing agent. Amendments from time to time permitted service on a vice president, assistant secretary, assistant cashier and assistant treasurer. In 1935 service was authorized on the Secretary of State. (See former Section 228, CPA).

2.

FORMER METHOD OF SERVICE ON FOREIGN CORPORATION. Prior to September 1, 1963 service on a foreign corporation could be made on the president, vice president, treasurer, assistant treasurer, secretary or assistant secretary, or on the person or officer designated in the certificate filed in the appropriate state office. If service could not be effected on any of the foregoing, then and only then the cashier, assistant cashier or managing agent could be served. (See former Section 229, CPA.)

3.

PRESENT METHOD OF SERVICE ON ALL CORPORATIONS. The provisions for service on corporations are now in Section 311, CPLR, effective September 1, 1963. This section makes the requirements the same for service on domestic or foreign corporations. Service must be on an officer, director, managing or general agent, cashier or assistant cashier or other agent authorized by law to receive service.

4.

ABSTRACTING PROOF OF SERVICE. Examiners must always show what officer or other person was served on behalf of the corporation and the reader must determine whether or not the service was proper under the statute in effect at the time it was made.

5.

SERVICE ON MANAGING OR GENERAL AGENT. We will not pass service on a managing agent or general agent without positive proof that the person so served was such agent. All such cases must be submitted to counsel.

6.

SERVICE ON SECRETARY OF STATE. The provisions formerly in Section 25 of the Stock Corporation Law for service on a domestic corporation by leaving duplicate copies of the process with the Secretary of State in his Albany Office are now in Section 306 of the Business Corporation

Law. The old section authorized delivery to the Secretary of State, a

Chapter 19 - Page 2 FORECLOSURE 3 SERVICE OS SUMMONS ON CORPORATION Legal Bulletin

Deputy Secretary of State, Associate Attorney, Senior Attorney or Attorney in the corporations authorized to do business within the state, authorizes delivery of duplicate copies of the process only to the Secretary of State, Deputy Secretary of State, or any person authorized by the Secretary to receive such service. Service is complete when made, but Section 320, CPLR, gives the corporation thirty (30) days in which to appear or answer. Foreign corporations not authorized to do business within the state, but subject to jurisdiction here, may also be served by serving process on the Secretary of State, a deputy Secretary of State, or other person authorized by the Secretary to receive such service (Section 307, Business Corporation Law). A copy of the process must also be served personally on the corporation outside the state according to the law of that state, or sent by registered mail, return receipt requested, to its officially designated office. Proof of service must conform to Section 307 (c) B.C.L., be made within thirty (30) days after service or receipt of the return receipt, and is complete ten (10) days after filing with the clerk of the court. 7. SPECIAL REQUIREMENTS. CPLR 317 gives the court the power to permit a defendant served "other than by personal delivery" to defend the action within five (5) years under certain conditions and to order restitution if the defense is successful. If we determine to insure the plaintiff in an action in which a defendant was served "other than by personal delivery" of the summons the following exception must appear in the report and policy: "The defendant hereinafter named was served in the action mentioned by means other than by personal delivery of the summons. This policy does not insure against any rights the said defendant may have under CPLR 317." Defendant Action - Plaintiff: - Defendants: Court: Index No.: This exception will be passed if we are asked to insure a subsequent purchaser or mortgagee provided that no motion to open the default of such defendant is pending.

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Chapter 19A - page 1 FORFEITURE

FORFEITURE
──────────────────────────────────────────

UNDERWRITING SUPPLEMENT
──────────────────────────────────────────
UNDERWRITING DEPARTMENT ∃ 210 WEST FRONT STREET ∃ MEDIA ∃ PENNSYLVANIA ∃ 19063-3191

UNDERWRITING JUDICIAL FORFEITURE

INTRODUCTION
The foundation of forfeiture lies in the theory that the government can enact statutes which result in the loss of property without compensation upon the commission of specific crimes. Judicial forfeiture proceedings are a complicated area of the law that is continuously developing. Insuring judicial forfeiture remains a risky business for title insurers. However, the risk is not confined to only those transactions insured after a federal or state judicial forfeiture. It is equally applicable to titles already insured.

POLICY INSURING CLAUSES
The insuring clauses of both the ALTA l970 (re. l0/l7/84), l990 and l992 owners and loan policies provide coverage against forfeiture. Thus, if we insure title to be vested in the owner in "fee simple" and the property is later forfeited to the federal government, the insureds' title is not vested as set forth and insured in the policy. In this event [and, bear in mind, it is a post policy event] title reverts back to and becomes vested in the federal government as of the time of the commission of the act giving rise to forfeiture, under the "relation-back" doctrine [O'Reilly v. United States, 486 F2d 808 (8th Cir. l973)]. Thus, all right title and interest vests in the federal government as of the date of the illegal activity. The subsequent entry of a forfeiture decree confirming this earlier vesting is the operative moving paper formally transferring title to the federal government. In a number of cases this doctrine has been attacked as "a legal fiction" created by Congress to give unfair advantage to the government in any forfeiture proceedings. These attacks have to date only been partially successful. The relation back doctrine as applied by different courts has resulted in decisions not entirely consistent.

PROCEEDINGS ARE IN REM
Civil federal forfeitures are "In Rem proceedings", i.e., they are against the land, and not against the person. Federal forfeiture does not require a conviction of guilt. It only

requires that at some time an illegal act was committed on the property, i.e., the land committed the act. Thus, when one of the controlled substance crimes is discovered to have been committed on the land, under the law as enacted, the title to the property

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reverts to the federal government. This has been held to apply even in those situations where the property in question was owned by an absentee owner or landlord. As you can see, under this theory, every time we issue a title insurance policy there exists the possibility we will later be called upon to defend title if the property is subsequently forfeited. To date, there is only one case which has been decided favorable to the title industry for defense purposes. That case is Estate Home Builders, Inc. v. Attorneys Title Insurance Fund, Inc., Case No. 90-35325 from the Circuit Court, Broward County, Florida. In that case the plaintiff was asserting a right under a policy of title insurance for reimbursement of the costs of defense paid pursuant to the policy to establish an "innocent owner exception" to a federal forfeiture. The defendant's title insurer contended that the exercise of governmental police power was excluded from coverage and therefore there was no coverage under the policy. The plaintiff's position was that because of the 7th Amendment to the Constitution, there was no federal police power and that, therefore, the police power exception did not apply. The trial court held that the exercise of forfeiture was in fact police power and that it was excluded by the policy. Unfortunately, because the plaintiffs did not appeal and because the decision came from the court of original jurisdiction, this case was not a reported case and, therefore, has little, if any, precedential value. The actual act of forfeiture is mechanically performed by the U. S. Marshals Office, which must meet specific requirements in order for the forfeiture to be proper, resulting in a title which is both transferable and insurable. Courts are now beginning to impose strict compliance standards on the federal government. If the following requirements are not satisfied the title is defective and subject to being set aside. These requirements include all of the following: l. File an action against the property in the United States District Court and record a notice of the action in the office of the county recorder where the land is located showing that the federal government is forfeiting the property; 2 Obtain sufficient title information to determine all parties who have an interest in the property including lenders and other judgment creditors; 3. Serve with proper constitutional due process notice all parties having an interest. [Note: published notice is insufficient except against an indicted fugitive. Mennonite style notice is a prerequisite to establish due process]; 4. Give the interested parties an opportunity to be heard by the Federal Court Judge; 5. Have the Federal District Court judge enter an order for forfeiture. All of the foregoing are essential elements to the conduct of a good forfeiture action. As a title insurer we are not interested in insuring any forfeiture proceeding which relies solely on administrative proceedings with no court involvement. What then must be done in order to determine if the title to forfeited property is insurable and what are the underwriting considerations which must be given in each case? Here are several things to

look for when insuring title after a judicial forfeiture proceeding.

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Chapter 19A - page 3 FORFEITURE

UNDERWRITING REQUIREMENTS AND CONSIDERATIONS
A. Strict compliance with the statute under which the property has been judicially forfeited. There are several different federal forfeiture statutes and many states have enacted their own statutes. Below are addressed the most common federal statutes. The underwriting guidelines discussed here are equally applicable to other federal and state forfeiture statutes. Specific questions should be addressed to the Home Office Underwriting Department. CIVIL FORFEITURE PROCEDURES The primary civil federal forfeiture statute is 21 USC 88l. The proceedings are In Rem. As stated above, the proceedings are directed against the property itself, rather than against the owner of the property. Thus, a house would be subjected to civil forfeiture proceedings if it were used for the manufacture, storage or sale of illegal drugs, or if it were purchased with the proceeds obtained from illegal drug transactions. The proper sequence of events is as follows: l. a complaint is filed against the property in federal district court, whereupon the property is "arrested" by way of an in rem seizure warrant issued by either a Federal District Court Judge or a U.S. Magistrate; 2. a lis pendens is filed against the property in the public land records in accordance with state law. There are two reasons for this procedure. In the first instance the U.S. Marshall is unable to take actual physical possession and control of the property. Additionally, filing the lis pendens serves to give constructive notice to everyone that the real property has been seized by the United States; 3. notice of seizure is personally served on all parties having an interest in the real property. They have the right to appear at the trial and be heard in accordance with the applicable Federal Rules of Maritime Procedure, otherwise known as Admiralty Law. These Rules are used because the Federal Rules of Civil Procedure do not provide for in rem proceedings. Notice must be served, in the manner called for in Mennonite Board of Missions v. Adams, 462 U.S. 79l, upon all parties having an interest in the property. Alternative forms of notice by publication and posting are only sufficient as against those persons whose interest in the property is not "reasonably ascertainable". Under Mennonite, any lesser standard of notice has been determined to be in violation of that portion of the 5th Amendment to the United States Constitution which states that the federal government cannot deprive a person of his interest in property without due process of law; 4. If the property is found guilty, an order or judgment of forfeiture is entered, which, in turn, must be recorded in the public records;

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5. After all appeal periods have expired the U.S. Marshall is able to convey the real property to a third party purchaser for value. The appeal period is generally 60 days, plus an additional 90 days for "excusable neglect" in the case of a contested trial, and one year for "good cause" in default judgment cases. CRIMINAL FORFEITURE PROCEDURES The principal criminal federal forfeiture statute is l8 USC l963. This is part of the RICO Act. In this case the proceeding is in personam, i.e. against the person. If the person is convicted of the offense in Federal District Court the property described in the indictment is forfeited. Criminal forfeiture is merely adjunct to a criminal trial where the Federal Rules of Criminal Procedure are applicable. Whereas in a civil proceeding described above, the property can be seized at the commencement of the action, in a criminal proceeding the property will not be seized until after a finding of guilt. Thus, in order to preserve the status of the property during the criminal trial, the government will often file a civil proceeding and a criminal indictment at the same time. In a criminal proceeding the federal government must not only prove the guilt of the individual property owner, but also that the property is subject to forfeiture under RICO. After the defendant is convicted of a RICO violation and the property is found subject to forfeiture the proper sequence of events is a follows: l. the federal government files an order for forfeiture; 2. Service must be made upon all parties having an interest in the property in accordance with Mennonite as above set forth; 3. third parties having an interest in the real property are given an opportunity to assert their legal rights in a post-conviction ancillary hearing; 4. the court then enters a judgment of forfeiture; 5. After the appeal periods have expired the U.S. Marshall is directed to sell the land. B. Personal service of process must be provided to all parties adversely affected by the judgment. This is an underwriting requirement even if the statute provides for a lesser form of notice. The only exception to this title rule is a situation where the statute doesn't require personal service and the party not provided with personal service is an indicted fugitive. In this case alone, service by publication will be acceptable. Parties to a stipulated judgment or who are paid off and release their interests do not require any greater notice than may be required by the particular statute involved. C. The order effecting the forfeiture must be a final, non-appealable order, and must be recorded in the land records. Be particularly careful in determining what appeal period you are dealing with. It varies between federal and state statutes.

D. All adverse matters of title disclosed by the examination of title should be excepted.

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Chapter 19A - page 5 FORFEITURE

However, there is no need to except liens if, consistent with the order and judgment of forfeiture, the holders of such liens were notified of the forfeiture and given an opportunity to appear and (i) they failed to appear or (ii) they were unable to meet their burden of proof sufficient to support their lien. If the creditor(s) are unable to meet their burden of proof to support the superiority of their lien that lien is divested under the relation back doctrine unless it is prior in time to the criminal act for which the property is forfeited. E. As a Title Rule you should continue to search the name of the criminal owner up to and through the date that the order or judgment of forfeiture is recorded in the public records. This is a condition notwithstanding the fact that the government may argue the title relates back to the time of the illegal act. This rule again goes back to the satisfaction of the notice requirements. F. The deed from the United States of America via the U.S. Marshall to the third party purchaser must be recorded in the public land records. If special or general warranty deeds are customary in the jurisdiction where the property is located we should make every effort to obtain such warranties. Title Rule: the deed must contain (i) satisfactory recitals setting forth the statute by which the property was seized (ii) a reference to the order and judgment of forfeiture and (iii) reference to the statute or Rule by which the individual executing the deed is authorized to do so. G. As a consequence of the additional underwriting required to safely insure such transactions full premium should be charged and, at the discretion of the Home Office, a risk surcharge may be levied if permitted under state law and insurance department regulations. All pricing questions should be directed to the Home Office. DOCUMENTS TO BE RETAINED IN THE TITLE FILE For civil federal forfeitures, you should obtain and keep in your title file copies of the following: (l) the complaint; (2) the warrant for the "arrest" of the property; (3) the lis pendens, a copy of which must be recorded in the public land records; (4) certification from the Clerk of the Federal District Court [or independent investigation] that service was made upon the owner and all parties having an interest in or lien against the premises; (5) Order and judgment of forfeiture reciting the description of the property forfeited; the appropriate U.S. Code provision by which this was done; and a statement that title is now vested in the United States of America and that all right title and interest of the prior owner has

been forfeited. This must also be recorded in the public land records.

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Chapter 19A - page 6 FORFEITURE

N.B. any commitment issued which requires these documents should contain the additional statement that the company reserves the right to make such additional requirements or exceptions as a review of these documents may warrant. For criminal forfeitures you should obtain and keep in your file copies of the following: (l) order for conviction of the defendant/owner; (2) certification from the Clerk that an ancillary hearing for the forfeiture of the subject real estate was held and that notice was given to all parties having an interest in or a lien against the land; (3) the lis pendens, which must also be recorded in the public land records; (4) Court order and judgment of forfeiture reciting (i) the a description of the property forfeited; the appropriate U.S. Code provision by which this was done; a inclusive statement that title is now vested in the United States of America and that all right title and interest of the defendant/owner has been forfeited. This should also be recorded in the public land records. TITLE OBTAINED FROM A CONVICTED FELON As stated earlier, we are reluctant to insure any forfeiture proceedings which rely on a administrative proceeding only. If, as part of a plea bargain or sentencing bargain, the defendant deeds the property directly and there is no formal forfeiture proceeding the following must be carefully considered before we agree to insure title. l. was the conviction for a crime which calls for the forfeiture of property? Is the government entitled to forfeiture? 2. Can a statement be obtained from the U.S. Attorneys or State Attorney Generals Office to the effect that the deed was given voluntarily as part of a plea bargain agreement. This concern goes to the issue of consideration, coercion and free will; 3. If the defendant grantor is married did the wife join in the deed? 4. was the property Homestead or otherwise entitled to any state law exemption? 5. Has the time for the appeal of the conviction expired? 6. Is the form of the conveyance regular and insurable? A quit claim deed may be suspect. It puts subsequent purchasers on notice to make further inquiry. Note that in some states a convicted felon is deprived of his constitutional rights and is considered incompetent for the purposes of executing documents of conveyance.

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Non-judicial administrative forfeiture proceedings are the most risky of all. It is always possible that newly discovered evidence will be relied upon to open the criminal proceeding and that the conviction may be overturned. Criminal law permits cases to be reopened or reviewed under certain conditions. In that instance the former owner may contend he was coerced into signing the deed. If the wife has not joined in the deed there is nothing to prevent her from filing divorce proceedings and attempting to obtain the property pursuant to equitable distribution. In addition, any attempt to satisfy our concern that the conveyance was in fact voluntary may cause us to go outside the public lands records. The form of policy currently in use contains a definition of "public records". Our voluntary venture beyond such definition, in an attempt to assist our prospective customer, may thereafter preclude our ability to successfully avail ourselves of such definition in a subsequent defense of claim. THE CRUEL AND UNUSUAL PUNISHMENT ARGUMENT The penalty of forfeiture has been considered by many as a very harsh remedy when the actual crime committed was a relatively small infraction and a first offense. In a recent Supreme Court Case, Austin v United States of America, l25 L. Ed 2d 488 (l993) the Supreme Court partially addressed this issue. The facts of the case are that the defendant, Austin, had been indicted on various drug charges and pleaded guilty to one count of possession with intent to distribute. Subsequently the federal government started in rem civil forfeiture action. Defendant's counsel argued that the forfeiture would violate the 8th Amendment's Excessive Fines Clause. The District Court [the trial court] rejected this argument. The Appeals Court, in affirming the court below, commented that they thought the government was extracting too high a price for the offense committed. Before the Supreme Court, the government argued that the 8th Amendment did not constrain governmental conduct where criminal punishment was not imposed on the individual. The government contended the in rem forfeiture was remedial rather than punitive in nature. The Supreme Court held that the forfeiture, under the circumstances, would be excessive punishment that violates the 8th Amendment. Despite finding that forfeiture was subject to 8th amendment scrutiny, the court decline to establish a test to determine whether forfeiture is constitutionally excessive. That argument will be made another day. However, this case points out how important it is not to insure title where the appeals process has not been exhausted. APPEAL OF STATE FORFEITURE STATUTES TO U.S. SUPREME COURT In cases where the defendant(s) have exhausted their remedy of appeal in that State or Commonwealth Court system the question often arise as to whether there is continued recourse through the federal court system. The possibility of federal review may be disregarded if the appeal therefore has not been timely filed. Furthermore, the possibility for federal review is precluded where the decision of the State Supreme Court rests firmly on state constitutional grounds as articulated in Michigan v. Long, 363 U.S. l032, l03 S. Ct 3469, 77 L. Ed. 2d l20l (l983). Any questions regarding this possibility should be forwarded to the undersigned in the Home Office

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Chapter 19A - page 8 FORFEITURE

CONCLUSION
The company is now willing to consider, on a case by case basis, insuring title(s) derived through Judicial Forfeiture Proceedings. If requested by an agent you must inquire as to the nature of the forfeiture, i.e., whether it is civil or criminal and, having determined that, advise him to send to you those items identified above as items to be retained in the title file. This type of insurance falls under the catergory of an extrahazardous risk which requires that all the underwriting standards herein established be complied with. In addition, it may be necessary that we also comply with the underwriting standards established by any other reinsurers. All forfeiture situations require Home Office approval before insurance can be undertaken and accepted.

William C. Hart, Chief Underwriter copyright l994 All Rights Reserved

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Chapter 18A - Page 1 FEDERAL LIENS

FEDERAL LIENS AND ACTIONS IN FEDERAL COURT NOTICE IN NEW YORK
The following is an analysis of those liens arising under the United States Code which affect real property and where they must be filed to be effective. Also included is a listing of where notice of federal actions, such as bankruptcy, must be filed to be effective against a transferor's real property. This discussion does not include recording or filing problems arising out of Federal Racketeer Influenced and Corrupt Organization (RICO) Acts. 1.

Federal Tax Liens - The Internal Revenue Code of 1954, Title 26 of the United
States Code, provides in Section 6321 that there shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to any person who neglects or refuses to pay tax due after demand. Section 6323 (a) further provides that for such a lien to be valid against any purchaser, holder of a security interest, mechanic's lienor, or judgment lienor that notice of the lien must be filed. Section 6323 (f) provides for the place for filing such a notice. In the case of real property, which under Section 6323(f)(2) is deemed situated at its physical location, the notice must be filed: (A) In one office within the state, county or other government subdivision, as designated by the laws of such state in which the real property subject to the lien is situated; or Whenever the State has not designated one office for filing as provided for in (A), the notice shall be filed in the office of the clerk of the United States district court for the judicial district in which the real property subject to the lien is situated. The Federal Tax Lien pursuant to Section 6323(g)(3) is effective November 5, 1990 a lien for 10 years from the date of assessment. New York law does provide for a place of filing, thus Federal Tax Liens against real property in New York must be filed in accordance with New York law. New York's Lien Law provides in Section 240(1) that for federal tax liens: (a) If the real property is in the counties of New York, Kings, Queens or the Bronx then the notice must be filed in the office of the city register in that county. In all other counties the notice is to be filed in the office of the clerk of the county in which the real property is situated.

(B)

(C)

(b)

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(c)

If the real property is in two or more counties the notice must be filed in the appropriate office in both counties. Section 241(1) of the Lien Law further states that the city registers and county clerks in New York provide a file labeled "Federal Tax lien notices" and an index book or card Index system labeled "Federal Tax lien index." All notices are therefore filed in the "Federal Tax lien notices" file and an entry made in the "Federal Tax lien index" showing the name, and residence of the taxpayer named in the notice, the endorsed serial number (by the recording officer), the date of filing and the total amount of tax, interest and penalty. As to titles registered within New York's version of the Torrens system, the procedure for the filing of notice of federal tax liens is the same as under Lien Law Section 241. Real Property Law Section 400 specifically excepts federal tax liens from the Torrens system.

2.

Federal Liens for Estate Taxes - 26 U.S.C. Section 6324 provides for a "special lien" upon the gross estate of a decedent for ten years from the date of death for any unpaid estate taxes. The lien is not required to be recorded to be effective and imposes personal liability upon all: beneficiaries, surviving tenants, trustees, transferees, spouses, and persons in possession of the property, who receive, or have on the date of the decedents death, property included in the gross estate. It is important to note that while the special lien imposed by Section 6324 is unrecorded, the Government can also avail itself of Section 6321 and assert a recorded lien against real property of the estate. Section 6321 is not limited to liens for deficient income taxes. See Kaufman v Herter, 194 N.Y.S. 2d 848 (N.Y. County Sup. Ct 1959) and Detroit Bank v. U.S. 317 U.S. 329, 63 S. Ct. 297, 87 L. Ed. 304.

3.

Bankruptcy Petitions - The Bankruptcy Code, Title 11 of the United States Code, provides in Section 549 that all unauthorized post petition transfers of property of the estate are avoidable by the trustee with two major exceptions contained in subsections (b) and (c). Subsection (b) protects transferees to whom property is transferred between the date of filing an involuntary petition and the date of the order for relief. Notice of knowledge of the pending bankruptcy case is irrelevant in determining whether the transferee is protected. The transferee is only protected however, to the extent any value, including services, but not including satisfaction or securing of debt that arose before the commencement of the case, is given after the commencement of the case in exchange for the transfer.

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Subsection (c) provides that a transfer of real property is not avoidable by the trustee where the transferee is a good faith purchaser without knowledge of the commencement of the case who pays fair equivalent value unless a copy of notice of the petition was filed in the office where the transfer of the real property could be recorded thereby perfecting it. (New York State Bar Association's See Real Property Law Section Newsletter, Vol. 15, No. 1 in Bankruptcy It's Open Season on Real Estate, Zinman, concerning the issue of what is considered fair consideration). Thus, for a post-petition transfer of real property to be avoidable in New York a copy of notice of the bankruptcy petition must be filed in the city register's office in Queens, Kings, New York and Bronx Counties, and in the county clerk's office in all other counties, depending on which county the real property is situated. The mere filing of the petition with the district court is insufficient. Subsection (d) of Section 549 provides that an action or proceeding under that section may not be commenced after the earlier of two years after the date of the transfer sought to be avoided on the date of the closing or dismissal of the case. This subsection does not obviate the rights which may be asserted by a trustee or debtor in possession with respect to preferences under Section 547 or fraudulent conveyances under Section 548. Those sections impose their own time limitations upon trustees and debtors in possession. 4. Federal Judgments - 28 USC Section 1962 entitled "Lien" provides that: A. Prior to May 29, 1991 (Lien for 10 years) "Every judgment rendered by a district court within a State shall be a lien on the property located in such State in the same manner, to the same extent and under the same conditions as a judgment of a court of general jurisdiction in such State, and shall cease to be a lien in the same manner and time. Whenever the law of any State requires a judgment of a State court to be registered, recorded, docketed or indexed, or any other act to be done, in a particular manner, or in a certain office or county or parish before such lien attaches, such requirements shall apply only if the law of such State authorizes the judgment of a court of the United States to be registered, recorded, docketed, indexed or otherwise conformed to rules and requirements relating to judgments of the courts of the State". For a federal judgment to be a lien on real property situated in New York, a transcript of the judgment must be filed with the county clerk of the county in which the real property is situated. Upon such a filing the clerk must docket the judgment, making the judgment a lien on the realty. See CPLR 5018-(b). The above procedure only applies to judgments obtained in Federal courts, located within New York. If the federal court was located outside of New York, a certified copy of the judgment must be filed with a clerk of a federal court located in New York. A transcript of the judgment issued by the New York federal court then may be filed with a county clerk

as provide din CPLR 5018(b).

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For judgments against a title registered within New York's version of the Torrens System to be a lien it is necessary to have a transcript of the judgment filed with the registrar and also have a memorial of the judgment placed on the certificate of title by the registrar. Real Property Law Section 417. However, if the judgment is based on federal law or the United States Constitution, Real Property Law Section 400 excepts it from the Torrens System. B. On and After May 29, 1991 (Lien for 20 years) Crime Control Act of 1990, Federal Debt Collection Procedure Act of 1990, Subtitle A - Debt Collection Procedures, Chapter 176, Public Law 101-647. Enacted November 29, 1990, became effective May 29, 1991. (1) (2) The statue amends the lien period of federal judgments and debts (not tax liens) effective as of May 29, 1991 to a period of twenty years. The statute adopts the filing procedure as contained in Section 6323(f) of the Internal Revenue Code. This means that the lien applies to Real Property located in the County where the real property is located and where the lien is filed in those states which have adopted the Uniform Federal Lien Registration Act (UFLRA). In the other states the lien may apply to property located in the judicial district of the federal district court where the judgment is obtained. This judgment lien is perfected by the U.S. upon the filing of the abstract of judgment. The Act provides pursuant to Section 3631 (b)(1) and (2) that the twenty year period applies: (a) (b) (c) (d) (5) to judgments obtained in pending matter on or after May 29, 1991; to matters where earlier judgments are modified and filed on or after May 29, 1991; to judgments for an additional twenty years if a notice of renewal is filed before the expiration of the lien and the Court approves the renewal of the lien to judgments filed prior to May 29, 1991 but which have not expired prior to May 29, 1991 (Section 3005)

(3) (4)

Appended is a list of states complying with UFLRA

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5.

Labor Law - The Federal Labor Law, Title 29 of the United State Code, in Section 1368 creates a lien in favor of the Pension Benefit Guaranty Corporation, 29 U.S.C. 1302, against any employer's real or personal property for liability due to a withdrawal from an authorized pension plan. Section 1368 also adopts the filing and notice provisions of 26 U.S.C. Section 6323(f).

6.

Federal Liens Under CERCLA - The Superfund Amendments and Reauthorization Act of 1986, (SARA), which was signed into law on October 17, 1986 has significantly amended Section 107 (42 U.S.C. 9607) of the Comprehensive Environmental Response, Compensation and Liability Act, commonly referred to as "CERCLA". "CERCLA", which was adopted by Congress in 1980, is a compensatory act which was intended to provide the funding for the cleanup of hazardous waste by holding responsible parties liable. Section 107 of the act expressly provides that the Environmental Protection Agency, which is charged with the enforcement of "CERCLA", can bring legal actions against parties in interest to recover the cost of cleaning up hazardous waste sites.
In addition, 42 U.S.C. Section 9607 makes available to the EPA a lien on the real property which both belongs to the party held liable and which is "subject to or affected by a removal or remedial action". While this lien does not obtain the status of a "super lien" it does successfully encumber real property subject only to prior perfected interests. The amended version of Section 107 also provides that the lien itself shall arise at the later of either the time the costs of responding to a hazardous waste cleanup are first incurred by the U.S. or the time that the person liable is provided with written notice by certified or registered mail of that liability. For the lien to be effective against purchasers, holders of security interest or judgment lien creditors, however, notice of the lien must be filed before such a party has perfected their interest under state law. This notice provision is quite similar to the federal tax lien notice provision of 26 U.S.C. Section 6323. Both statutes provide the State with the option of designating by State law an appropriate office within the State, county or other political subdivision in which the real property subject to the lien is located, where notice of the lien must be filed. If the lien is not so filed as provided by State law, or in the alternative if no such state law has been adopted, and the lien is not filed in the office of the clerk of the United States District court for the district in which the real property is situated, then the lien is not valid against purchasers, holders of security interest or judgment lien creditors who perfect their interest under state law. Thus, for the lien provided for under Section 107 of CERCLA to be effective against certain third parties the lien must either be filed in the office of the clerk of the U.S. District Court for the district in which the real property is located or it must be filed in the proper office as designated by state law. The state is left with an option. It can either adopt a filing statute or it can

rely on Section 107 and have the liens filed with the clerk of the district

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court. This procedure, in essence, and its net result is identical to 26 U.S. C. Section 6323(f)'s provisions for the filing of federal tax liens. Recognizing this deficiency, the National Conference of Commissioners on Uniform State Laws approved the Uniform Federal Lien Registration Act (UFLRA) in 1978. This act, in contrast to the earlier Uniform Federal Tax Lien Registration Act (UFTLRA), expressly provides that it applies to federal tax liens and to other federal lien notices of which under federal statute or regulation the notice of lien is to be filed in the same manner as notices of federal tax liens. Given the similar notice provisions of amended Section 107 of CERCLA and of 26 U.S.C. Section 6323(f) it is clear that the UFLRA, if adopted by a state, would require the filing of notices of liens pursuant to Section 107 of CERCLA in the manner in which the UFLRA mandates. Given the obvious need of a potential lender or purchase to check for notice of CERCLA liens due to the scope of Section 107's liability as imposed by the courts construing that section, our state legislature must either adopt the UFLRA or a similar statute. Third parties could then conveniently search in the recorder's office for the county in which the real property is located rather than having to search in one of the four United States District Courts. Appended hereto is a list of states which have adopted the Uniform Federal Lien Registration Act or similar legislation.

Chapter 18A - Page 7 FEDERAL LIENS

STATES WHICH HAVE ENACTED THE UNIFORM FEDERAL LIEN REGISTRATION ACT OR SIMILAR LEGISLATION [AS OF 6/90] STATE Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon CITATION ∋35-11-42-35-16-48 ∋40.19.010-40.19.050 A.R.S. ∋∋33-1031-33-1035 ∋∋18-47-201-18-14-207 C.C.P. Secs. 2100-2107 C.R.S. Sec. 38-25-101-38-25-107 C.G.A. Sec.47-36,49-32a None None None Ga. St. Sec. 44-14-517 None I.C. Secs 45-201-45-207 Secs. 82-401-82-407 I.C. Sec 36-2-11-25 ∋331.609 K.S.A. Secs 79-2613-79-2619 ∋382480-382490 R.S. Secs 52:51-52:58 33 MRSA ∋∋1901-1907 Real Prop. Secs 3-401-3-404 MGL Ch 36, Sec 2 M.C.L.A. Secs 211.611-211.66 M.S.A. Secs 272.479, 272.481-272.48 S.B. 2470 (Regular Session 1898; effective 1-1-90) V.A.M.S. ∋14,010-14.04 M.C.A. Secs 71-3-201-71-3-201 R.R.S.N. Secs 52-1001-52-1001 N.R.S. Secs. 108.825-108.83 N.H.R.S.A. Ch 454-B:1 None NMSA ∋48-1-7-48-1 McKinneys Lien Law Sec.2 None N.D.C.C. Secs. 35-29-01-35-29-01 O.S.A. Sec. 317 O.K.S. Title 68, Sec. 243025-24302 O.R.S. Secs. 87.806-87.8

Pennsylvania

74 P.S. ∋157-1-157

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SEIZURE OF PROPERTY FOR THE COLLECTION OF FEDERAL TAXES PURSUANT TO 26 U.S.C.A. SEC. 6331 ET SEQ. The following is a skeleton outline of the statutory provisions for the seizure and sale of property based upon federal liens, together with a few decisional references. Where title is based upon proceedings pursuant to these provisions it is suggested that the full text be reviewed and the cases be more thoroughly examined. AUTHORITY If a person liable for taxes refuses to pay within 10 days after notice and demand the Secretary or his delegate shall collect by levy upon all property and rights to property belonging to such person on which there is a lien provided in this Section in this chapter. NOTICE OF SEIZURE After seizure notice in writing shall be given to the owner of the property or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last known address. Notice shall set forth: (a) (b) the sum demanded in the case of realty, a description with reasonable certainty of the property seized.

NOTICE OF SALE The Secretary or delegate shall as soon as practicable: (a) (b) give notice to the owner in the same manner as that prescribed above cause a notification to be published in some newspaper within the county wherein such seizure is made, or if no newspaper is published in such county, shall post notice at the post office nearest the place where the seizure is made, and in not less than two other public places. Notice is to specify: (1) (2) (c) the property to be sold the date, place and manner and conditions of the sale.

The sale shall not be held less than 10 days or more than 40 days from the time of giving public notice.

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(d)

The sale shall be within the county wherein the property is seized except by special order of the Secretary or his delegate.

MANNER AND CONDITIONS OF SALE The Secretary or his delegate must determine a minimum price for which the property shall be sold, and if there is no buyer at that price, the property shall be declared to be purchased at such price for the United States, otherwise to the highest bidder. ADDITIONAL RULES APPLICABLE TO SALE The Secretary or his delegate shall by regulations prescribe the manner and other conditions of the sale of property seized by levy. Such regulations shall provide: (a) that the sale shall not be conducted in any manner other than (1) (2) (b) (c) (d) (e) (f) by public auction by public sale under sealed bids

where several items of property are involved it must be stated whether such property shall be offered in the aggregate or in separate parcels whether the announcement of the minimum price determined by the Secretary or his delegate may be delayed until the receipt of the highest bid whether payment in full shall be required at the time of acceptance of a bid, or whether it may be partly deferred whether additional advertising is necessary under what conditions and circumstances the sale may be adjourned. (Adjournment shall not be for a period to exceed one month.)

REDEMPTION (a) (b) Before sale - The owners shall be permitted to redeem the property prior to the sale thereof. After sale (1) Period. The owner, heirs, devisees or any person having a lien may redeem the property sold or any particular tract of such property within a period of one year after sale.

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(2)

Price. The property may be redeemed by payment to the purchaser or to the Secretary or his delegate for the use of the purchaser the amount bid by the purchaser and interest at 20% per annum.

(c)

Record - When any lands sold are redeemed as provided in this section, the Secretary or his delegate shall cause entry of the fact to be made upon the record and such entry shall be evidence of such redemption. (The record referred to is the record kept for each Internal Revenue District regarding sale of such property and redemption of such property.) The record must set forth: 1. 2. 3. 4. 5. 6. the tax for which the property is sold dates of seizure and sale names of parties assessed amount of expenses the name of the purchaser the date of the deed.

(A copy of such record or any part thereof certified by the Secretary or his delegate shall be evidence in any court of the truth of the facts therein stated.) CERTIFICATE OF SALE; DEED OF REAL PROPERTY (a) Certificate of Sale - The Secretary or his delegate shall give the purchaser a certificate of sale upon payment of the full purchase price. The certificate shall contain: 1. 2. 3. 4. (b) the real property purchased for whose taxes the same was sold name of purchaser the price paid therefor.

Deed to Real Property - If there is no redemption within the time prescribed the Secretary or his delegate shall, upon the surrender of the certificate, execute a deed to the purchaser in accordance with the laws of the State in which such real property is situated pertaining to sales of real property under execution. The deed shall recite the facts set forth in the certificate.

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(c)

Purchase by United States - Where real property is purchased for the United States the deed to be used shall be approved as to form by the United States Attorney for the district in which the property is situated and the deed shall be properly recorded in the proper registry of deeds.

LEGAL EFFECT OF CERTIFICATE OF SALE Deed of Real Property (1) (2) Deed as evidence - The deed of sale given shall be prima facie evidence of the facts therein cited. Deed of Conveyance of Title - If the proceedings of the Secretary or his delegate have been substantially in accordance with the provisions of law, such deed shall be considered and shall operate as a conveyance of all the right, title and interest of the party delinquent had in and to the real property thus sold at the time the United States lien attached thereto.

COMMENTS: The following references may assist in the examination of title coming through a sale by the Federal Government under the above statute. The requirement that a demand be made upon the delinquent taxpayer is an important element in establishing the validity of the federal tax lien. In Cattani v. Korsan, 29 N.J. Super. 581, 103 A2 51, appeal dismissed 32 N.J. Super. 210, 108 A2 110, Judge (now Justice) Haneman said: "it is a mandatory requirement, both under the exact language of the statute and of the adjudication in the two above referred to cases [U.S. v. Allen, 14 F. 263, and In re Baltimore Pearl Hominy Co., 5 F.2d 553] that such demand must be made. As a condition precedent to establish its lien and priority, it was necessary that the United States of America make proof of such demand. Absent any such proof, the said United States of America failed in a vital respect." Further, the mere statement contained in the notice of federal tax lien filed in the county is not sufficient. The demand may be informal, and since it is for the protection of the taxpayer, may be waived by him. In re Baltimore Pearl Hominy Co., above. Where the taxpayer had died, the filing of the demand in the probate court against the deceased was a proper demand of payment. United States v. Ettelson, 159 Fed.2 193. The federal tax lien is analogous to a judgment lien, Bull v. United States, 295 U.S. 247, 55 S.Ct. 695, 79 L.ed. 1421, and will attach to after-acquired property. Citizens Nat. Trust & Savings Bank etc. v. United States, 135 Fed.2 527.

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For the title examiner it is important to know the nature of the title a purchaser obtains under the federal statute, assuming that all necessary steps required by statute have been correctly taken. The statute provides the deed to the purchaser "shall operate as a conveyance of all the right, title and interest of the party delinquent had in and to the real property thus sold at the time the lien of the United States attaches thereto." This was construed to mean that when the federal lien is superior the sale extinguishes all inferior liens Commercial Credit v. Schwartz, 130 Fed. Supp. 524; United States v. City of New York, 233 Fed. 2 307. In the latter case the federal lien became fixed on April 25, 1933 while the deed under the sale recited that it conveyed the taxpayer's title which he held on December 17, 1941. This would present a difference in the city taxes which the city claimed to be superior to the federal lien. The court held that the provisions in the statute and not the erroneous reference in the deed determines the character and extent of the government's title. Where the requirements of the statute are not observed the sale is invalid. Margiotta v. District Director of Internal Revenue, 214 Fed.2 518. In holding the sale invalid the court noted: "The notice published in the New York Herald Tribune did not comply with the statute. For (aside from the fact that the newspaper was not published 'within the county wherein said distraint' was 'made'), the publication was not 'forthwith' but on February 15, which was many days after the distraint on January 21. Nor was the time of sale, February 16, 'not less than ten **** days from **** the publication of such notice.'" The statute further provides that the deed of sale shall be prima facie evidence of the facts therein stated, but in the following section provides that if the proceedings of the secretary or his delegate have been substantially in accordance with the provisions of the law the deed shall operate as a conveyance of the right, title and interest of the party delinquent. In McAndrews v. Belknap, 141 Fed.2 111 the court said: "The District Court held that since there was no evidence with reference to the manner in which the sale was made, the presumption of validity attaching to official acts required that the sale be upheld. We think that this presumption is not of such force as to supply the proof required affirmatively to exist in order to validate sale of real property for unpaid taxes. Cf. French v. Edwards, supra, 80 U.S. at page 514, 20 L.Ed. 702. It is the general rule that the burden of showing literal compliance with statutes governing the sale of land for taxes is upon the claimant under the tax sale. Ronkendorff v. Taylor's Lessee, 29 U.S. 349, 7 L.Ed. 882; Marx v. Hantborn, 148 U.S. 172, 13 S.Ct. 508, 37 L.Ed. 410; Lyon v. Alley, 130 U.S. 177, 9 S.Ct 480, 32 L.Ed. 899." The question of dower will often hold the attention of the examiner. Where the dower or the right of dower attached to the land prior to the government's lien, dower is superior. Where, however, dower attached after the government's lien, that is where the taxpayer owned the property before his marriage, the government's lien is superior and the sale extinguishes this right. See Commercial Credit v.

Schwartz, above; First National Bank of

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Elkhorn v. White (Wisconsin) 1 A.F.T.R.2 1696. Decisions in other states may be misleading, for example Chadler v. Pilley, 5 A.F.T.R.2 437, where it was held that government's lien is superior to dower where the tax lien was imposed in the lifetime of the taxpayer because under the Tennessee law a husband could convey or encumber his interest in lands without the wife's concurrence. By failing to pay his taxes the husband did encumber his lands. Municipal land taxes accruing after the government's lien are, in like manner, governed by statute. A sale of the land pursuant to provisions of the statute frees the land from such taxes. United States v. City of New York, above, where the United States brought a suit to quiet title against the city to remove the cloud. A practical consideration in New Jersey may confront the examiner of title. While the sale extinguishes the subsequent taxes the collector may still carry the taxes on his books. They will appear on the official tax search with the recurring problem of having the record reflect the true facts. The purchaser may ultimately find himself defending a foreclosure under a tax sale certificate. Section 6323 or the U.S. Code requiring the filing of notices of the federal lien to be valid as against mortgages, pledgees purchasers of judgment creditors must be considered in determining priorities. And it may also be noted that not every lien comes within the protection of this section. Thus, in United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 it was held that municipal taxes are outside the scope of the provisions. "There is nothing in the language of sec. 3672 [now 6323] to show that Congress intended antecedent federal tax liens to rank behind any but the specific categories of interest set out therein ****." Underscore the period of redemption after sale - one year after the sale. Within that period the title remains unmarketable. One of the shortcomings of the proceedings under these sections of the act is the absence of notice of record. It may of course be argued that there is no difference between a sale under a federal lien and a sale by the sheriff by virtue of a writ of fieri., facias. pursuant to a common law judgment. The difference does exist in that a period of one year intervenes between the issuance of a certificate of sale and the delivery of the deed to be recorded; nor is there any provision for the recording of the certificate either with the recording officer of the county wherein the lands are situate or with the clerk of the appropriate Untied States District Court. The record of the federal lien is not a sufficient answer to this problem nor is the right to redeem the answer. Another shortcoming is the proof of the steps taken by the Secretary or his delegate. The Secretary or his delegate for each internal revenue district must keep a record of all sales of real estate and a copy of such record is evidence in any court as to the truth of the facts therein stated. It seems to us that this record and the proof should be lodged with the Clerk of the District Court which may more effectively function as a recording office of public documents.

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INSURABILITY OF TITLE DERIVED FROM FEDERAL TAX DISTRAINT SALES "Distraint" is a summary extra-judicial remedy having its origin in the common law whereunder personal property was seized and held by individual action without intervention of legal process for the purpose of compelling payment of debt. 26 U.S.C.A. 6331 et seq. provides for administrative levy and distraint sale for the enforcement of federal tax liens. The title conveyed to a purchaser pursuant to such a distraint sale is all the right, title and interest of the taxpayer as of the date the federal tax lien attached. 26 U.S.C.A. Section 6339 (c) provides that upon the issuance of a deed to the purchaser, following administrative levy and distraint sale, all liens and encumbrances subordinate in priority to the federal tax lien which gave rise to the distraint sale, are discharged from the property. (Blacklock v. U.S., 208 U.S. 75) It must be remembered that each step required for the enforcement of the tax lien is jurisdictional and must be followed substantially preferably to the letter, if the tax sale is to be valid. Assuming the Internal Revenue Service makes adequate data available for inspection, the title of a purchaser of real property at a distraint sale may be insured without exception to liens subordinate to the federal tax lien, provided an examination of the sale proceedings in the Internal Revenue Service District Office discloses compliance with the following requirements: (1) Notice and demand for payment of the delinquent tax was made upon the taxpayer and levy was not made until 10 days after such notice and demand unless the Secretary or his delegate made a finding that collection of the tax was in jeopardy and the notice and demand was for immediate payment of the tax. (26 U.S.C.A. 6331 (a)) The Secretary or his delegate gave notice of seizure in writing, specifying the amount due and demanded, as well as a description of the property, which notice either was given to the owner or was left at his usual place of abode or business within the Internal Revenue District where seizure was made or was mailed to the owner's last known address. (26 U.S.C.A. 6335 (a)) The Secretary or his delegate gave to the owner, in the manner set out in (2) above, a written notice of the sale of the seized property specifying the time, place, manner and conditions of the sale. Such notice of sale was published in a newspaper published or generally circulated within the county where seizure was made, or, if there was no such newspaper the notice of sale was posted at the post office nearest the place of seizure and in not less than two other public places. (26 U.S.C.A. 6335 (b))

(2)

(3)

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(4)

The sale date was not less than 10 days nor more than 40 days from the time of giving public notice of sale. The place of sale was within the county in which the property was seized unless the Secretary or his delegate specially ordered otherwise. (26 U.S.C.A. 6335 (d)) The sale price was not less than the minimum price determined before the sale by the Secretary or his delegate. (26 U.S.C.A. 6335 (e) (1)) The sale of the seized property was at public auction or was a public sale under sealed bids. (26 U.S.C.A. 6335 (e)(2)) The records of sales and redemptions in the Internal Revenue Office (nearest to the county in which seizure was made) reveal that the property was not redeemed within 120 days after the date of sale. (26 U.S.C.A. 6337) A certificate of sale was issued to the purchaser setting forth a description of the real property purchased, for whose taxes the property was sold, the name of the purchaser and the price paid. Said certificate was surrendered upon the expiration of the redemption period whereupon the Secretary or his delegate executed and delivered to the purchaser a deed to the real property reciting the facts set forth in the certificate of sale. (26 U.S.C.A. 6338) The taxpayer has surrendered possession and dominion of the real property conveyed. The examiner of the records in the Internal Revenue Service District Office, as required above, must file with the Home Office an abstract of the proceedings examined. It should be attached to the Home Office copy of the binder or policy to which it pertains. Finally, it is reiterated for emphasis that a levy and distraint sale, although conducted in strict accordance with the law, does not dispose of anything except the taxpayer's interest in the property sold and conveyed. For instance, dower and other marital rights which are not subject to the tax lien will not be affected by the sale. Such a sale of the taxpayer's interest does not wipe-out either applicable restrictions, easements and the like, or liens senior to the federal tax lien, or real estate tax liens.

(5) (6) (7)

(8)

(9)

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TO: FROM: SUBJECT:

All Title Personnel William C. Hart Chief Title Officer Insurability of title derived from Federal Tax Distraint Sales

Pertinent Statute or Case Law Cited: 26 USCA s 6331 et seq. Underwriting File U-226 Federal Liens GLF-76 Federal Tax Liens - Sales & Seizure This memo is in confirmation of our phone conversation and letter of August 13, 1991 regarding the foregoing. I enclose herewith our Underwriting Guidelines on the subject matter. The leading case is Minix v. Maggard, 652 SW2d 93. Review also Margiotta v. District Director of Internal Revenue, 214 F2d 518 and Salves v. U.S., 53-2 USTC holding notice sent to taxpayers at old address when District Directors files showed new address is void. Because each step for the enforcement of the tax lien is jurisdictional, the record title is not conclusive evidence sufficient to satisfy the question of marketability of title. Thus, in addition to searching the record title, actual inspection must also be made of the records of the office of this District Director of Internal Revenue. The records must reflect that federal law was strictly complied with in all respects. Any irregularities would constitute sufficient reason not to insure. Also, you must make sure the one year redemption period from the date of sale has expired to take a special exception, therefore, in the policy to issue. If we have misunderstood or failed to fully respond to your situation, please contact the undersigned. This informal memo of communication has been adopted to expedite service to our branches, policy writing agents and approved attorneys.

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INHERITANCE TAXES
New York taxes the transfer of title of the property of the estate (estate tax). An inheritance tax, on the other hand is a tax imposed upon those receiving the property. (N.Y. Tax Law ∋ 249, 1977). An estate tax is imposed upon the transfer of any real or personal property of the decedent: 1) when the transfer is by will or by New York's intestate laws from any person who dies possessing the property and who was a New York resident; 2) when the transfer is made in contemplation of death or if the transfer is intended to take effect at the death of the transferor; 3) when the property is held in the joint tenancy and one of the joint tenants dies. (N.Y. Tax Law ∋220, 1966). The following transfers of property are exempt from the estate tax: 1) property for memorial services for the deceased; 2) property transferred to any religious, educational, library, charitable, missionary, benevolent, hospital or infirmary corporation; 3) real property transferred to a municipal corporation in trust for a specific public purpose; 4) personal property (other than money or securities) bequeathed to an organization for the moral or mental improvement of men and women, or for scientific, literary, patriotic, cemetery or historical purposes; 5) all property or beneficial interest transferred to any father, mother, husband, wife, widow or child of the decedent, unless such interest exceeds $5,000. If it exceeds $5,000 then it will be taxed on the amount exceeding $5,000; 6) all proceeds of any federal war risk insurance policy which is payable or may become payable to the veteran's estate. (N.Y. Tax Law ∋ 221, 1966). Taxes are due when the transfer is made. If the value of the transferred property or interest cannot be determined at the time of transfer, the tax will be due when the donee acquires actual possession. (N.Y. Tax Law ∋222, 1966). The estate transfer tax becomes a lien upon the transferred property and will remain until it is paid or released. The person to whom the property is transferred and the executors/administrators of the estate are personally liable for the tax. The executor/administrator has the power to sell as much property as is necessary to pay the tax. (N.Y. Tax Law ∋224, 1966). If the tax is not paid, the tax commission may cause the sheriff to levy upon the property and sell it. However, the tax lien is subject to any pre-existing mortgage which was incurred in good faith before the tax became a lien. (N.Y. Tax Law ∋224, 1966). Any interested person may file an application with the tax commission for a release of the tax lien on real property. If granted, the tax commission will release the lien and record the release. (N.Y.Tax Law ∋224, 1966). An unpaid transfer (estate) tax on the estate transferred remains a lien upon the property and makes it unmarketable. (Stock v. Mann, 225 N.Y. 100, 174 N.E. 76 (1930)).

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Chapter 22 - Page 2 INHERITANCE TAXES Title

The tax ceases to be a lien after the expiration of fifteen years from the date of accrual. (N.Y. Tax Law ∋245, 1966). A. Taxable Transfers - Nonresidents

An estate tax is not a levy upon the property itself but upon the right of transferring the property. (In re Reilly's Estate, 64 N.Y.S. 2d 72 (1946)). The tax rate schedule is set forth in N.Y. Tax Law ∋249 (a), 1966. In order to determine the tax, the gross estate and net estate must be calculated. The gross estate of the decedent is determined by including the value of all real, personal, tangible and intangible property held by the decedent at his death. Real property which is situated outside the state and tangible personal property which is outside the state are excluded. Once the gross estate has been determined, the net estate must be calculated by deducting certain items from the amount of the gross estate. These items include: 1) 2) 3) 4) 5) 6) funeral and administration expenses; claims against the estate; unpaid mortgages; losses from fire, storms, shipwreck, theft or other casualty (if not covered by insurance) during the settlement of the estate; amounts reasonably required and actually expended during the settlement of the estate for the support of decedent's dependents; an amount equal to the value of any property; a) which is part of the gross estate of any person who dies within five years before decedent's death or b) transferred by the decedent by gift within five years before his death; the amount of all bequests, legacies, devises or transfers a) to the government of the United States or its states to be used for public purposes; b) to any corporation which is organized and operated exclusively for religious, charitable, scientific, literary or educational purposes. The amount of the deduction cannot exceed the value of the transferred property required to be included in the gross estate. an exemption of $100,000. (N.Y. Tax Law ∋249 (c), 1966).

7)

8)

The tax to be paid on the net estate can be calculated by using ∋249 (a) of the Tax Law, 1966 and is paid by the executor who must make a tax return in all cases where the gross estate exceeds $200,000 at the decedents death. (N.Y. Tax Law ∋249 (d), 1966).

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Chapter 22 - Page 3 INHERITANCE TAXES Title

The executor cannot make a final accounting to settle the estate until he pays the tax and receives a receipt or certificate. This certificate may be recorded. (N.Y. Tax Law ∋ 249 (f), 1966). The executor is personally liable for the tax but he has the full power to sell as much of the decedent's property as is necessary to pay the tax. If the executor fails to pay the tax within 18 months of the transfer, the commission may issue a warrant to the sheriff of any county and direct him to levy upon and sell any of the net estate's real and personal property found in the sheriff's county for payment of the tax. The tax commission is entitled to the legal remedies to enforce its claim if the warrant is not satisfied in full. If the tax is paid by or collected from a part of the estate in possession of one other than the executor, that person is entitled to reimbursement from the estate. The tax lien is subject to the lien of any mortgage indebtedness existing against the real property before the tax became a lien and where the mortgage indebtedness was incurred in good faith. (N.Y. Tax Law ∋249(g), 1966). The statute of limitations does not apply to any proceeding to levy, appraise, assess, determine or enforce the collection of the tax. (N.Y. Tax Law ∋249 (j), 1966).

Chapter 19B - Page 1 HEIRS AT LAW

HEIRS AT LAW
When a decedent dies intestate, all real property passes by intestate succession to heirs at law pursuant to such statutes. When insuring a title based upon a deed from grantors purporting to be all the heirs at law of a decedent, particular care must be exercised to determine that such grantors are in fact all of the heirs of the decedent. Do not rely solely on the recital in a deed to this effect. A judicial determination as to all the heirs of the decedent should be obtained. However, subject to Home Office approval, independent proof in lieu of judicial determination may be accomplished by appropriate affidavit that the named grantors were in fact all of the heirs of the decedent. Such affidavits should set forth sufficient information to enable the examiner to determine who are the heirs of the decedent under the laws of the state in which the property is situated. If not furnished satisfactory proof to determine the heirs of the decedent, appropriate exception must be made in Schedule B of the policy as follows: Rights of possible undisclosed heirs of AFFIDAVITS OF HEIRSHIP In requiring and accepting affidavits of this nature it is important to avoid affidavits that contain "conclusions of law" by laymen. All such affidavits should speak to facts. The following may be used for the purpose of requiring affidavits of heirship: Receipt of affidavits from two disinterested persons who actually know the facts, setting forth sufficient information to enable the examining attorney and this Company to determine, pursuant to applicable statutes, that the parties executing the above required deed were all of the heirs of and the consorts of those heirs who were married, and that said heirs and consorts were sui juris at the time of executing said deed. Note: this affidavit is to be made by one closely related in blood with knowledge of the facts. . deceased.

Chapter 19B - Page 2 HEIRS AT LAW

MODEL FORM HEIRSHIP AFFIDAVIT STATE OF COUNTY OF ) (John Doe) being duly sworn, deposes and says that he resides at (#1 A Street, Hempstead, New York), and that he is a (son) of (James Doe) now deceased. That my (father), the said (James Doe) died a resident of the (Village of Hempstead, Nassau County, New York), intestate, on or about the (1st) day of (January, 1999). That he left him surviving: (no spouse) (no child, no posthumous child, no adopted (child and no children of any deceased (child or adopted child (no father, no mother (no brothers no sisters, and no descendants (of any deceased brother or sister (no grand-parents (no great grand-parents, no uncles, no aunts (no great great grand-parents, no great uncles (or great aunts, and no cousins ) ) ss:

Go down as many classes as are necessary to establish title in your desired class

either of the whole or the half-blood, except the following: (here list names of survivors) NAME Anna Doe John Doe Mary Doe RELATIONSHIP Widow A son A daughter of Richard Doe, a predeceased son of the said decedent.

All of the above named individuals are over the age of 21 years and of sound mind, except: (Mary Doe) who is an infant of the age of 6 years and who resides with her (mother, Jane Doe) at (#10 B Street in the Village of Hempstead, Nassau County, New York). (It may also be advisable to add appropriate statements concerning debts against the Estate and possible Federal Estate tax to this affidavit)

Sworn to before me this day of , 19

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Chapter 20 - Page 1 HOMESTEAD General

HOMESTEAD
Property of one of the following types, which does not exceed $10,000 in value above liens and encumbrances and is owned and occupied as a principal residence, is exempt from the satisfaction of a money judgment; however, a purchase money mortgage on: 1) a lot of land with a dwelling on it; 2) shares of stock in a cooperative apartment corporation; and 3) units of a condominium apartment are not exempt. In addition; no homestead is exempt from taxation or from sale for non-payment of taxes or assessments. The homestead exemption continues after the death in whose favor the property was exempted, for the benefit of the surviving spouse and children until the majority of the youngest surviving child and until the death of the surviving spouse. The homestead exemption ceases if the property ceases to be occupied as a residence by a person for whose benefit it may continue. However, the exemption will not be lost if the departure was caused by injury to or destruction of the dwelling house and the suspension of occupation was for less than a year. If the value of the property exceeds $10,000, the homestead exemption is not void but the lien of a judgment attaches to the surplus. If the homestead value exceeds $10,000 a judgment creditor may commence a special action against the judgment debtor for the sale. The court may direct the sale and, if so, shall marshall the proceeds of the sale so that the right and interest of each person shall correspond as nearly as possible to their rights and interests in the property. Money, not exceeding $10,000, paid to a judgment debtor, is exempt for one year after the the payment unless he acquires a homestead within that year. The exemption for the money, if another homestead is acquired, ceases with respect to that portion which was not used to purchase the property. (N.Y. Civ. Prac. Law ∋ 5206, Supp. 1978).

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Chapter 21 - Page 1 IDENTITY General

INDENTITY
A married woman has all the rights in respect to both real and personal property, as if unmarried. Acknowledgment or proof of a conveyance of real property or any other written instrument, may also be made by a married woman the same as if unmarried. Statutes are contra to the common law and abolish the limitation on rights that marriage once created. (N.Y. Gen. Oblig. Law ∋ 3-301, 1963; N.Y. Real Prop. Law ∋3-301, 1963; N.Y. Real Prop. Law ∋302, 1909). As to a suit for divorce or annulment, a provision must be made available to allow the woman to resume the use of her maiden name. (N.Y. Dom Rel. Law ∋240 (a), 1973). And as early as 1889 a New York court held that upon obtaining a final decree of divorce, a wife may assume her maiden name for the purpose of entering into a new marriage contract. Since she no longer had a husband, there was no impropriety or illegality in reassuming her original name. (Rich v. Mayer, 7 N.Y.S. 69 (1889)).

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Chapter 24 - Page 1 MONEY JUDGMENTS General

MONEY JUDGMENTS
Liens fall basically into two categories: specific liens and general liens. Mortgages or mechanics' liens are specific liens against a specific piece of real estate. Money judgments, on the other hand, are general liens. A money judgment docketed against a named judgment debtor is a general lien against all of the property, real and personal, of the judgment debtor. The federal tax lien is of the same category. Where we have a specific lien, our examination is directed against the particular parcel of real estate. On the other hand, where we have a general lien, our examination must be directed against names only. In order to make a judgment search, it is necessary to list the names in the chain of title, and the judgment dockets have to be run for the periods indicated. All judgments against the name and in most cases, similar names as well, must be abstracted. In abstracting the judgment, we take off all of the information which is then on the docket, unless the judgment is satisfied. After the judgments are abstracted, we normally return them all in our report with a notation calling for them "to be disposed of." In some offices, an investigation is made prior to the insertion of these judgments into the report for the purpose of determining which of them can be disregarded either based upon information then available to us or an investigation which we than make, establishing that the particular judgment debtor is not the same person who is in our chain of title, notwithstanding the fact that he may have the same or a similar name. This is especially true with respect to common names. In our area, however, we are not equipped to make that investigation in advance. Therefore, we return all of the judgments and ask for them to be disposed of. They are normally disposed of by the production of an affidavit from the party in our chain of title clearly indicating that these specific judgments or federal tax liens are not against him or her, but against some other person with the same or a similar name. Unfortunately, some people are not averse to making a false affidavit. Accordingly, the affidavit is to be considered critically and skeptically. This is especially true if you have a fairly uncommon name, and almost certainly true where in addition, the address shown on the judgment is either the address of our property or an address which appears to have been the address of the parties in our chain of title at some other time. Anything else which might indicate that the affidavit may not be completely true should be taken into consideration. The name of the spouse, in some cases, might be an indication as to whether the judgment debtor is our party. In any case where there is a doubt, the matter should be fully investigated and discussed with counsel. In this respect, it is also important for us to determine whether or not an individual has used other names, other than the name now being used by that individual. The most common type of situation, of course, is with respect to females who get married and change their names. For that reason, we raise the following Exception: "Proof is required that has not been known by any other

married or maiden name within the last ten years; otherwise such other name must be revealed to the Company and the office searches amended to cover."

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Chapter 24 - Page 2 MONEY JUDGMENTS General

In other cases, we may pick up a change of name. In some cases, a will may give us an indication of a change of name. In any such case, the Office Search must be promptly amended and searches run against these additional names not previously disclosed to us. As a matter of practice and as pure business risk, we do not require any special proof that everybody in the chain of title never used any other name. However, if somebody did use another name, a judgment docketed against that name could very well be a valid lien against our real estate. If the judgment docket shows a judgment against several parties but indicates that the particular judgment debtor we are concerned with was "not summoned," we can disregard that judgment because the notation "not summoned" indicates that the court did not have personal jurisdiction over that particular judgment debtor. For that reason, we would not be concerned as it would not become a lien. The judgment is effective for twenty years. It is a lien on the real estate of the judgment debtor for ten years, computed from the date of entry of the judgment in the court in which it was originally rendered (CPLR 5203). If that date is prior to the docketing date in our particular county, it may mean that the judgment lien expires some time prior to ten years from the docketing date. In just about all cases involving Supreme Court judgments that are docketed in the same county in which the judgment is obtained, the docketing date and "perfecting date" (the date of entry) are the same. Section 5018(b), CPLR, provides for the docketing of federal judgments in the County Clerk's Office. In all counties, except those counties where the United States District Court is itself located, federal judgments do not become a lien against real estate unless docketed in the County Clerk's Office as well. In those counties, such as Kings County for the Eastern District and New York County for the Southern District, it is not necessary to separately docket in the County Clerk's Office. Judgments have priority among themselves in accordance with their order of docketing in the County Clerk's Office in the county in which the real property is situated. If an owner dies while he is in the chain of title, we also run judgments against the executor of his will, or administrator of his estate in his representative capacity, but any judgment turned out against an executor or administrator even in his representative capacity is not a lien against the real estate of the decedent unless the judgment itself makes it a lien against specific real property. It was stated previously that we attempt to turn out judgments against names closely similar to that of the actual name in the chain of title. It is dangerous to pass such a judgment, notwithstanding the fact that the rule of law is that the judgment must be docketed against the true name of the party in the chain of title.

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Chapter 24 - Page 3 MONEY JUDGMENTS General

H.R & C Co. vs Smith, reported in 242, NY 267, is a case where a judgment was docketed against Elizabeth Hedges, also known as Bess Hedges. Title was held in the name of Mary Elizabeth Hedges. It was nevertheless held that the judgment was a lien against the property. In this case, the court refers to nicknames used by friends and relatives; for instance, Cliff for Radcliff and Will fro Wilbur or Wilfred, etc. It finds that Bess is used not only for Elizabeth but in some cases for Mary Elizabeth. Referring to cases in other jurisdictions, the court refers to the use of Harry for Henry, Willie for William, Bill for William, Charlie for Charles, Dan for Daniel, Mollie for Mary, etc. Notwithstanding, in Mauro vs Peninsula National Bank, New York Law Journal, October 7, 1964, page 20, a judgment against Tony Romano was held not to be a lien on the property of Antonio Romano. Possibly part of the reason was that the court found that the judgment creditor actually knew that this particular judgment debtor owned real estate in the name of Antonio Romano, his true name. The court refers to the H.R. & C Co. vs. Smith, above mentioned, but says the rule must be limited to the facts in that particular case. We must also bear in mind that when a judgment is docketed, it not only becomes a lien against all of the real property of the judgment debtor in the county, but it automatically becomes a lien on all of the after-acquired property of that particular debtor within the ten year lien period. Keep in mind as an exception to this last statement, that a purchase money mortgage is considered to be prior to pre-existing judgments against the purchase money mortgagor. However, we have, in the past, had some difficulty with some banks by reason of the fact that we did not run the name of the purchase money mortgagor at the closing. Of course, if we had run the name and turned out judgments, we would, upon request, have disregarded those judgments as not being liens so long as we were satisfied that what we were dealing with was a true purchase money mortgage. In one instance we didn't even run judgments because of an oversight by a closer. There were, in fact, two judgments which had been assigned to the United States of America. The bank said that assigned to the United States of America, they would not have closed their mortgage loan. Now they find that they have to foreclose their mortgage and they have to join the United States of America as a party defendant in order to cut off the judgments which are subordinate in lien to their mortgage. A judgment docketed against a person who later becomes an incompetent is perfectly valid as a lien so long as the judgment debtor was competent at that time. A judgment docketed against him after a committee has been appointed cannot be enforced as a lien ahead of other debts of the incompetent debtor. In that respect see Section 1761 of the Real Property Actions and Proceedings Law. We consider the docket as controlling with respect to a judgment. If it is supposed to be satisfied, we want the docket marked "Satisfied." If it is supposed to have been reversed on appeal, we want the docket marked "Reversed on appeal." If the lien is suspended on appeal, we want the docket so marked. In all cases, the order indicating either the suspension or reversal, etc., should be taken off. In some cases, those orders are conditional and in others they are limited. The provisions with respect to some of these

matters are in Section 5204 of the CPLR.

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Chapter 24 - Page 4 MONEY JUDGMENTS General

A money judgment, like any other lien, can be assigned; it can be released in whole or in part as to any specific property; and, of course, can be satisfied. With respect to the satisfaction of the judgment, it can either be satisfied by the judgment creditor, or within five years from the date of entry of a judgment, by the judgment creditor's attorney. Reference to that is in Section 5020 of the CPLR. However, where the County Clerk will not accept a satisfaction of a judgment executed by an attorney after September 1, 1969 if two years or more have elapsed between the entry of the judgment and September 1, 1969. In order to satisfy a judgment by deposit with the County Clerk, Section 5021 (a) of the CPLR now requires an order of the court on notice. As to Torrens titles, in order for the judgment to be a valid and effective lien against the real property, the judgment must be memorialized against the owner's certificate. We require running judgment and federal tax lien searches against the last owner in the County Clerk's Office, notwithstanding it is a Torrens title, and, also, for any federal liens against all names in the chain of title. The reason for that is that it is not clear from the law that federal liens are affected by the registration provisions. In addition, there is a real hazard that a judgment against a present owner may actually be memorialized between the time we make our examination or continuation and the time that the deed is delivered to the Registrar for the transfer of title. Keep in mind that in registered property, title does not pass until the deed is delivered to the Registered property, title does not pass until the deed is delivered to the Registrar and a new certificate is issued. Normally, we close our title away from the Registrar's Office and there is a delay of anywhere from one to several days between the closing of title and the delivery of the deed to the Registrar. We do not want to take that risk. With respect to normal closings, a judgment is only a lien against the right, title and interest the judgment debtor had at the time the judgment was docketed. Therefore, if in fact a title closing was held at 10:00 A.M. today and the deed delivered, and at 11:00 A.M. a judgment was docketed against the seller, that judgment would not be an enforceable lien, notwithstanding the fact that the deed out of the judgment debtor is not recorded until tomorrow or two or three days later. However, that title may very well be unmarketable because this type of proof can only be established by parol evidence, and there is a hazard of litigation. NB: Cross reference with Liens & Encumbrance this manual

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Chapter 24 - Page 1 JUDGMENTS 2 Clearance Identity of Debtor

JUDGMENTS
When the examination of title discloses judgments against parties of similar name we are confronted with one of two instances: 1) 2) those cases where because of similarity of name, or otherwise, the lien may affect; and those cases where the lien definitely affects the property.

Category (1) can normally be disposed of by a specific affidavit, stating unequivocally that the lien in question does not affect the premises, and is not against the individual of that or similar name in our chain of title. It is often helpful to show in addition, that the address shown in the lien as that of the debtor is one at which our party never resided, or did business. Of course, the more uncommon the name the greater particularity will be required to establish that the lien does not in fact apply to our party. In those cases where the lien in fact affects, it must be discharged of record. This should be done in advances of the closing and the title company notified in order to avoid needless delay at closing. In many cases, though, the owner cannot discharge the lien in advance of closing because he does not have the necessary funds and intends to use the proceeds of the closing to satisfy the lien or liens. When it is anticipated that this will be the case, an appropriate provision permitting this should be included in the contract. The old N.Y. Board of Title Underwriters form of contract contains a clause that is sufficient only if the satisfaction is actually delivered at closing. In many cases, a sum in an amount more than sufficient to discharge the lien is deposited with the title company at closing, with a request that the lien be omitted from, or its collection out of the premises insured against, in the policy. There may be many reasons for such a procedure - i.e., there may have been difficulty in locating the party who is to give the discharge or, it is hoped that some additional time may be effectively utilized to work out a more favorable settlement - or, the lien may become outlawed by a statute of limitations in the near future - or, the lien may in fact have been paid, but no satisfaction obtained, - etc. Normally, the title company will accede to such request to omit the lien from the loan policy when it knows the lien will be discharged of record within a few days, or so long as it knows that it can effectively control a prompt satisfaction of record in the event of an unanticipated emergency. Normally, though, when a deposit is accepted, the procedure as to fee insurance is to except the lien, but insure that it will not be enforced against or collected out of the insured premises. In a mortgage policy to an institutional lender, the exception as to the lien is usually omitted, because the lender can not lend on encumbered property. Many attorneys ask about this double standard for fee insurance and mortgage insurance, since there are other cases in which a mortgage policy is treated more liberally. Basically, the main reason is that the possibility of a claim on technical marketability grounds is

much greater on a fee policy especially where there is a quick re-sale. Remember, the

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Chapter 24 - Page 2 JUDGMENTS 2 Clearance

ALTA title insurance policy insures not only against direct attack, but also as to attack on marketability grounds. A title company may resist being asked to hold such funds for any extended period of time, even though only insuring against collection. Actually, when the company does so without the consent of the proposed insured, they can expect a fair share of future embarrassment, pressure and name-calling, even though their position may be technically correct. When a lien is excepted, but there is insurance against collection, there is normally no recourse against the title company who has insured against collection until there is a direct attempt to enforce collection. When re-selling a property with such a condition, the contract should except lien whose collection has been insured against, and provide that the existence of the particular lien shall not be deemed an objection to title so long as the "X" Title Company (which has so insured) will insure against its collection out of the subject premises. Judgments and other liens originally filed in another county must first be discharged of record in that county and a transcript obtained before the lien can be discharged in your county. In every case, it is well to remember that the lien may not be omitted until the record of that lien is discharged in the county where the property is located. Federal liens are a special headache because the 10 year statute of limitations set forth in Section 6502 of the Internal Revenue Code of 1954, as amended, cannot be relied upon. It is subject to various means of being tolled by instruments and actions taken by the tax payer and/or government, none of which are of record. In addition, the time required to obtain a satisfaction is much greater than other liens. In further addition, there have been cases where the government has been less than cooperative notwithstanding tender of the full amount originally required, because of other items due or pending against the same tax-payer, or because of their own clerical errors, etc. For these reasons, title companies may be reluctant to accept any escrow deposits as to federal liens unless there is a letter from Internal Revenue stating unequivocally that a release will be forthcoming on receipt of a specific amount, or that the lien has in fact been paid and that a release will be furnished. Delays in effecting final satisfaction or release of record are the rule rather than the exception. In summary, the title company wants all liens that are known to be of record affecting the property discharged of record in advance of closing or as promptly thereafter as possible. A lawyer for a purchaser or lender should want exactly the same thing.

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Chapter 24 - Page 1 JUDGMENTS 2 CLEARANCE Legal Bulletin Use of Deposits and Letters of Undertaking

No deposit or Letter of Undertaking should be accepted for omission of, or insurance against collection of a money judgment unless specifically approved by an authorized officer in advance of closing unless the following are all complied with: (a) The minimum amount of any deposit must at least be in the amount of the Judgment, plus 10% per year, or fraction, from the date of the Judgment to a period one year from the performance date fixed, plus an additional $250. The performance date must be not later than 30 days after closing date; Every effort must be made to determine whether or not an execution on this judgment has been delivered to the Sheriff of the County where the property is located, (in some cases this information may be obtainable, by telephone from the Sheriff's Office). Otherwise, affidavits should be obtained from the depositor that he has no information or knowledge that an Execution Sale is pending. Information or affidavits obtained should be noted on the agency sheet, or attached thereto. The depositor must be advised that the Judgment must be disposed of as promptly as possible, and prior to the performance date. Any deviation from the above requirements must be approved in writing by the Branch Manager or Counsel of the County where the property is located, or by a Senior Officer. (e) If the premises are subject of homestead exemption Counsel should be consulted for the procedure to be followed.

(b) (c)

(d)

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Chapter 24 - Page 1 JUDGMENTS 2.1 SIMILAR NAMES Title

If the judgment is against a person of a similar name as the person in title the lien can be disposed of by a specific affidavit, stating that the lien does not affect the premises, and is not against the person in the title or chain of title, and showing that the person in the title or chain of title is not the judgment debtor, and that the person in the chain of title never resided at or did business at the address shown for the judgment debtor. If the judgment is against the person in the title follow CPLR 5020 (A) or 5020 (B): (A) (B) provides that the person entitled to enforce the judgment may execute and deliver the satisfaction. provides that the attorney of record or the attorney named on the docket within 5 years after entry (since 9/1/69) may execute satisfaction piece.

Note: Satisfaction piece is filed first with the Clerk of the Court where the judgment was obtained and a transcript of the satisfaction is obtained from that Clerk's Office and filed in the Office of the County Clerk in which the property is located.

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Chapter 24 - Page 1 JUDGMENTS 4 SATISFACTION OF JUDGMENT IN FACT AGAINST SELLER Title

At times, the title search reveals a judgment that R acknowledges is against him. Typically this is cleared by paying the judgment or arranging for judgment creditor to be present at closing and receiving payment then. The judgment creditor gives a Satisfaction of Judgment. The satisfaction must * also be signed by the judgment creditor's attorney, to release his attorney's lien. The judgment creditor also signs, though where absolutely full payment is being made, the judgment creditor's attorney may sign for him. Some attorneys prefer to have the judgment creditor sign in all cases. The firm of attorneys that presented the judgment creditor may have changed in membership after the judgment was rendered. This creates an obvious problem. If the judgment is too large to be handled in this way, the judgment creditor, rather than blow the deal, in which case he receives nothing, will often consent to issue a release of the lien of the judgment as to the land sold on receipt of a specified sum of money. This is handled much like the satisfaction of judgment. Alternatively, if only a new mortgage is involved, the judgment creditor may be willing to subordinate his judgment to a new first mortgage, though some lenders object to junior liens and others are legally bound to so object. *A judgment satisfaction must contain a recital that no executions are outstanding in the possession of a sheriff or marshal. If there are outstanding executions, however, then the instrument must certify that all sheriff's or marshall's fees are paid. Investigation is sometimes required in this instance and it may become necessary to obtain the marshal's consent before the lien can be satisfied. Tiffany on Tile Closing p. 104.

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Chapter 24 - Page 1 JUDGMENTS 5 SATISFACTION OF MONEY JUDGMENTS Legal Bulletin

Section 5020, subdivision (b), CPLR, was amended effective September 1, 1977 to permit an attorney of record for a judgment creditor to execute a satisfaction of the judgment within ten years of its entry instead of within five years of such entry. We cannot assume that this has a retroactive effect until a ruling is issued by the Attorney General. We must, therefore, assume that the five year rate applies to judgments entered prior to September 1, 1977.

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Chapter 24 - Page 1 JUDGMENTS 6 DEPOSITS Legal Bulletin

1.

The CPLR has made a radical change in the procedures for the enforcement of a money judgment against real property. Under the old law, Section 748, C.P.A., a sheriff was not permitted to deliver a deed until fifteen months after the sale. During this period the judgment debtor and his creditors were given the right to redeem the property from the sale. The right of redemption has been completely eliminated by the new CPLR, and the sheriff is now directed to deliver a deed to the purchaser within ten days after the execution sale. (Section 5236 (f), CPLR) This greatly increases the hazard involved in passing judgments on deposits or indemnity agreements. Every effort must therefore be made to have money judgments cancelled of record before the closing. When that is not feasible, the escrow agreement must provide for the disposition of the judgments at the earliest reasonable time and arrangements must be made for frequent follow-ups until the judgments are cancelled of record. See Closers Memo's entitle JUDGMENTS - CLEARANCE OF and AFFIRMATIVE INSURANCE this Manual.

2.

3.

Chapter 24 - Page 1 JUDGMENTS FOREIGN JUDGMENTS Legal Bulletin CPLR Article 53

RECOGNITION OF FOREIGN COUNTRY MONEY-JUDGMENT SUMMARY OF ARTICLE ∋ 5301. Definitions As used in this article the following definitions shall be applicable. a. Foreign state. "Foreign state" in this article means any governmental unit other than the United States, or any state district, commonwealth, territory insular possession thereof, or the Panama Canal Zone, the Trust Territory of the Pacific Islands or the Ryukyu Islands. Foreign country judgment. "Foreign country judgment" in this article means any judgment of a foreign state granting or denying recovery of a sum of money, other than a judgment for taxes, a fine or other penalty, or a judgment for support in matrimonial or family matters.

b.

∋ 5302.

Applicability This article applies to any foreign country judgment which is final conclusive and enforceable where rendered even though an appeal therefrom is pending or it is subject to appeal.

∋ 5303.

Recognition and enforcement Except as provided in section 5304, a foreign country judgment meeting the requirements of section 5302 is conclusive between the parties to the extent that it grants or denies recovery of a sum of money. Such a foreign judgment is enforceable by an action on the judgment, a motion for summary judgment in lieu of complaint, or in a pending action by counterclaim, crossclaim or affirmative defense.

∋ 5304.

Grounds for non-recognition a. No recognition. A foreign country judgment is not conclusive if: 1. the judgment was rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law; 2. the foreign court did not have personal jurisdiction over the defendant. Other grounds for non-recognition. A foreign country judgment need not be recognized if: 1. the foreign court did not have jurisdiction over the subject matter;

b.

Chapter 24 - Page 2 JUDGMENTS FOREIGN JUDGMENTS Legal Bulletin CPLR Article 53

(2)

the defendant in the proceedings in the foreign court did not receive notice of the proceedings in sufficient time to enable him to defend; the judgment was obtained by fraud; the cause of action on which the judgment is based is repugnant to the public policy of this state; the judgment conflicts with another final and conclusive judgment; the proceeding in the foreign court was contrary to an agreement between the parties under which the dispute in question was to be settled otherwise than by proceedings in that court; or in the case of jurisdiction based only on a personal service, the foreign court was seriously inconvenient forum for the trial of the action.

(3) (4) (5) (6)

(7)

∋ 5305.

Personal jurisdiction a. Bases of jurisdiction. The foreign country judgment shall not be refused recognition for lack of personal jurisdiction if: (1) (2) the defendant was served personally in the foreign state; the defendant voluntarily appeared in the proceedings, other than for the purpose of protecting property seized or threatened with seizure in the proceedings or of contesting the jurisdiction of the court over him; the defendant prior to the commencement of the proceedings had agreed to submit to the jurisdiction of the foreign court with respect to the subject matter involved; the defendant was domiciled in the foreign state when the proceedings were instituted, or, being a body corporate had its principal place of business, was incorporated, or had otherwise acquired corporate status, in the foreign state; the defendant had a business office in the foreign state and the proceedings in the foreign court involved a cause of action

(3)

(4)

(5)

arising out of business done by the defendant through that office in the foreign state; or

Chapter 24 - Page 3 JUDGMENTS FOREIGN JUDGMENTS Legal Bulletin CPLR Article 53

(6)

the defendant operated a motor vehicle or airplane in the foreign state and the proceedings involved a cause of action arising out of such operation.

b. ∋ 5306.

Other bases of jurisdiction. The courts of this state may recognize other bases of jurisdiction.

Stay in case of appeal If the defendant satisfies the court either that an appeal is pending or that he is entitled and intends to appeal from the foreign country judgment, the court may stay the proceedings until the appeal has been determined or until the expiration of a period of time sufficient to enable the defendant to prosecute the appeal.

∋ 5307.

Recognition in other situations This article does not prevent the recognition of a foreign country judgment in situations not covered by this article.

∋ 5308.

Uniformity of interpretation This article shall be so constructed as to effectuate its general purpose to make uniform the law of those states which enact these provisions.

∋5309.

Citation This article may be cited as the "Uniform Foreign Country Money-Judgments Recognition Act."

∋2 This act shall take effect on the first day of September next succeeding the date on which it shall become law.

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ENFORCEMENT OF JUDGMENTS ENTITLED TO FULL FAITH AND CREDIT SUMMARY OF ARTICLE ∋5401 Definition In this article "foreign judgment" means any judgment, decree, or order of a court of the United States or of any other court which is entitled to full faith and credit in this state, except one obtained by default in appearance, or by confession of judgment. ∋ 5402 Filing and status of foreign judgments (a) Filing. A copy of any foreign judgment authenticated in accordance with an act of congress of the statutes of this state may be filed within ninety days of the date of authentication in the office of any county clerk of the state. The judgment creditor shall file with the judgment an affidavit stating that the judgment was not obtained by default in appearance or by confession of judgment, that is unsatisfied in whole or in part, the amount remaining unpaid, and that its enforcement has not been stayed, and setting forth the name and last known address of the judgment debtor. (b) Status of foreign judgments. The clerk shall treat the foreign judgment in the same manner as a judgment of the supreme court of this state. A judgment so filed has the same effect and is subject to the same procedures, defenses and proceedings for reopening, vacating, or staying as a judgment of the supreme court of this state and may be enforced or satisfied in like manner. ∋ 5403 Notice of filing Within thirty days after filing of the judgment and the affidavit, the judgment creditor shall mail notice of filing of the foreign judgment to the judgment debtor at his last known address. The proceeds of an execution shall not be distributed to the judgment creditor earlier than thirty days after filing of proof of service. ∋ 5404 Stay (a) Based upon security in foreign jurisdiction. If the judgment debtor shows the supreme court that an appeal from the foreign judgment is pending or will be taken, or that a stay of execution has been granted, the court shall stay enforcement of the foreign judgment until the appeal is concluded, the time for appeal expires, or the stay of execution expires or is vacated, upon proof that the judgment debtor has furnished the security for the satisfaction of the judgment required by the state in which it was rendered.

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(b) Based upon other grounds. If the judgment debtor shows the supreme court any ground upon which enforcement of a judgment of the supreme court of this state would be stayed, the court shall stay enforcement of the foreign judgment for an appropriate period, upon requiring the same security for satisfaction of the judgment which is required in this state. ∋ 5405 Fees When a foreign judgment is filed pursuant to this article, an index number shall be assigned in accordance with the provisions of subdivision (a) of section 8018 and the fee shall be as prescribed therein. ∋ 5406 Optional procedure The right of a judgment creditor to proceed by an action on the judgment or a motion for summary judgment in lieu of complaint, instead of proceeding under this article, remains unimpaired. ∋ 5406 Optional procedure The right of a judgment creditor to proceed by an action on the judgment or a motion for summary judgment in lieu of complaint, instead of proceeding under this article, remains unimpaired. ∋ 5407 Uniformity of interpretation This article shall be so construed as to effectuate its general purpose to make uniform the law of those states which enact these provisions. ∋ 5408 Citation This article may be cited as the "Uniform Enforcement of Foreign Judgments Act." ∋2. This act shall take effect on the first day of September next succeeding the date on which it shall become a law.

Chapter 25A - page 1 1/96 INDEMNITIES & UNDERTAKINGS General

INDEMNITIES
INTRODUCTION It occasionally develops that a lien against the property is in dispute as to its validity or amount. When the lien is not a permitted title defect, it may be possible for the title to close while preserving for the seller the controversy with the claimant. This may be done if the customer is wiling to execute some form of Indemnity Agreement with the title insurer and post security to protect the title insurer against the liabilities assumed. The title insurer will usually take the monetary deposit out of the sale proceeds sufficient in amount to cover the risk . This procedure allows the title insurer to provided some form of affirmative coverage for the protection of the purchaser against the title defect. Frequently, the deposit is equal to 150% of the lien to insure the sufficiency of funds to discharge the encumbrance including interest and cost. This practice allows the title company to insure against the lien because it holds ample funds to pay the claimant. The money should also be deposited under escrow instructions satisfactory to the parties but sufficient in form and content to permit the escrowee to pay the lien if the lien claimant takes threatening action. Indemnification may be defined as the process by which the title insurer determines and receives what it perceives to be sufficient security to enable it to waive or "insure over" an objection to title. The acceptance of an Indemnity Agreement or Letter of Undertaking, regardless of whether it is secured by the deposit of satisfactory collateral, does not justify the issuance of a title policy without exception as to the matter for which the Indemnity Agreement was taken. Special procedures must be taken in determining those matters for which an Indemnity Agreement should be accepted and, when accepted, the form and content of the Agreement must be approved by the underwriting or risk department. Consideration must also be given as to whether collateral should be required and, if so, its nature, amount and the manner in which it should be held. You must obtain the approval of the underwriting department or senior management before accepting any indemnity agreement without the deposit of collateral. RELIANCE UPON INDEMNIFICATION As a general title rule no general or special exception set forth in Schedule B-2 of the Title Commitment is to be omitted from Schedule B of the Policy based upon an escrow deposit and/or indemnity which is intended to protect us against financial loss by reason of such matters. It is proper, however, to show certain matters as exceptions in Policy Schedule B and then to give affirmative coverage against loss arising from the enforcement of such matters.

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Chapter 25A - page 2 INDEMNITY General

TITLE RULE RELATING TO INDEMNITIES An inviolate rule for the reliance upon Indemnity Agreements is that they are not to be relied upon for any omission, error or claim which goes to title. It is not customary to accept deposits or indemnification to protect a purchaser against the rights of holders of record title from whom he has not secured a conveyance. For title insurance purposes an omission, error, or claim goes to title when it cannot be cured, perfected, terminated, extinguished, or satisfied by the payment of money. It is not considered to be the function of a title company to create a title where none in fact exists. The only matters which you are permitted to show as title exceptions and then "insure over" following the execution of indemnity and positing of security are liens which can be satisfied by the payment of a sum of money which, in turn, can be predetermined at the time the policy is issued. RISK EXPOSURE Where the risk exposure is determinable in "a fixed sum certain", usually a judgment or lien, the risk may be treated as a credit underwriting risk. The company's preference in such cases is to obtain both and Escrow and Indemnity Agreement . There are two approved forms which satisfy this objective and the branch office or agent are encouraged to use either the Indemnity Bond or the Indemnity with Deposit to Protect Against Title Defects. Where the risk exposure is determinable, and a deposit adequate to cover the risk is made along with the Indemnity Bond, the title company is relying on the availability of the deposit, and not the credit worthiness of the depositor, to protect itself, from loss due to the stipulated coverage. Any type of indemnification that is not totally backed-up by some form of deposit is clearly an extension of the indemnitor's credit. The acceptability of a particular Undertaking or Indemnity Agreement without the additional deposit of collateral security is "credit underwriting". In that case, acceptance of an indemnity alone is contingent both on the credit-worthiness of the indemnitor in addition to the "insured over" risk being a proper subject of credit underwriting.

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Chapter 25A - page 2.1 INDEMNITY General

MATTERS FOR WHICH INDEMNITY CAN BE TAKEN 1. Where the matter is a lien, or can result in a lien, against the land where its amount, except for interest which may accrue, is presently ascertainable, and where it is not being presently being paid and satisfied. Examples of such risk may include recorded judgments or liens; taxes not yet due and payable; mechanics' liens being contested, etc. 2. Where the matter presents very little real danger but the indemnity agreement will provide direct recourse against the seller or mortgagor, rather than recourse by reason of subrogation rights under the policy. MATTERS FOR WHICH INDEMNITY SHOULD NOT BE TAKEN 1. Where the matter may result in a complete failure of title and the possibility of such occurrence is such that an indemnity secured by collateral for the entire amount of the policy would be necessary. An example of such a concern would be a pending suit where an adverse decree would result in the insured being forced to vacate the land. If the examination of title discloses substantial possibility that an adverse claim might prevail and, therefore, the title insurer is unwilling to insure unless it has collateral for the entire policy amount, then the title insurer is not really acting as an insurer. It is acting as a stakeholder. Fair dealing with the insured requires the title company to advise him of this fact and, if he wants to proceed the title company should insist that the insured acknowledge full disclosure of the facts, in writing, including the fact that the insured recognizes that the title company is holding an indemnity for the entire amount of coverage under the policy and that in the event of loss the insured will not look to the title insurer for issuance of a policy in a larger amount, or for incidental loss occasioned by him for improvements subsequently made. 2. Where the Indemnity Agreement calls for future action on the part of the indemnitor other than the diligent prosecution of defense of litigation. Example of such concern would be indemnification against future events after the policy date.

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Chapter 25A - page 3 INDEMNITY General

FORM OF AFFIRMATIVE COVERAGE The use of indemnity agreements without the positing of security limits our right or ability to eliminate a lien by payment thereof prior to the time that its existence or enforcement might impair the ownership of our insured. In other words, the insured might suffer a loss by reason of unmarketability of title by reason of the liens existence on the record prior the lien actually being enforced and the title insurer is unable under the terms of the indemnity agreement to correct the issue by payment of the lien because there's no security deposit posted from which the lien could be paid. For this reason the special insuring clause should be phrased to insure against "the successful enforcement of the lien" rather than "insuring against loss or damage" by reason of the liens existence. NATURE AND AMOUNT OF COLLATERAL TO BE TAKEN - PROCEDURE The collateral deposited with the title company is to be cash or cash equivalents. If the collateral is other than cash it must be approved by either the CEO, Senior Vice President, Chief Underwriter, Corporate Treasurer, or the Vice President in charge of risk management. Irrevocable Letters of Credit or Treasury Bills may be acceptable substitutes. The amount of the deposit must be sufficient to satisfy the lien for which it is posted, plus interest which may accrue thereon, plus litigation expense, including court costs and attorneys fees which may be incurred. A "dollar for dollar" deposit is never adequate except in matters where no additional interest or cost can accrue. The minimum acceptable deposit should never be less than one and one-half times the amount of the lien unless you have received specific authorization to accept less from a senior manager. MISUSE OF INDEMNIFICATION Title Insurers are frequently called upon to omit existing encumbrances or liens from a title policy or commitment based upon the offer of an indemnity from a developer or some other party. All to often there is little if any thought given to whether the party offering the indemnity is a financially responsible party capable of performing upon that indemnity if called upon to do so. This is not prudent underwriting, it is credit underwriting. The purpose in issuing a title commitment is always preliminary to the issuance of a title policy. It is not intended to serve any separate purpose. However, this is the real world. The underwriter must remain cognizant of the fact that title insurance commitment and reports of title are frequently used as sources of information by persons intending to invest in real property, such as builders and developers or their counsel. In some cases title commitments are used for submission to regulatory authorities who require a title report disclosing the condition of title before permits will be issued, an offering accepted, or a bond issue floated. It should be company policy that title reports or commitments issued to such agencies or to others must accurately reflect the true condition of the title. Public and regulatory agencies view a title commitment or policy as a true representation of title. Therefore, as company policy, the insurer should report faithfully all encumbrances on title whenever the commitment goes to a regulatory body, investment

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Chapter 25A - page 4 INDEMNITY General

group, financial institution or purchaser. If the company is willing to "insure over" a particular encumbrance, then the basis on which the risk is to be assumed should be reported to the customer to whom the commitment is issued. That might be expressed as follows: " (judgment, lien, encumbrance) shown as items will not appear in the policy to issue providing (set forth the terms here) . The deliberate deletion of known title defects, liens or encumbrances may result in the unintended assumption of liability over and beyond a loss under the terms of the title policy. Accordingly, any and all risks assumed, based on an indemnity or other clearance procedure, must be disclosed to the insured unless you are otherwise authorized by a senior underwriter or senior corporate officer. POLICY INSURING CLAUSE OBLIGATIONS The title insurer is contractually obligated to disclose the priority of any lien or encumbrance over the lien of the insured mortgage under insuring clause 6 of the ALTA Loan Policy. The ALTA Loan Policy further insures that the mortgage it covers is valid and insurable and further requires that all matters affecting title be shown in the policy. Furthermore, and of equal importance, is the fact that institutional lenders, such as insurance companies, savings banks, and savings and loan associations, if permitted by state statute to invest in mortgage loans, must have first lien position. If an omitted matter should later be determined to affect the lenders priority or enforcement rights that lender does not have an appropriate asset and may, therefore, demand that the title company purchase the loan. LEGISLATIVE AND CASE LAW CONCERNS Don't be pressured into removing or omitting a lien or encumbrance instead of insuring over it. Federal law, including the Interstate Land Sales Full Disclosure Act, provides that a title policy is acceptable to HUD as evidence of the state of title. It has been interpreted that this Act applies to other federal agencies. In the worst case scenario, failure to disclose a outstanding known interest may result in a later claim of deceit or fraud or allegation that the title company intentionally made false statements for the purpose of inducing a federally insured financial institution to grant loans and for aiding and abetting in the making of false statements in policies of title insurance submitted to federally insured banks. That is precisely what was alleged in U.S. v. Keskey, 863 F2d 474, and the title company and one of its employees lost big time. In that the case the U.S. Prosecutor wasn't satisfied to sue under the policy. He sued for fraud and brought criminal charges alleging the above actions, all in violation of 18 U.S.C. 371. You want to avoid this possibility at all costs. Please refer to Mr. Pedowitz memo of May 28, 1974 attached at the end of this chapter.

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Chapter 25A - page 5 INDEMNITY General

There are three forms of indemnity agreements generally accepted by title insurers. They are the Personal Undertaking, Indemnity with Deposit and Letters of Indemnity. THE PERSONAL UNDERTAKING, INDEMNITY AGREEMENT OR BOND OF INDEMNITY Letters of Undertaking or Personal Undertakings are sometimes accepted to protect the title company against loss but without the deposit of cash or similar security. These are primarily used where there is little risk of financial loss and where the person tendering the undertaking is of acceptable responsibility. Indemnity Agreements are stronger documents which permit the title insurer to "insure over" objections to title, based on a parties agreement to indemnity the company. It is also usually unsecured. As such it is a form of credit underwriting. Before accepting an Indemnity Agreement the title insurer or agent should satisfy itself that the indemnitor(s) is/are a financially responsible party of sufficient wealth and integrity, found to be capable of performing upon the agreement if called upon to do so. This determination requires both an evaluation of the risk and the evaluation of the credit capacity of the proposed indemnitor. If the analysis of the indemnitors financial statement should disclose that they may be unable to perform upon the indemnity in the future if called upon to do so then the indemnity most be further supported by cash or cash equivalents. Even if the financial analysis discloses the probability of performance you may wish to include in the agreement a material change in circumstances clause. As part of the agreement the responsible party should further agree to remove the item from the record, either by a given date, or within a certain number of days after demand by the company. The agreement is usually executed by the seller, and its use is restricted to liens, such as judgments, ancient mortgages, franchise taxes, etc. The Bond of Indemnity form is preferable to the other forms even if it is not accompanied by security because a Bond is a valid claim upon and obligation of a decedents estate whereas the others may not be. THE INDEMNITY WITH DEPOSIT This form of agreement permits the title insurer to "insure over" objections to title based upon a person or party's agreement to indemnify the insurer against loss together with a security deposit approximate to lien, plus interest. This form is preferable to an Escrow Agreement alone because an escrow agreement rarely contains conditions of performance. Because it provides additional security for the underwriter, it is considered superior to the undertaking form. The use of this form is also restricted to liens, such as judgments, ancient mortgages and franchise taxes. LETTERS OF INDEMNITY A Letter of Indemnity is a device employed by title companies whereby one title insurer discharges an obligation to its insured arising under a title policy by delivering a letter of indemnity to another title insurer. The rationale for such action is rather simple. If the insured has a basis for presenting a claim under his policy, the insurer can avoid the claim, possible risk of loss and expense of defense by issuing the letter. This procedure is

discussed further in the Title Practice section of this chapter.

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Chapter 25A - page 1 LETTERS OF INDEMNITY Title Practice

LETTERS OF INDEMNITY BETWEEN TITLE COMPANIES
IN GENERAL Occasionally, in the preparation of its policy of title insurance, a title insurer will make an error resulting in the unintentional omission of a specific matter from the policy that was issued. As a consequence, a subsequent title insurer and its customer can become understandably confused when the prior policy and that which is now being contemplated are compared. Should the subsequent policy being contemplated require that such matter also be omitted therefrom, an awkward problem could result. Under certain circumstances, the Company may consider issuing or accepting a letter of indemnity as a method of resolving this problem, whereby one title insurer agrees to indemnify a subsequent title insurer from loss sustained by reason of specific matters not included in a previously issued policy of title insurance. Such an indemnification shall be subject to the provisions and upon the forms as hereinafter provided. ISSUANCE OF LETTERS OF INDEMNITY AND RELIANCE THEREON An inviolate rule for the issuance of letters of indemnity and for reliance upon letters of indemnity is that they are not to be issued and they are not to be relied upon for any omission, error or claim which goes to title. For title insurance purposes an omission, error, or claim goes to title when it cannot be cured, perfected, terminated, extinguished, or satisfied by the payment of money. For example: If A is the record owner of an undivided 1/16th interest in a parcel of real property A's interest could not be deleted from the title except by a conveyance from A, a conveyance from A's duly authorized representative, or by operation of law, as by foreclosure sale, execution sale, or by a quiet title proceeding. No amount of money can stand in lieu of the divestiture of A's vested interest and it is not appropriate to give or to rely on a letter of indemnity in ignoring or in writing over the interest of A. On the other hand, mortgages, deeds of trust, taxes, special assessments, abstracts of judgment, and mechanics' liens are examples of matters which do not go to title. Their liens are extinguished by the payment of money. When liens of this nature are unintentionally omitted from a policy of title insurance, there may be occasions when letters of indemnity can be appropriately written and relied upon.

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Chapter 25A - page 2 LETTERS OF INDEMNITY Title Practice

RULES OF TITLE PRACTICE 1. With approval of Counsel letters of indemnity in a form set forth below may be issued by and relied upon by the Company as indemnitor or indemnitee in the following instances: a. the indemnitor has made an unintentional error in a policy, which error does not go to title, which may result in a loss claim, and under the following circumstance: (i) (ii) b. The indemnitor title insurer would reissue its policy if it had the opportunity to do so, but The indemnitee title insurer has been asked to issue its subsequent policy or policies without mention of the error.

The indemnitee title insurer, as trustee under a deed of trust, may rely upon a letter of indemnity to issue its reconveyance without delivery of the promissory note and deed of trust and without a request for reconveyance from the beneficiary provided: (i) (ii) The indemnitor title insurer has deleted or written over the deed of trust, and Investigation strongly indicates that the debt or obligation secured by the deed of trust has been fully satisfied.

c.

If the Company has indemnified Title Company A and Title Company B is later asked to insure title, the Company as indemnitor, should also indemnify Title company B to the same extent that Title Company A was indemnified.

2.

Any matter to be omitted from a policy in reliance upon such a letter of indemnity shall be internally carried forward so that it will be reconsidered in any future evidence of title, and shall be disclosed to the proposed insured in a manner as directed by Underwriting Counsel.

PROCEDURE TO FOLLOW REQUESTING LETTER OF INDEMNITY 1. 2. 3. Send your request letter (sample letter enclosed) to the prior underwriter along with a copy of your commitment. A copy of your letter and commitment should be sent to the attention of the Underwriting Department. Direct that the Letter of Indemnity be sent to the Underwriting Department

Indemnity Supervisor for review, with a copy to your attention.

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Chapter 25A - page 3 LETTERS OF INDEMNITY Title Practice

4.

The Indemnity Supervisor, in the Underwriting Department will review the letter received and will advise you in writing if it is acceptable. (NOTE: only Letter of Indemnity from an underwriter are acceptable. Under no circumstances will we accept a letter from an agent.) If you do not receive a timely response to your request, telephone the underwriter for a clarification of the reason for delay. If the requested letter is refused, you may not insure without taking exception to the item or items for which indemnification was requested.

5.

In the event that we receive a request to issue a Letter of Indemnity from another underwriter, we will contact you for supporting documentation and/or information. FORMS OF LETTERS OF INDEMNITY The Law Committee of the New York State Land Title Association has approved several standard forms of letters of indemnity for inter-company use, copies of which are annexed. They should be used in all cases other than those requiring some special treatment. In agreeing to give or to accept a letter of indemnity in the future, it should always be referred to by its standard form designation, i.e., "Code A" or "Code B," etc. In any case where a liability limitation is to be used, the arrangements must be: "with liability limitation of $ ."

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Chapter 25A - page 1 LETTERS OF INDEMNITY Title Practice Form

NEW YORK STATE LAND TITLE ASSOCIATION RECOMMENDED FORM LETTERS OF INDEMNIFICATION ADOPTED BY THE LAW COMMITTEE ON JUNE 2, 1976 Re: Your Title No. Our Title No. Premises: (Address)

Gentlemen: Paragraph I We understand that you have been asked to issue your policy of title insurance covering the premises set forth in the above title number, and that in connection with your examination of title your have raised the following objection: Objection Paragraph II CODE A - Straight Letter In consideration of your issuing your policy free from said objection, this company does hereby agree to indemnify you and hold you harmless from any and all loss, cost or damage which you may sustain by reason of your doing so. CODE B - Conditional Performance In consideration of your issuing your policy free from said objection, this Company does hereby agree to indemnify you and hold you harmless from any and all loss, cost or damage which you may sustain by reason of your doing so. This Company further agrees that it will take the immediate steps necessary to dispose of said objection if claim should properly be made upon you under the terms of your policy of title insurance. CODE C - Performance In consideration of your issuing your policy free from said objection, this Company does hereby agree to indemnify you and hold you harmless from any and all loss, cost or damage which you may sustain by reason of your doing so. This Company further agrees that it will take the immediate steps necessary to dispose of said objection. (Objection to be set forth herein)

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Chapter 25A - page 2 LETTERS OF INDEMNITY Title Practice Form

CODE D - Insure against collection In consideration of your issuing a title policy in which the lien of said ( ) will be insured against collection out of said premises, this Company hereby indemnifies you and holds you harmless from any and all loss, cost or damage which you may sustain by reason of the collection of said ( ) out of the above premises. Paragraph III This letter of indemnity (extends to and covers the question of marketability of title and) extends to any and all reissues to be issued by you affecting said premises or any part thereof, whether by a fee insurance, mortgage insurance, or assignment or foreclosure of any mortgage. Very truly yours,

Name of Officer Title of Officer NOTE: If the indemnification is to be limited, the following clause is to be added to paragraph III: Our liability under this letter is limited to $ policy. , the amount of our existing

CODE E - Letter of Escrow for the benefit of another Title Company for premises (Address) Lien of record Re: Your Title No. Our Title No.

Gentlemen: We are holding in escrow the sum of $ lien, filed by . amount of $ pending the disposition of the against in the

We will continue to hold such escrow for your benefit as well as our own and will not release the escrow until said lien is disposed of according to the record. Very truly yours,

Name of Officer

Title of Officer

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Chapter 25A - page 3 LETTERS OF INDEMNITY Title Practice Form

CODE F - Letter of Escrow for the benefit of another Title Company for Premises - Lien Not of record Address RE: Your Title No. Our Title No.

Gentlemen: We are holding in escrow the sum of $ pending as security for the payment of (franchise taxes, city corporate taxes, estate taxes, etc.). We agree to hold said escrow for the benefit of your Company as well as for our own and will not release the escrow until proof of proper disposition of the aforesaid has been received by us. Very truly yours,

Name of Officer Title of Officer

NEW YORK STATE LAND TITLE ASSOCIATION, INC. RECOMMENDED PRACTICES ADOPTED JANUARY, 1996 STRAIGHT LETTER OF INDEMNITY Re: We understand that you are about to issue your policy of title insurance covering the premises set forth in the above title number, and that in connection with your examination of title you have raised the following exception(s)" In consideration of your issuing your policy free from said exception(s), this Company does hereby agree to indemnify you and hold you harmless from any loss or damage which you may sustain by reason of doing so. This letter of indemnity extends and covers the question of marketability of title, and extends to and covers any and all reissues to be issued by you affecting said premises, whether by fee insurance, mortgage insurance, or the assignment or foreclosure of any mortgage. This letter of indemnity shall continue notwithstanding your issuance of further indemnities for the matters set forth herein, provided that you still have policy liability at the time of the issuance of such further indemnity. Very truly yours,

FULL PERFORMANCE LETTER OF INDEMNITY RE: We understand that you have been asked to issue your policy of title insurance covering the premises set forth in the above title number, and that in connection with your examination of title you have raised the following objection: In consideration of your issuing your policy free from the objection, this Company does hereby agree to indemnify you and hold you harmless from any and all loss, cost or damage which may sustain by reason of your doing so. This Company further agrees that it will take the immediate steps necessary to dispose of said objection. This letter of indemnity extends to and covers the question of marketability of title and extends to any and all reissues to be issued by you affecting said premises of any part thereof, whether by fee insurance, mortgage insurance, or assignment or foreclosure of any mortgage. If called on by you, we will issue this same letter to another insurer provided that you have policy liability at that time. Very truly yours,

CONDITIONAL PERFORMANCE LETTER OF INDEMNITY Re: We understand that you have been asked to issue your policy of title insurance covering the premises set forth in the above title number, and that in connection with your examination of title you have raised the following objection: In consideration of your issuing your policy free from the objection, this Company does hereby agree to indemnify you and hold you harmless from any and all loss, cost or damage which you may sustain by reason of your doing so. This Company further agrees that it will promptly take the necessary steps to dispose of said objection(s) if claim should properly be made upon you under the terms of your policy of title insurance. This letter of indemnity extends to and covers the question of marketability of title and extends to any and all reissues to be issued by you affecting said premises or any part thereof, whether by fee insurance, mortgage insurance, or assignment of foreclosure of any mortgage. If called on by you, we will issue this same letter to another insurer provided that you have policy liability at that time. Very truly yours,

SPECIAL MORTGAGE PAYOFF INDEMNITY RE: We understand that you have been asked to issue your title policy insuring a transaction covering the premises set forth in the above title number and find that the following mortgage is open of record: You have informed us that you have been requested to issue your title policy free of any exception as to said mortgage. This is to advise you that on or about to be made on said mortgage. we caused payment in full

However, we have not yet received the satisfaction documents. We assure you that we will continue to use our efforts to procure same and to satisfy said mortgage of record. In any event, this Company agrees to and does hereby indemnify you, but only by reason of the enforcement of attempted enforcement of said mortgage against the above premises provided you notify us within a reasonable time after receiving notice of said enforcement or attempted enforcement. If called on by you, we will issue this same letter to another insurer provided that you have policy liability at that time. Very truly yours,

Chapter 25A - Page 1 LETTERS OF INDEMNITY Alta Form

STANDARD ALTA/ATIC FORM RE: Dear You have advised us that in examining title to the captioned property, you have discovered an outstanding ^ encumbering the title as follows: We understand that in connection with your Order Number ^ you intend to insure title to the property. In consideration of your insuring without exception to the abovedescribed exception T.A. Title Insurance Company, Media, PA hereby , indemnifies ^ Company, ^ , against loss, damage, or expense which it shall sustain by reason of the existence of said ^ T.A. Title Insurance Company, hereunder shall in no event exceed $ ^ the face amount of its policy number ^ , or the cost and expense to it of causing said ^ to be satisfied of record or otherwise legally extinguished as a lien or encumbrance against the property, whichever shall be the smaller. This indemnity is given and received on condition that T.A. Title Insurance Company be given notice in writing immediately at its Home Office in Media, Pa., of any claims, demand, action, or proceeding made or brought, attempting to enforce said ^ against the insured property; and that said Company be given full opportunity in such case to defend against, satisfy, or otherwise dispose of said We appreciate your cooperation in resolving this problem. Very truly yours,

5/74

Chapter 25A - Page 1 LETTER OF INDEMNITY Memo of Mr. Pedowitz to Title Counsel

LETTER OF INDEMNITY FROM INDIVIDUALS OR CORPORATIONS Recently I received a communication form Dick Howlett, General Counsel of TI, pertaining to title insurance where the title insurer ignores existing encumbrances on the insured property based upon an indemnity from a developer or some other party. In some cases, our report is used for submission to a regulatory authority who requires a title report disclosing the condition of the title before permits will be issued, an offering accepted, etc. It is the policy of this company that title reports to all such agencies and to others must reflect the true condition of the title. The following is a quote from Mr. Howlett's memorandum: "The public and regulatory bodies view a title policy as a representation of title. Therefore, as a policy, we should report faithfully all encumbrances on titles whether the report goes to a regulatory body or an investment group or a financial institution or a purchaser without backing. In any report, if the Company is willing to accept the risk, the basis on which the risk is to be assumed should be reported to the customer or to the agency or other body to which it is issued. This would be expressed in the words as follows: Judgments, liens and encumbrances shown as items x, y and z in the foregoing report will not be shown as encumbrances on the title based upon an indemnity from (or whatever source). Under certain circumstances, deliberate deletions of known defects might result in a liability over and beyond a loss under the terms of a title policy. Accordingly, all risk assumed, based upon an indemnity, must be disclosed to the purchaser or lender unless waived by the Senior Title Counsel, the Chief Title Counsel or the General Counsel of the Company.

10/84 Rev. 12/95

Chapter 26 - Page 1 LIENS & ENCUMBRANCES REAL ESTATE TITLES NYSBA PUBLICATION Title

LIENS & ENCUMBRANCES
ENCUMBRANCES The term encumbrance is generally used to encompass both liens and a wide range of other conditions which may affect the state of title to a parcel of real property. Encumbrances can be classified as follows: 1. Mortgages 2 General and Specific liens [e.g. Federal Tax Liens, Money Judgments, Mechanics Liens, etc.] 3. Easements and Encroachments 4. Covenants and Restrictions 5. Conditions and Limitations 6. Other miscellaneous Each of the foregoing are the subject of a separate chapter within this manual and the reader is encouraged to review these sections additionally. All of the above encumbrances have a common element in that they consist of a right to or an interest in land, subsisting in a person other than the fee owner which diminishes the value of the land but does not prohibit the conveyance of the fee by the owner to another. Encumbrances can also be described as a claim, lien, charge or liability attached to and binding upon a specific parcel of real property. Each category of encumbrances (except mortgages, which are covered in another chapter) will be further discussed. LIEN DEFINITION A claim, charge or security interest in real property benefiting a third party and arising out of and created as a result of a debt, obligation or duty of a person having an interest in the real property. TYPES OF LIENS Liens are either general or specific. A general lien is a lien which encumbers all of the real property owned by a person, corporation or other entity. A specific lien is a lien on an identifiable parcel of real property. Some types of general and specific liens are set forth below:

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GENERAL LIENS MONEY JUDGMENTS Liens arising out of rendition of a money judgment are normally effective for ten (10) years from the date of entry of the money judgment in the court where issued and after entry in the docket of the clerk of the county where the real property is located (CPLR section 5203). If the judgment is rendered in a county other than that in which the real property is located, the judgment will be a lien on the real property only from the time it is docketed in the county where the real property is located, and in any event not longer than ten (10) years from the date of its original entry. The lien of a judgment can be extended for an additional period if it was stayed [see "BANKRUPTCY - Automatic Stay", this manual], or if an execution on the judgment is duly delivered to a sheriff during the ten year period (CPLR section 5203 (b)). If the judgment debtor has died within two (2) years before the end of the ten year period, the expiration of the lien is extended to two years from the date of death (CPLR section 5208). NB See "Money Judgments" Chapter this manual Exempt Property - Property statutorily exempt from a money judgment lien is property covered by the homestead exemption (CPLR section 5206 (a) and (b) and burial ground property (CPLR section 5206 (f)). The homestead exemption is afforded where the owner's equity in the property does not exceed $10,000 above other liens and encumbrances thereon and where the property is used as the principal residence of the judgment debtor. The exemption covers only (i) a lot of land with a dwelling thereon, (ii) shares of stock in a cooperative apartment corporation, (iii) a condominium apartment unit and (iv) a mobile home. The exemption does not apply if the judgment was recovered wholly for the purchase price of the homestead (i.e. foreclosure of a purchase money mortgage, (Weinstein, Korn & Miller, New York Civil Practice, Vol. 6 Paragraph 5206.06)). Enforcement Against BFP - The lien of a duly docketed money judgment is not affected by a subsequent transfer of the affected real property and may be enforced by the judgment creditor against a bona fide purchaser for value, except in the following circumstances (CPLR section 5203 (a)): - a transfer to a purchase money mortgagee in satisfaction of the mortgage. - a transfer to a purchaser for value at a judicial or execution sale. - the judgment was entered after the death of the judgment debtor, or the judgment runs against the State of New York, an officer, department, board or commission of the state in its official capacity or a municipal corporation. - where the judgment debtor is the personal representative of a decedent and the judgment was awarded against him in his representative capacity.

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- where the property is transferred or the proceeds of its sale are paid in satisfaction of a previously docketed judgment and where notice of levy pursuant to an execution thereon was previously duly filed. Sheriff's Sale - Real property which is subject to a lien for a money judgment may be sold at a public auction after due levy and execution thereon by a sheriff. This procedure is governed by CPLR section 5236. Because an execution and public sale is a very complicated process, the procedure must be examined very carefully to ascertain that the statutory provisions have been precisely followed. If the judgment debtor or his successor is in possession of the real property, additional inquiry may be in order. NB Important provisions of CPLR section 5236 governing public sales pursuant to a sheriff's execution are as follows: - the sheriff may sell the real property only between the 56th and 63rd day after the first publication of the notice of sale. - the sheriff must serve the judgment debtor with a copy of the notice by any means permitted and prescribed by CPLR section 308. However, the notice requirements are ** subject to judicial scrutiny, as stated by the United States Supreme Court in Mullane v. Central Hanover Bank & Trust Company, 339 U.S. 306 (1950) overruling the findings of the Surrogates Court, The Supreme Court of New York, Appellate Division, and the Court of Appeals [citing 275 A.D. 769, 88 NYS 2d 907 (1949); 299 N.Y. 697, 87 N.E.2d 73 (1949]. Notice by publication in local newspapers in compliance with the minimum requirements of New York Law is insufficient. 33 years later this point was once again driven home in Mennonite Board of Missions v. Adams 462 US 751. - the sheriff must post the notice of sale in three public places within the county in which the property is located and in the county in which the property will be sold if the two places are different. - the notice of sale must be published in a newspaper in the county in which the property is located at least once in each of four (4) fourteen (14) day periods prior to the sale of the real property. - all judgment creditors whose judgments were liens against the real property and every person who had an interest of record in the real property and every person who had an interest of record in the real property on a date which is forty-five days prior to the date fixed for sale must be served by the sheriff with a copy of the notice of sale. Any judgment creditor who receives the notice of sale and who, thereafter, does not deliver an execution to the sheriff will have no further lien on the real property. - within ten (10) days after the sale the sheriff is required to execute and deliver to the purchaser a deed conveying the right, title and interest sold and proofs of publication,

service and posting of the required notices.

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- proceeds of the public sale are required to be distributed by the sheriff to pay, in the following order: (1) fees, expenses and taxes resulting from the sale transfer or delivery of the real property, (2) judgment creditors who have delivered execution to the sheriff against the judgment debtor prior to the sale, in the order in which their judgments have priority and (3) an excess to the judgment debtor. Release or Termination - The lien of a money judgment may be released or terminated by any of the following procedures: - pending appeal of the judgment, and upon posting a bond sufficient to secure the judgment creditor the court may, upon motion of the judgment debtor with notice to the judgment creditor, order the lien released upon such terms as justice requires (CPLR section 5204) and the docket of the judgment noted accordingly. - the lien may be terminated by filing a satisfaction of judgment with the clerk of the court in which the judgment was entered or later filed. The satisfaction must be signed by the judgment creditor or its attorney of record. When the judgment has also been docketed with the clerk of any county, a transcript of the filed satisfaction must also be filed with that county clerk. - the passing of ten (10) years since the first entry of the judgment (CPLR section 5014 (a)), if no execution is then pending, and not otherwise extended. - an order for relief from a judgment under CPLR section 5015 (a) (2) on the basis of newly discovered evidence which, if introduced at trial, would probably produce a different result. ESTATE TAX LIENS Estate taxes are excise taxes imposed on the transfer of property and are based on the value of a decedent's estate at the time of death. (See Chapter on Decedent's Real Property.) FEDERAL ESTATE TAX LIENS (1) The lien is effective against the decedent's real property for ten (10) years from the date of death. (2) Upon a conveyance of the real property by a surviving spouse or other joint co-owner the lien of the estate tax will attach to the proceeds of the sale, and assets of the transferor, allowing the co-owner to convey the real property free of the lien.

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(3)

Federal tax liens can generally be disposed of at closing by (a) obtaining and recording a release of lien from the Internal Revenue Service, (b) producing proof of payment of the tax in the form of a cancelled check, plus a closing letter or 706 form (c) by clear and convincing proof that the value of the decedent's estate was lower than the statutory taxable amount for the applicable year.

NEW YORK STATE INHERITANCE TAX (1) The lien is effective against the decedent's real property for fifteen (15) years from the date of death (Tax Law section 249-11). (2) The estate tax lien is a lien on all real property of the decedent (except real property owned and located outside of the geographical boundaries of the state) including real property transferred by the decedent within three (3) years from the date of death, except in the case of a bona fide conveyance for adequate and full consideration in money or money's worth (Tax Law Section 249-r). (3) The provision of FEDERAL ESTATE TAX LIENS a.(2) above of this outline is also applicable with respect to the attachment of the New York estate tax lien to proceeds. (4) The estate tax lien can be disposed of (a) by obtaining and recording a release of lien; (b) automatically upon the disposition of the property by a surviving spouse or other joint co-tenant to a bona fide purchaser for value (however, the lien may survive against the property in the case of a disposition of the property to a mortgagee of a surviving co-tenant); (c) proof of payment as evidenced by a final receipt from the Department of Taxation and Finance of the State of New York or(d) by clear and convincing proof that the estate of the decedent is $100,000 or less and that the decedent died after July 1, 1978. NB Upon approval of counsel the closer may accept, in lieu of the foregoing, a completed "Questionnaire on Estate Debts" and "Indemnity Bond Against Debts" together with a "Letter of Counsel to Clear Estate Tax Issues" , the forms of which are to be found in chapter 10, DECEDENTS ESTATES 3.1, Estate Taxes, Legal Bulletin. FEDERAL TAX LIENS The lien for unpaid income and other federal taxes (including interest, costs and penalties) is effective upon all property and rights to property, whether real or personal, belonging to the person who neglected or refused to pay such tax (Title 26, section 6321 U.S.C.A.).

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a.

Notice of Lien Previously, a notice of the federal tax lien filed in the county clerk's office is effective against a purchaser, mortgagee, etc. for six (6) years and thirty (30) days from the date of its assessment. Effective November 6, 1990, ∋6502 of the IRC was amended to extend the statute of limitations for federal liens from six (6) years to ten (10) years. The lien may be renewed indefinitely for additional ten (10) year periods if renewed during the required refiling period (the one year period ending thirty (30) days after such ten (10) year period) (Title 26 U.S.C.A. sec. 6323 (g) (3)). It should be filed in the county clerk's office in the county where the real property is located.

b.

Right of Redemption The United States of America is afforded a period of one hundred and twenty (120) days where the United States holds a federal tax lien to redeem from the foreclosure of a prior (mortgage) lien. This redemption period is effective only from the date of the sale under the foreclosure of the prior (mortgage) lien (not the date of delivery of the deed after foreclosure sale). It is not always clear whether the amount to be paid by the United States is the amount bid at the foreclosure sale, the amount of the judgment of foreclosure or the fair market value of the property (28 U.S.C.A., 2410 bd, Mikulec v. UST, 533 F.Supp 1142). The foreclosure sale of the prior lien must be a "judicial" sale. A judicial sale is one which is made pursuant to a court order or judicial proceedings.

c.

Disposition of federal tax liens Federal tax liens may be disposed of by release, discharge or certificate of non-attachment, certificates of release, discharge or nonattachment may be obtained upon compliance with the requirements of Title 26, section 6325 U.S.C.A., and should be filed in the same office where the notice of lien is filed. The above mentioned certificates have the effect set forth in sections (f) (1) U.S.C.A.

FEDERAL LIENS A federal lien (not a tax lien) has priority over every other lien according to the rule of "first in time, first in right," which means if the Untied States has a lien which is prior to the other lien the United States has a priority (United States v. Kimbell Foods Inc., 440 U.S. 715, 99 S.Ct. 1448; United States v. Pioneer American Ins. Co., 374 U.S. 47, 71 S.Ct. 1113; Long Beach Housing Authority v. Lew Chew Soon Corp., et al 446 N.Y.S.2d 400). The United States has one (1) year to redeem from the date of sale of the prior lien (28 U.S. Code Subdivision C). NB For provisions of the Federal Debt Collections Procedures Act see chapter 18A "FEDERAL LIENS" page 4.

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NEW YORK STATE FRANCHISE TAX AND NEW YORK CITY BUSINESS CORPORATION TAX a. The New York State Franchise tax is a lien on all real property situated in the State of New York owned by a corporation incorporated in or doing business in the State of New York and attaches on the date the corporation's franchise tax return is required to be filed. A corporation's New York State franchise tax must be filed two and one-half (2 1/2) months after either the commencement of (1) a calendar year or (2) a corporation's fiscal year (Tax Law section 209). The franchise tax lien lapses ten (10) years after the return is required to be filed only as to real estate transferred to persons who would be holders thereof in good faith but for such taxes (Tax Law section 1092j(3)). The franchise tax lien is also applicable to Real Estate Investment Trusts or other trusts if the trust sells shares of stock which are negotiable (Tax Law section 209 (5)). The lien of the franchise tax on specific property may be disposed of by payment or obtaining a release of lien from the state tax commission. The release of lien form may be recorded against the real property so released (Tax Law section 1092j(2)). The New York City Business Corporation tax statute is substantially similar to the New York State franchise tax statute (New York City Administrative Code, Chapter 46, Title R). The tax is a lien on all real property located within the City of New York which is owned by a corporation doing business in New York State. See also chapter 8 Corporations 4&5 - Taxes. SPECIFIC LIENS MECHANIC'S LIEN Note: Cross Reference this section with Chapter 28. "MECHANICS LIENS", this manual. a. Definition - A statutory lien on real property, including the improvements on the real property in favor of contractors, materialmen and other classes of workmen in order to secure payment for the work done or material provided in the event of nonpayment by the owner or person on whose behalf the work or material was performed or provided. A recent change also provides mechanic's lien for Real Estate Brokers for leasing commissions in obtaining a lease for a term of more than three years for any part of non-residential real property pursuant to a written brokerage, employment or compensation contract (Chapter 925 Laws of 1982, amending section 2 Subdivision 4 and section 10 of the Lien Law). The lien of the Real Estate Broker can only be filed after the performance of the brokerage services and the signing of a

b.

c.

lease by both the landlord and tenant.

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The brokerage employment or compensation agreement must be attached to the Notice of Lien when the Notice of Lien is filed. b. A contract vendor's or landlord's estate in real property will not be subject to a mechanic's lien claimed by persons performing work or furnishing material to real property unless there is consent to the performance of the work or provision of the material. See 37 N.Y. Jur., Mechanic's Liens sub-section 42, 46. A sub-contractor's lien is valid only to the extent his contractor is not paid. If the contractor has been paid in full the sub-contractor must look solely to the contractor for payment (Trusts v. Weintraub, 52 A.D.2d 600). Labor and materials for which a mechanic's lien may be claimed must be of a permanent nature and result in a lasting or continuing benefit to the real property. Tools, supplies or items normally associated with overhead and maintenance are generally not lienable. Items not actually furnished or delivered to the real property, but specifically manufactured for the project, are generally lienable. A duly licensed real estate broker who asserts that they (he or she) have produced a person who was ready, able and willing to purchase or lease all or any part of a parcel of real property and by virtue of this, feels that they are entitled to a real estate commission pursuant to a written or oral contract between the broker and owner of such property may file an affidavit of entitlement to commission for completed brokerage services in the office of the recording officer of any county in which the real property is located (section 249-b Real Property Law). Subsections 2 and 3 of section 294-b states that the filing of an affidavit shall not be deemed to create a lien nor shall it invalidate any transfer or lease on said property. However, the statute does state that the affidavit of entitlement to commission will be discharged one year after filing. It is not clear whether the affidavit of entitlement to commission will be treated as an encumbrance on title. d. A notice of mechanic's lien may be filed during the progress of work and furnishing of materials and must be filed no later than eight months after completion of the contract or other obligation of the lienor. If the notice of lien is not filed within that period, the lienor loses its right to create the mechanic's lien (Stevens v. Ogden 130 N.Y. 182, 29 N.E. 229 (1891)). The filing of the lien is effective only with respect to materials and work provided to the date of the notice of lien. The notice of lien must be filed in the clerk's office in the county in which the property is located.

c.

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Note: The eight month period was extended from four months except for a "single family residence." This became law effective September 1, 1982. (See Chapter 477 Law of 1982). Chapter 925 Laws of 1982 when adding the Real Estate Brokers lien utilized a four month period. The Law is now in a confused state. e. The notice of mechanic's lien must be verified by the lienor or its agent and must include the following information: (1) (2) (3) (4) name and residence of lienor, and if the lienor is a partnership or corporation, its name and business address. name and address of lienor's attorney. name of owner of real property against whose interest lien is claimed. name and address of person or contractor by whom lienor was employed or to whom he furnished the work and materials or, if a contractor or subcontractor, the person with whom the contract was made. the materials ordered and labor furnished and the agreed value of the same, or the materials actually manufactured for, but not delivered to, the real property and the agreed value thereof. amount unpaid to lienor for materials or services. the date the first and last items were furnished or services performed. description of the property subject to the lien.

(5)

(6) (7) (8) f.

A mechanic's lien may be disposed of by the following methods (See, generally, Lien Law Section 19): (1) (2) filing a satisfaction or partial release of lien, signed by the lienor after payment is made. failure of lienor to commence action to foreclose the mechanic's lien within one (1) year from filing of the notice of lien, unless the lien is extended by an order of a court (Lien Law section 17), or unless an action is begun to foreclose a mortgage or another mechanic's lien on the same property and the mechanic's lienor is made a party, (Lien Law section 19(2)), in which case the lien will be extended during such time as the notice of pendency in such action is effective.

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(3) (4) (5)

by order of the court, upon lienor's neglect to prosecute the lien (Lien Law section 59). by bonding the lien (Lien Law section 19(4)). by obtaining and filing a transcript of judgment in favor of the property owner showing a final determination of the action in favor of the property owner against whom the lien was claimed. upon motion of the owner of the real property showing that the lien is defective on its face. by payment into court of the amount of the claimed lien and interest thereon to the date of deposit, or if the action to foreclose the lien has been commenced, in an amount fixed by the court (Lien Law section 20). after an action to foreclose the lien is commenced by offering to deposit money or security with the court in place of the property subject to the lien, and such offer is accepted by the lienor (Lien Law section 55).

(6) (7)

(8)

g.

Important points regarding the foreclosure of mechanic's liens are: (1) An action to foreclose the lien must be commenced during the period of effectiveness (normally one (1) year) of the filing of the Notice of Lien. A notice of pendency specifying the nature of the action must also be filed within the same time period. However, it is not necessary to file a notice of pendency if the lien is discharged by an undertaking, deposit or an order of the court (White Plains Sash & Poor Co., v. Doyle, 262 N.Y. 16, 20). Necessary parties defendant in an action to foreclose a mechanic's lien are: all mechanic's lienors who filed notices of lien prior to commencement of the action, all subsequent lienors, whether mortgagee, judgment creditors or subsequent mechanic's lienors, and the owner or lessee of the real property whose interest is being foreclosed.

(2) (a) (b) (c)

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In the case of the discharge of the lien by means of an undertaking on court order both the surety and its principal and all parties who have filed notices of lien after the filing of the undertaking must be joined in the action. If the lien to be foreclosed is a subcontractor's lien, the general contractor must be joined. h. Sections 13(3) and (5) of the Lien Law provide that, if a statutorily prescribed covenant is included in a deed or mortgage to the effect that the grantor or mortgagor will receive and hold the proceeds and advances as a trust fund to be applied first to the payment of the cost of the improvement then the deed or mortgage will be superior to any notice of mechanic's lien filed within four (4) months of the conveyance or mortgage for work done or material furnished prior to the date of the deed or mortgage.

NEW YORK CITY LIENS The City of New York has created several statutory liens in its favor against real property owned by persons subject to enforcement action pursuant to various sections of the New York City Administrative Code. As indicated below, some of these liens are "super" liens, having priority over all other private liens even if such liens are prior in time by reason of their becoming tax liens. EMERGENCY REPAIR LIEN (1) The Department of Health may file a "super" lien upon real property for expenses incurred in curing various emergency situations such as failure to provide heat, etc. The procedure for the filing of the notice of lien and foreclosing of this lien are similar to the procedure set out, infra, with respect to mechanic's liens (Chapter 22, Title A section 564-24.0, Administrative Code). The emergency repair lien is effective for four (4) years from the date of filing. The emergency repair lien can be disregarded after four (4) years if no action is pending for its enforcement. The Department of Rent and Housing Maintenance has the authority to file a lien for emergency repairs performed on multiple dwellings in order to correct any violation of the building code resulting in a dangerous or unlawful condition within its own Department. The Department files a record of the work performed by it on a building by building basis within thirty (30) days from the issuance of a work or purchase order, thus creating a "secret lien" during that period. Upon the Department fixing a definite statement of account, the Department causes the lien to be transferred to the records of the City Collector where it is noted and becomes a tax lien, which will then appear on the tax records (Chapter 26, section D26-57.03, Administrative Code).

(2)

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RELOCATION LIEN The Department of Relocation may file a lien for expenses incurred in relocating tenants. The enforcement of the relocation lien is governed by the provisions of law regulating mechanic's liens. The lien is valid for three (3) years unless it is continued by order of a court for additional three year periods or enforced or discharged. Any judgment based upon the lien has a priority as of the original date of the lien (Chapter 53 Title A section 11605.0., Administrative Code). PEST CONTROL LIEN This lien is filed in a separate Pest Control Docket in the various County Clerks' offices. The lien is good for four (4) years from the date of filing. The lien can only be cancelled by a satisfaction of lien (section 564-240 et seq. Administrative Code). HOUSING VIOLATIONS AND CIVIL PENALTY LIEN The Housing and Development Administration is given the right to recover civil penalties for certain hazardous and non-hazardous violations and housing standards. The amount of the civil penalties recoverable by the Department of Housing are set forth in Chapter 25 section D26-51.01 of the Administrative Code. The transcript of judgment for civil penalties rendered in the Housing Court Part of the New York City Civil Court is filed in the manner prescribed for the filing of other civil judgments and constitutes a lien valid for ten (10) years from the date of its creation in the same manner as liens for money judgments (Chapter 26 section D26-51.03, Administrative Code). CANOPY LIEN The Department of Highways has the right to file with the City Collector a notice specifying the cost of removal of unauthorized or improperly maintained canopies, which notice constitutes a lien against the premises (section 692f-6.0 Administrative Code of the City of New York). This lien may be foreclosed in the same manner as liens for real estate taxes. PARKING VIOLATIONS Judgments for non-payment of penalties for parking violations are docketed in the various County Clerk's offices in a separate index and remain liens until paid. The judgments so rendered are enforceable in the same manner as are money judgments in civil actions (Chapter 40, section 883a-1.0e of the Administrative Code). The lien is a general lien.

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LEAKING TAP LIEN A lien is created in favor of the City of New York for closing certain water taps and is administered by the Department of Environmental Protection. After authorizing work, it can be entered and be a secret lien, similar to emergency repair liens, for thirty (30) days. It then becomes a "super lien" as a tax lien when filed with the real estate tax records. VAULT TAX LIEN A lien for the period June 1 to May 31 of each year based on a return required to be filed by June 15. One and two family houses are exempt from vault taxes. The lien is effective until the vault tax is paid (section 241-1.0, Administrative Code). BUILDING INSPECTION FEES LIEN A "super lien" on the real property upon which the inspection is performed and is administered by the Department of Buildings (section 6430-14.0 Administrative Code). SIDEWALK REPAIR LIEN Administered by the Department of Transportation, and is a lien arising from repairing or installation of sidewalks, fencing vacant lots, raising sunken lots or cutting down raised lots (section 230 New York City Chapter). These liens are filed in the office of the City Collector. ENVIRONMENTAL CONTROL BOARD LIENS Liens can be enforced by the Environmental Control Board for air and water pollution, street cleanliness, harbor maintenance, keeping vacant lots clean and render judgment with regard to same. The judgments will be docketed pursuant to Article 52 of the Civil Practice Law and Rules and are enforceable as money judgments (section 1404 et seq. of New York City Charter). VENDEE'S LIENS a. A contract vendee in a real estate transaction, upon the default of the vendor, has an equitable lien on the real property for the amount of the downpayment or such amount that the contract vendor owes the contract vendee pursuant to the contract. (Feldbaum v. Laurelton Land Co., 151 A.D. 24, 135 N.Y.S. 349 (1912), aff'd, 210 N.Y. 294 (1914). However, unless the contract so provides, attorney's fees and the cost of title insurance are not included in a vendee's lien (Maurice Apartments Inc., v. Kriss, 15 Misc.

2d 638, N.Y.S.2d 408 (1958)).

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b.

A vendee's lien may be enforced by foreclosure proceedings and the plaintiff may file a notice of pendency as provided in CPLR section 6501 (Interboro Operating Corp., v. Commonwealth S & M Corp., 243 A.D. 625, 198 N.E. 655, 269 N.Y. 56 (1935)). A vendee's lien under an unrecorded contract may be subordinate to the lien of a subsequently recorded mortgage made by the seller, unless the mortgagee had notice, either actual or constructive, of the rights of the contract vendee (Cassia Corp., v. North Hills Holding Corp., 278 A.D. 960, 105 N.Y.S.2d 631 (2nd Dept. 1951), aff'd 305 N.Y. 837). The priority of an unrecorded contract vendee vis-a-vis a later filed mechanic's lienor, or against the United States as holder of a federal lien, with or without knowledge of the existence of the Contract of Sale are not clear in New York. For mechanic's liens see section 13 of the Lien Law for what appears to be the status of mechanic's liens. The normal priority of federal liens is determined under federal law based upon "first in time, first in right."

c.

d.

VENDOR'S LIENS a. A vendor's lien runs in favor of the seller of real property for the unpaid portion of the purchase price of real property due to the seller by the purchaser. Vendor's liens usually arise at closing as a result of the dishonor of a purchaser's check delivered, or the delivery of an unsecured note. Enforcement would either be by suit for the amount due or to file a Notice of Pendency and foreclose the vendor's lien.

b.

REAL PROPERTY TAX LIENS ARE TREATED IN CHAPTER 38 BOOK UNDER TAXES. GAINS TAX By virtue of Chapters 15 and 16 of the laws of 1983 (Article 31-B Tax Law) a tax on Gains derived from certain real property transfers was imposed on all transactions involving property interests valued at one million dollars or more. The statute was amended by Chapter 900 of the Laws of 1984. The tax is ten (10%) percent of the "gain" as computed under the provisions of the law. The tax affects fee transfers of real property, exchanges, assignments, surrenders, mortgage foreclosures, transfers in lieu of foreclosure, trusts, condemnation, liquidation, options created or transferred with use and occupancy of the real property. Creation of a leasehold or subleasehold is also subject to tax where the sum total of the term of the lease including options for renewal exceeds forty-nine years, or

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where substantial capital improvements are or may be made by or for the benefit of the lessee or sublessee and the lease or sublease is for substantially all of the premises. Sales by sponsors of condominiums and cooperative units and apartments are covered by the tax but sales in a subdivision of homes are not covered. A purchase of a "controlling interest" in real property is also covered by the tax. A "controlling interest" is defined in the case of a corporation as either fifty (50%) percent or more of the total combined voting power of all classes of stock of such corporation or fifty percent or more of the capital, profits or beneficial interest in such voting stock of such corporation. Where there is a partnership, association, trust or other entity, "controlling interest" is defined as fifty percent or more of the capital, profits or beneficial interest in the entity. The 1984 amendment has added Options or Contracts to purchase or use Real Property. The tax also covers a transfer of development rights. The tax does not cover a "transfer of real property" (the term transfer is defined in the statutes) occurring after the effective date of the law where the written contract was entered into on or before March 28, 1983, provided the execution date is confirmed by independent means such as recording the contract of sale, payment of a deposit or such facts and circumstances that would satisfy the tax commission of the State of New York. A written agreement to purchase shares in a cooperative corporation is deemed written contract for the transfer of real property for the purpose of the "grandfather clause." Affects Upon Recording -The State Tax Commission has prepared forms for the purposes of both computation of and exemption from the tax. The recording officer(s) in the various counties may not record any instrument of "conveyance" as defined in the real property law unless accompanied by either a statement of tentative assessment of the amount due or a statement that no amount is due or an affidavit in a form approved by the Department of Taxation and Finance for certain exempt transactions. The original purchase price of the property (OPP) from which the text is based has been defined as the consideration paid by the transferor to purchase the property and "capital improvements" made to the property; the latter under rules and regulations to be determined by the New York State Tax Commission. Some items includable have been built into the statute. Exemptions have been granted under the statute for transactions where the consideration is less than one million dollars, where the transferor is the State of New York, its agencies, instrumentalities, political subdivisions, public corporation, etc., United Nations or any international organization and the United States of America, its subdivisions, where the sales are not transferring beneficial interest and transfers by corporations in which control is not transferred. The tax does not appear to be a lien on real property but the transferee may be responsible for payment of the tax under certain conditions under the statute.

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A three (3) year statue of limitations is in effect for any additional sums that may be due under the statute for co-ops and condominiums. The three (3) year statute runs from the date of the last transfers made pursuant to the Offering Plan. NEW YORK STATE DEED TRANSFER TAX Effective May 1, 1983 for all transfers of real property made on or after May 1, 1983, except if made pursuant to contracts entered into on or after May 1, 1983, a tax is imposed of two dollars ($2.00) for each five hundred dollars or any fraction thereof of gross consideration. A deduction from gross consideration for mortgages or other liens or encumbrances is given only where the transfer is (i) pursuant to a contract of sale entered into prior to May 1, 1983, or (ii) the consideration is less then five hundred thousand ($500,000) dollars or (iii) is a conveyance of a one (1), two (2) or three (3) family house, including individual residential condominium unit(s). The tax for transfers made prior to May 1, 1983 or pursuant to contracts entered into prior to May 1, 1983 is fifty-five cents (.55) per five hundred dollars amount and excludes the amount of any lien or encumbrance which existed prior to the delivery of the deed and which survives the delivery of the deed. Exemptions - exist for deeds from the State of New York, or any of its agencies, instrumentalities, political subdivisions or public corporations, the United Nations, the United States of America, its agencies or instrumentalities. However, the grantee in a conveyance from any of the above is liable for the tax. Deeds made to the United State of America, the United Nations, the State of New York or any of their agencies or instrumentalities or subdivisions are exempt. Other transactions exempted from the tax are deeds which secure a debt or obligation (although they may be subject to mortgage tax) or which correct, confirm, modify or supplement a previous deed, or made without consideration as a bonafide gift, for a tax sale, pursuant to mergers, dissolutions or consolidations of corporations or are transfers to or by subsidiary corporations and parent corporations for no consideration, or for partition or pursuant to a federal bankruptcy reorganization plan. The tax is paid to the recorder in each county in the state. The recorder has been designated the agent of the State of New York for collection of the tax. Willful failure of payment can result in a misdemeanor (Article 31 Tax Law of the State of New York sections 1400 thru 1410). The tax is not a lien on the real property. However, if the seller does not pay the tax, the buyer will be responsible and enforcement could be made against the

property of the buyer.

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It appears that where the buyer has contracted to pay the tax, additional amount may be due. This could apply as to property within and without of the City of New York (for formula used for computation of the tax where the buyer voluntary pays, please note formula set forth under New York City Real Property Transfer Tax). NEW YORK CITY REAL PROPERTY TAX The current rates for real property transfers in New York City are as follows: a. b. c. Where the gross consideration is twenty-five ($25,000) thousand dollars or less there is no tax. There is no tax where the conveyance was made prior to May 1, 1959 or pursuant to a contract of sale validly executed before that date. Where the conveyance was made before July 1, 1971 or a valid contract was executed before July 1, 1971 the rate is one-half (1/2%) percent of the "net consideration" (deducting mortgages, liens and encumbrances which existed before the conveyance and which survive the conveyance).

NEW YORK CITY DEPARTMENT OF HOUSING PRESERVATION & DEVELOPMENT The New York City Maintenance Code requires owners of multiple family dwellings to register their properties with the Department of Housing Preservation and Development. The registration requirement is satisfied by completing OHP Form 515 (Rev. 11/95). The form is entitled "Preliminary Residential Housing Transfer Form". A copy of this form may be found in Underwriting Department File U-362. After completing and signing the form it is to be submitted to the Office of the City Register when the deed is recorded. The Registers Office may decline to record a deed if it is not accompanied by a correctly completed transfer form. The closer should undertake to obtain the form at closing and verify it has been properly filled out. The form is not a lien upon title but rather is an encumbrance. Even if the deed is recorded without presentation of the form, failure to complete the form and register the property in the name of the new owner is a violation of the law and may subject owners to either fines or criminal penalties. Failure to register may also prevent the Owner or Managing Agent from bringing certain actions before the New York City Housing Court, including recovery of possession of the premises for non-payment of rent.

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ATTACHMENT a. An order of attachment is filed in the same manner as a notice of pendency and constitutes an encumbrance on real property with the same effect as a notice of pendency (CPLR section 6216). An order of attachment may be obtained in any action except a matrimonial action and in a case where the plaintiff has demanded and would be entitled to a money judgment against the defendant, and the defendant meets any of the following conditions: (1) the defendant is a foreign corporation not qualified to do business in New York or a resident or domiciliary of the State of New York. the defendant resides or is domiciled in New York and cannot be personally served despite diligent efforts to do so. the defendant, with intent to defraud his creditors, has assigned, disposed of, secreted or encumbered property or removed it from New York or is about to do so.

(2)

(3)

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(4)

the cause of action is based on a judgment decree or order of a court of the United States or any other court which is entitled to full faith and credit in New York, or is a judgment which qualifies for recognition under the provisions of Article 53 of the CPLR.

b.

An order of attachment may be obtained without notice. Within five days of the granting of such an order the plaintiff may upon such notice as the court may direct, move for an order confirming the prior order of attachment. At that time the order of confirmation is sought the plaintiff must establish (1) the proper grounds for the attachment, (2) that it is probable that he will prevail on the merits of the claim and (3) that the amount demanded from the defendant exceeds all counterclaims known to the plaintiff. Upon the granting of an order of confirmation the court will require the plaintiff to give an appropriate undertaking (CPLR section 6211). Attachments against real property - An attachment against real property is filed by the sheriff in the office of the county clerk in the county where the real property is located. A notice of attachment must state the name and address of plaintiff's attorney, the names of the parties to the action, the amount of the plaintiff's claim and a description of the property levied upon. The county clerk shall record and index the notice of attachment in the same manner as in a notice of pendency (CPLR section 6116). Termination of Attachment: (1) Discharge - upon the filing by the defendant of an undertaking equal to the value of the sum of sheriff's fees and expenses, including poundage, the property attached or, if lesser, the debt sought to be discharged (CPLR section 6222). (2) Vacating - by motion or notice of plaintiff and the sheriff by any person having an interest in the property showing that the attachment is unnecessary or the proceedings are defective. An attachment may be vacated if the plaintiff does not seek an order confirming the attachment within the five day period.

c.

d.

e.

Annulment of attachment may be granted upon the action upon which the attachment was based abating or being discontinued, or in the event a judgment is entered in favor of the defendant, or in the event the judgment in favor of the plaintiff is fully satisfied (CPLR section 6224).

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RESTRICTIVE COVENANTS Note: Cross reference this section with Chapter 34, RESTRICTIVE COVENANTS A. Definition A restrictive covenant is a contractual restriction on the use or enjoyment of real property. The restrictive covenant may be real or personal, and may impose affirmative or negative obligations. It is an encumbrance justifying rejection of title (Golden Development Corp., v. Weyant, 269 A.D. 1039, aff'd, 295 N.Y. 845; Isaacs v. Schmick, 245 N.Y. 77; O'Hara v. Bronx Consumers Ice Co., 25 N.Y. 210). 1. Real Covenants and Personal Covenants Covenants which are personal bind only the covenantor and persons who take the burdened land with notice of the restriction. Real covenants run with the land and bind all future owners of the land. A real covenant will be deemed to exist only if the following conditions are fulfilled: a. b. c. d. the covenant is in writing the parties must have intended that the covenant run with the land the covenant must touch and concern the land; and the covenantor and covenantee are in privity of estate.

The requirement that the covenant touch and concern the land means, in general, that the covenant must make the benefitted land more useful or valuable to the benefitted party and must impose a burden on the use or ownership interest in the land of the burdened party. For an analysis of particular covenants as real or personal see 13 N.Y. Jur., Covenants and Restrictions section 14, et seq., see also Neponsit Property Owner's Association v. Emigrant Industrial Savings Bank, 278 N.Y. 248; 15 N.E.2d 793 (1938) (mot. for reh'd denied), 278 N.Y. 704, 16 N.E.2d 852 (1938). B. Affirmative and Negative Covenants The general rule, subject to the exceptions noted below, is that covenants which impose an affirmative obligation on the covenantor will not run with the land (Guaranty Trust Company of New York v. New York and Queens County Railway Company, 253 N.Y. 190, 170 N.E. 887; Miller v. Clary, 210 N.Y. 127, 103 N.E. 1114). Those covenants can usually be disregarded when the covenantor is out of title, except where the covenant imposes the following affirmative obligations: 1. to build fences along boundary lines, (Moxley v. New Jersey &

N.Y.R. Co., 143 N.Y. 649, 37 N.E. 824),

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2. 3. 4. 5. 6.

to maintain party walls, (Mott v. Oppenheimer, 135 N.Y.312, 31 N.E. 1097), to provide railroad crossings, (Post v. West Shore R. Co., 123 N.Y. 580), to maintain and repair buildings and dams, (NYE v Hoyle, 120 N.Y. 195), to repair canal walls, (Morehouse v. Woodriff, 218 N.Y. 494, 113 N.E. 512), to repair and maintain rights of way and sewers, (Greenfarb v. R.S.K. Realty Corp., 256 N.Y. 130).

Both affirmative and negative real covenants are encumbrances on title and affect the marketability of the burdened property. See 13 N.Y. Jur., Covenants and Restrictions, section 61. C. Creation of Negative Covenants Covenants may be created by provisions in deeds, by recorded declarations, recitals on filed maps, by leases or other instruments conveying an estate in land and by contractual agreement among landowners. Since negative covenants are more likely to run with the land than affirmative covenants, the balance of this discussion will be concerned with negative covenants. (Warren's Weed vol. 4A) Neponsit Association v. Emigrant Bank, 278 N.Y. 248) D. Classes of Negative Covenants There are three classes of enforceable negative covenants. Generally, but with some exceptions, a purported covenant not within any of these classes will not be enforced (Korn v. Campbell, 192 N.Y. 490). 1. The first class are covenants created pursuant to a general scheme for improvement or development of real property. This class of covenant frequently involves an owner who subdivides a large plot or tract of land. In some cases the subdivider records a declaration of restrictions. In other cases the deeds conveying the separate lots usually each contain uniform covenants restricting the grantee's use of the property. Irrespective of priority of conveyances, each of the grantees has the right to enforce the uniform covenant against each of the other grantees who took or will take subject thereto. Subsequent purchasers of each plot become subject to the covenant, whether or not recited in the subsequent deed of conveyance (Booth v. Knipe, 225 N.Y. 390; 1 & 3 South William St. Bldg. Corp v. Gardens Corp., 232 A.D. 58, aff'd 261 N.Y. 575).

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2.

The second class of covenants are covenants created to benefit the grantor's remaining land. The covenant is usually created by deed and may be enforced solely by the grantor or its successors, as owner of the remaining lands of the imposer but not by the grantee of the burdened lands against any other grantee subject to similar covenants. So if there is a subdivision of the burdened land no owner of the subdivided burdened land can enforce the covenants against another owner of the burdened land (Korn v. Campbell, 192 N.Y. 490; Voseler v. Alwyn Improvement Corp., 247 N.Y. 131). The third class of covenants are covenants for the mutual benefit of adjoining landowners made by the landowners for their mutual protection. This class of covenant burdens and benefits both parties and may be enforced by each party, its successors and assigns as against the other.

3.

For further discussion as to the parties entitled to enforcement of each class of negative covenants, see Warren's Weed New York Law of Real Property, "Restrictive Covenants" section 19. E. Types of Restrictive Covenants - Generally Imposed 1. 2. 3. 4. 5. 6. Stables and garages - (Sanders v. Fenimore Realty Corp., 261 A.D. 842). Dwelling Houses and Apartment Houses - (Reformed Church v. Madison Avenue Building Co., 214 N.Y. 268). Professions - e.g., lawyers dentists, doctors (Stewart v. Barber, 182 Misc. 91); Yeshiva of Far Rockaway v. Ginsberg. (36 N.Y.2d 706 1975). Private Dwellings - one family (Levy v. Schreyer, 177 N.Y. 293). Offensive trades - (Rowland v. Miller, 139 N.Y. 93; Jones v. Chapel Hill, 273 A.D. 510; Biggs v. Sea Gate Association, 211 N.Y. 482 (Garages); Goldstein v. Rosenberg, 191 A.D. 492, aff'd 232 N.Y. 535. Setbacks - (Clark v. New York Life Insurance & Trust Co., 64 N.Y. 33; Schermerhorn v. Bedell, 163 A.D. 445 Aff'd 221 N.Y. 536 (porches); Olcott v. Knapp, 96 A.D. 281, aff'd, 185 N.Y. 584 (fire escapes).

F.

Termination of Restrictive Covenants Covenants which run with the land are encumbrances and affect marketability of title. Occasionally, it becomes desirable or even essential that they be terminated or modified.

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1.

Covenants imposing prohibited racial or other discriminatory restrictions will not be enforced (Shelly v. Kramer, 334 U.S. 1 (1948)). Such covenants are not repealed, but abstractors and title insurers will not repeat or show such covenants (Kemp v. Rubin, 298 N.Y. 590; Barrows v. Jacks, 346 U.S. 249). To do so may violate federal law. Where the purpose of the restrictive covenant cannot be carried out due to a change in the character or circumstances in a neighborhood, equity will not enforce the restrictive covenant so as to result in an inequitable application to the burdened landowner. However, the change in a neighborhood's character must be radical, extensive and permanent (Trustees of Columbia College v. Thatcher, 87 N.Y. 311 (1882)). Covenants may expire upon the passing of a time period specifically set forth therein. A reader of the covenant must determine whether the time period applies to the entire covenant or only as to one or more parts thereof. A covenant contained in a deed or lease is presumed to continue for the entire duration of the estate. Therefore, upon the extinguishing or expiration of the estate, the covenant will lapse (Olcott v. Knapp & Co., 96 A.D. 291 (1904), aff'd, 185 N.Y. 584 (1906)). Merger of estates. A restrictive covenant is coextensive with the estate to which it is annexed. The covenant is extinguished when the benefit and burden thereof become vested in the same estate. Care must be taken that the rights of mortgagees have terminated in respect of the merged estates since, upon a foreclosure after a merger of estates the mortgagee will have enforcement rights under the covenant (Morrill Realty Corp., v. Rayon Holding Corp., 254 N.Y. 268 (1930)). Release of enforcement rights by agreement of all owners, mortgagees or other interested parties (including lienors) having rights in the servient estate (Cook v. Murlin, 195 N.Y.S. 793, aff'd 236 NY 611 (1923)). Covenants may be extinguished by condemnation and, where appropriate, by payment of compensation to the party in whose favor the covenant ran.

2.

3.

4.

5.

6.

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G.

Enforcement - Statutory Provisions Applicable to the Enforcement of Covenants Where a covenant or restriction is determined to be of no actual and substantial benefit to the person having enforcement rights because of the purpose of the restriction having been accomplished or because of changed conditions, such covenant or restriction may be extinguished by an action under RPAPL 1951 (1). An action to enforce a covenant which relates to structures that may be erected, set-backs, sidelines, areas that may be built upon, location, independent character or number of structures, height, or general purpose for which designed, etc. must be brought before the expiration of two years from the completion of the offending alteration or construction of the structure (RPAPL Art. 20). Note: Refer to Law Bulletin this Chapter.

EASEMENTS Note: Cross Reference with Chapter 14 & Refer to cases cited in Law Bulletin this Chapter A. Definition A limited right or privilege of enjoyment in a parcel of realty (the servient parcel) for the benefit of another parcel of realty (the dominant parcel). Easements appurtenant may be conveyed (together with the estate to which they are annexed) either by specific reference thereto or by including an appurtenance clause in the instrument of conveyance. Easements appurtenant constitute encumbrances on title of the servient estate, the existence of which may render title of the servient estate unmarketable, but in themselves do not constitute estates in land. In contrast, an easement in gross is a personal interest in realty and may not be transferred by the person for whose benefit such an easement was created. However, an exception to this rule does exist with respect to outdoor advertising affixed to a servient estate. Also, in contrast to easements appurtenant, a license is a personal, revocable and non-assignable privilege, created by a writing or by parole, to enter upon land for a specific purpose, but not creating a possessory interest on the part of the licensee in the land (The Greenwood Lake and PJR Co., v. N.Y. and GLR Co., 134 N.Y. 435 (1892)). For this reason, true licenses are not encumbrances on title.

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B.

Easements appurtenant - [cross reference with chapter 14, EASEMENTS, page 1] may be created by the following methods: 1. GRANT OR DECLARATION - an easement created by grant or declaration must be in writing and, to be effective against subsequent owners of the servient property, must be recorded. RESERVATION OR EXCEPTION - an easement may be reserved from the estate granted by the creator of the easement where the grantor retains an interest in other property. An easement created in this manner must be carefully distinguished from an exception of a fee estate by the grantor in a specified part of the property. PRESCRIPTION - a prescriptive easement is created by use which is continuous for the prescriptive period. The prescriptive period in New York is currently ten (10) years if the use began on or after September 1, 1963. A title insurance company will generally not insure easements acquired by prescription in the absence of a judicial determination of the existence of such easement. However, a title insurance company will accept the effects of an easement acquired by prescription as to the estate burdened thereby. ESTOPPEL - an appurtenant easement by estoppel may be created if the owner of the "burdened" estate represents that an easement exists in favor of the "dominant" estate and if the owner of the "dominant" estate relies to his detriment on such representation (Olin v. Kingsbury, 181 A.D. 348, 168 N.Y.S. 766 (1918)). NECESSITY - an easement by necessity may arise in the context of a right of way to and from landlocked property where the grantor of the landlocked property retains access to a public road. The grantee will have an implied easement by necessity for ingress and egress over the grantor's property to the public road. The location of the easement by necessity may be fixed by a court. Easements by necessity are terminated where there is no longer a need for them, as when the dominant estate acquires independent access to a public road (Wells v. Garbutt, 132 N.Y. 430 (1892)). An easement by necessity will generally not be insured by a title insurer, but will be an exception or encumbrance on the burdened property and thereby affect its marketability.

2.

3.

4.

5.

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6.

IMPLICATION - an easement by implied grant or reservation will be deemed to exist where (i) the easement is necessary to the proper or natural enjoyment or use of an estate, (ii) the parties show no contrary intention in the instrument of conveyance and (iii) the following factors are present: a. b. there formerly must have been unitary ownership of the dominant and servient estates; when in unitary ownership, a portion of the land must have been subordinated to the remaining portion, or a reciprocal subordination must have been evident; such subordinate use must have been plainly and physically apparent upon visible inspection or shown on a map made by the unitary owner, and the use must have a positive value to the benefited estate. A typical easement by implication is one of the access in favor of various lot owners in a common development over private streets to reach the nearest public outlet. A title insurance company will generally insure rights of access arising out of implied easements based upon a filed map.

c.

d.

C.

Special Classes of Easements 1. BEAM RIGHTS - An easement which entitles the owner of one property to have beams of the building on his property supported by a wall of a building on adjoining property. Beam rights are usually created by agreement or arise by implication upon the conveyance of one building by a common owner. Title to building without an easement for beam rights, where required, is unmarketable, and likewise, the existence of an easement for beam rights under the servient estate unmarketable. PARTY WALLS - An easement for the use of a party wall is usually created by agreement but may arise by implication or prescription. A party wall located on the boundary line of property will not be deemed an encumbrance on title (Hendricks v. Stark, 37 N.Y. 106 (1868)), but a party wall located entirely on one property will be deemed an encumbrance. A party wall easement may not be terminated by unilateral action, but once a party wall is demolished by mutual consent or once one of the buildings benefitting from the party wall is demolished, all easements in the wall are extinguished except as to

2.

the remaining owner, if any. The Administrative Code of the City of New York requires that the owner of a structure being demolished

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brick up open beam holes in a party wall and otherwise provide for the structural integrity of the party wall (Section C26-1905.2). 3. LIGHT AND AIR - An easement for the enjoyment of light, air, or view cannot be acquired by prescription or implication, in contrast to the English common law doctrine of ancient lights. (Elgar v. S.H. Kress & Co., 280 A.D. 621, 116 N.Y.S.2d 527 (1952)). However, such easements may be created by express grant or reservation. As with all easements created by grant, mere nonuse, lapse of time or failure to enforce will not cause the easement to be extinguished (Remsen v. Wingent, 112 A.D. 234, 98 N.Y.S. 388 (1906), aff'd, 188 N.Y. 632, 81 N.E. 1174 (1907)).

TERMINATION OF EASEMENTS Easements may be terminated by the following methods: 1. RELEASE - Title examination can determine all the necessary parties to release an easement created by grant or reservation. They include the owner and all lienors of the dominant tenement. Upon execution of the release the agreement should be recorded. ABANDONMENT - An easement created by grant or reservation may be terminated by abandonment only if the abandonment is unequivocal and clear (Gerbig v. Zumpano, 7 N.Y.2d 327, 197 N.Y.S.2d 327 (1960)). Easements created by means other than by grant may be deemed abandoned when the necessity therefor no longer exists and there is in fact a non-use thereof. Title insurance will usually not be available to omit an easement on the grounds of abandonment since non-use is generally insufficient to show abandonment of an easement created by grant. Proof of an intent to abandon the easement is essential, and such intent is rarely found in the land records. MERGER - Upon the complete merger of the dominant and servient estates an easement formerly existing in the separate estates is extinguished. However, a non-merger clause in any instrument conveying the estates or the non-consent of a mortgagee to the extinguishing of an easement will keep the easement alive (Stilbell Realty Corp., v. Cullen, 352 N.Y.S.2d 656, 43 A.D.2d 966 (1974)). Care must be taken that the easement is not recreated in a subsequent conveyance from the common owner to a third party.

2.

3.

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4.

ADVERSE USE - All of the elements of adverse possession must be evident in order for an easement to be lost by adverse use. The adverse use may be by the owner of the servient estate or by a stranger. It has been held that the period of adverse use does not begin until the easement is first denied to the dominant estate by the adverse user (Castle Associates v. Schwartz, 407 N.Y.S.2d 717 (1978)). Title insurers are reluctant to omit an easement based on adverse use unless it is clear that there is no conceivable use for the easement area. SUPERIOR TITLE - The foreclosure of a lien or superior lien in the servient estate which attached prior to the creation of the easement can extinguish the easement. OVERBURDENING - Where an easement by grant is not used for its intended purpose the easement may be limited to its original purpose. Where the easement is acquired by prescription or necessity an overburdening may result in the termination of the easement. See Warren's Weed New York Law of Real Property section 16.

5.

6.

ENCROACHMENTS Note: Cross Reference with Chapter 15, ENCROACHMENTS, this manual. Survey encroachments are encumbrances on title and depending on the extent of the encroachment, may make the title to the encroaching or encroached upon parcel unmarketable. An encroachment by an adjoining landowner upon property will be deemed to make title unmarketable if the encroachment is substantial enough to interfere with the use and enjoyment of the property. Each case is tested on its own merits. (Wachsumuth v. Stone's Mariana Inc., 26 Misc.2d 466, 214 N.Y.S.2d 15 (1960)). Where an encroachment is substantial but does not interfere with the use and enjoyment of the property a court may grant an abatement in the purchase price (McGraw v. Selkis, 245 A.D. 786, 280 N.Y.S. (1935); aff'd, 269 N.Y. 534, 199 N.E. 522). More difficult is the case in which the property to be conveyed encroaches on adjoining land. Normally, unless the adjoining owner is barred by statute from bringing an action to rid the encroachment, any encroachment by a contract vendor on adjoining land will render title unmarketable (Stokes v. Johnson, 57 N.Y. 673). A vendor must deliver title free of such encroachment unless the contract otherwise specifically permits its existence (McPherson v. Schade, 149 N.Y. 16 (1896)). Language in a contract permitting a seller to convey "subject to a state of facts an accurate survey would show" would require a contract vendee to take the property subject to such encroachments.

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Many slight encroachments on streets and public ways are less troublesome due to statutory provisions, discussed below, limiting the time in which a municipality may act to enforce the removal of the encroachment. The former New York Board of Title Underwriters' standard form of contract of sale provided that title must be accepted subject to certain specific encroachments upon a street or highway. An action for injunctive relief to remove a structural encroachment may be maintained pursuant to RPAPL section 871. A. 1. Statutory Provisions With respect to encroachments on streets or public ways: General City Law section 38-a provides that structures constructed after January 1, 1960 which encroach less than six (6) inches on a public way may remain if, within one (1) year after filing a notice of such encroachment with the appropriate county clerk, no action is taken by the city to rid the encroachment. Somewhat similar provisions are contained in section 6-632 Village Law and section 138(7) Town Law. Encroachments greater than six (6) inches on public ways are subject to removal at any time and no easement or title may be acquired by adverse possession, no matter how long the adverse use (Walker v. Caywood, 31 N.Y. 51 (1865)). Section 692h-6.0 of the Administrative Code provides limited immunity from actions for owners of buildings erected prior to May 25, 1899 encroaching upon streets in the County of New York. 2. Encroachments on adjoining property: RPAPL section 611 governs encroachments of less than six (6) inches as to abutting walls on adjoining property. Under this provision no action may be maintained to recover such property after one (1) year from the date of the encroachment. A forced sale of the property encroached on may be maintained by the affected parcel within the further period of one (1) year from the date of the encroachment. If thereafter no action is brought, an easement will exist in favor of such encroachment as long as it shall remain. B. Adverse Possession Where the encroachment on adjoining property meets the requirements for adverse possession an easement for title by prescription may result (Kaplan v. Bergmann, 122 A.D. 876, 107 N.Y.S. 423 (1907)).

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FUTURE ESTATES AND LIMITATIONS A. INTRODUCTION The possibility that a present possessory estate may terminate and/or that a future estate may vest is not technically considered an encumbrance upon the title of real property but is, instead, a limitation upon the extent of the estate. Nevertheless, the topic of future estates will be considered in this chapter because of the limited marketability and insurability of an estate of such a nature, and because its effect on the entire title is similar to that kind of encumbrance. In general, a condition or limitation on an estate in land will, when properly structured, cause the prior estate to be defeated or a different estate to commence upon the occurrence or non-occurrence of a particular event [See chapter 11, "DEEDS OF CONVEYANCE - Condition" and chapter 16, "ESTATE IN LAND - Title", this manual]. The construction and operation of future estates in New York are governed by Articles 6 and 9 of the Estates, Powers and Trusts Law. Several of the common law future estates, or their characteristics, have been abolished or redesignated by the statutory scheme. B. ESTATES IN POSSESSION COMPARED WITH FUTURE ESTATES Estates, Powers and Trusts Law section 6-3.1 classifies estates in property, with respect to the time of their enjoyment, as follows: (1) estates in possession and (2) future estates. 1. An estate in possession is an estate which entitles the owner to immediate possession of the property (Estates, Powers and Trust Law section 6-4.1). In New York, the recognized present estates include (i) fee simple absolute, (ii) fee on condition, (iii) fee on limitation and (iv) life estates. Each of these estates will be considered in section C. New York has abolished estates tail (Estates, Powers and Trusts Law section 6-1.2). A future estate is an estate limited to commence in possession at a future time, either without the intervention of a precedent estate or upon the determination, by lapse of time or otherwise, of a precedent estate created at the same time. (Estates, Powers and Trusts Law section 6-4.2). A future estate is created when the disposition creating it becomes legally effective (Estates, Powers and Trusts Law section 6-3.4). In Estates, Powers and Trusts Law section 6-3.2 New York recognizes the following future estates:

2.

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a.

Estates left in the creator, consisting of (1) (2) (3) reversions possibilities of reverter rights of reacquisition; and

b.

Estates in favor of a person other than the creator, namely remainders, that are: (1) (2) (3) (4) indefeasibly vested vested subject to open vested subject to complete defeasance subject to condition precedent

The statutory scheme recognizes all of the future estates known at common law. However, the right of reacquisition had been known, at common law, as a right of entry. Future estates will be considered in greater detail in sections D and E. C. ESTATES IN POSSESSION 1. FEE SIMPLE ABSOLUTE - at common law, the words "to X and his heirs" were required in order to create a fee simple absolute estate. In New York this requirement has been abolished. A grant of real property passes all of the estate or interest of the grantor to the grantee unless the intent to pass a lesser estate appears by the express terms of the grant or by necessary implication therefrom (Real Property Law section 245). FEE ON CONDITION - this estate is created by a conveyance in fee, followed by a conditional limitation. At common law this estate was called a "fee simple subject to a condition subsequent." The effect of the creation of a fee on condition is that, upon the occurrence or nonoccurrence of the condition, the estate of the grantee will be liable to be divested in favor of and by an affirmative act (re-entry) by the grantor or a third person. The correlative estate of the grantor or third person is called a right of reacquisition. Typical language creating the fee on condition is: "provided," "on condition that," "but If." NB See "Deeds of Conveyance - Condition" & "Estates in Land" Chapters this manual. 3. FEE ON LIMITATION - this estate is created by a conveyance in fee, coupled with language restricting the duration of the fee estate, generally until such time as a specified event occurs or does not occur. The fee on limitation automatically terminates upon the

2.

occurrence or non-occurrence of the limitation contained in the grant. No further affirmative act is required by the grantor or any third

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person. The correlative future estate is a possibility of reverter. Typical language used to create a fee on limitation is: "so long as," "while," "during", "until". 4. LIFE ESTATES are subject to statutory modification in two respects in New York. a. A life tenant may lease the property for a term up to 21 years, and such lease is valid even if the life estate comes to an end during the term of the lease (Estates, Powers and Trusts Law section 10-10.2). Life estates measured by the life of a third party (estates pur autre vie) have been modified by Estates, Powers and Trusts Law section 6-1.3, to eliminate the general occupant. Upon his death, the interest of a life tenant passes as personal property during the remaining duration of the estate.

b.

The correlative future estate is called a reversionary interest. D. FUTURE ESTATES - ESTATES IN THE GRANTOR (REVERSIONS) 1. Reversions - A reversion is created when the grantor of an estate conveys any estate which is lesser in duration than that which he enjoys (Estates, Powers and Trusts Law section 6-4.4). They differ in that the latter automatically terminates the prior estate, while the former will divest the prior estate only if affirmative steps are taken to enforce the right of reacquisition.

2.

The Possibility of Reverter and Right of Reacquisition are disfavored by the courts. These estates restrict the free use of property and neither of them are subject to the rule against perpetuities since these estates do not, with regard to the rule against perpetuities, vest remotely. Whenever possible, a court will construe a grant attempting to create a possibility of reverter or a right of reacquisition as containing precatory language or as creating a covenant, rather than as creating a future estate. Estates, Powers and Trusts Law section 6-5.1 now provides that future estates are descendible, devisable and alienable, in the same manner as estates in possession. Of course, a future estate which is contingent upon survival cannot be transferred if the estate does not vest due to the failure to survive. 3. Statutory Control of possibilities of reverter or rights of reacquisition:

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a.

The Possibility of Reverter Act, effective September 1, 1958, and codified as Real Property Law section 345, provides that the holder of either a possibility of reverter of a right of reacquisition must record a "Declaration of Intention to Preserve" the future estate. The filing must occur between the 27th and 30th year after the creation of the interest, and must be renewed thereafter no earlier than nine and not later than ten years after the previous filing. In Board of Education v. Miles, 15 N.Y. 2d 364, 207 N.E., 2d 181 (1965), the retroactive application of the statute to possibility of reverter and rights of reacquisitions greater than thirty years old was declared unconstitutional. The statute does not apply to possibilities of reverter and rights of reacquisition in favor of the United States or the State of New York and in certain other circumstances, specifically set forth in Subdivision 8 of the section. (1) Statutes of Limitations - an action to obtain possession of property pursuant to a possibility of reverter or right of reacquisition must be brought within ten (10) years after the occurrence of the reverter or the breach of the condition or within one (1) year after notice and demand for possession is served, if made within the aforesaid ten (10) year period (Real Property Actions and Proceedings Law section 612 (1)). (2) Possibilities of reverter or rights of reacquisition created after September 1, 1958 are subject to an action in the Supreme Court in which relief will be granted only "to protect a substantial interest in the enforcement of the restriction." If the court finds that it would be inequitable to enforce the limitation or condition, the court is empowered to restrain the breach of the limitation or condition, or grant recovery of the land "upon such terms as justice may require to avoid a forfeiture of the value of the improvements or other unjust enrichment" (Real Property Actions and Proceedings Law Section 1953).

b.

E.

FUTURE INTERESTS - ESTATES IN THIRD PERSONS (REMAINDERS) New York follows the common law pattern of future interests in third persons with the exception that the "executory interest" has been eliminated from the statutory nomenclature. However, the concept of the executory interest prevails in the statutory scheme, as discussed below. 1. Indefeasibly vested remainder (Estates, Powers and Trusts Law section 6-4.7). This is a future estate "in favor of one or more ascertained persons in being which is certain when created to

become an estate in possession whenever and however the

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preceding estates end and which can in no way be defeated or abridged." 2. Vested remainder subject to open (Estates, Powers and Trusts Law section 6-4.8). This is a future estate in a class of person which is "subject to diminution by reason of another person becoming entitled to share therein." Vested remainder subject to completed defeasance (Estates, Powers and Trust Law section 6-4.9). A future interest which is vested, in existence and not subject to a condition precedent may be subject to have its enjoyment and possession defeated by the occurrences of some condition subsequent as provided by the creator of the estate. Remainder subject to a condition precedent (Estates, Powers and Trusts Law section 6-4.10). The future estate "created in favor of one or more unborn or unascertained persons or in favor of one or more presently ascertainable persons upon the occurrence of an uncertain event." This type of remainder may vest remotely and, therefore, may be defeated by application of the rule against perpetuities (Estate, Powers and Trusts Law section 9.1.1).

3.

4.

NB cross reference this section with Simes and Smith, The Law of Future Interests; Cribbet, Principals of the Law of Property, chapter 5; and Estates in Land and Future Interests, Preface to, chapter 3. The principal portion of this chapter was originally written in 1984 by Melvyn Mitzner, Chief Counsel of Commonwealth Land Title Insurance Co & is re-printed with his permission. At that time he was Assistant Chief Counsel of LTIC Associates. Before that he was Regional Counsel of Ticor-Title Guarantee. The chapter first appeared in Real Estate Titles, published by the New York State Bar Association, James M. Pedowitz, Editor-in-chief. Cross references and some editing was later done by William C. Hart.

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CLEARING TITLE DEFECTS There are a number of books available which address the issue of clearing title defects. I will name a few here for the serious student. Professor Kratovil, in his fine book entitled Modern Real Estate Documentation, includes a Chapter 14 "Clearing Title Objections." Volume 12, Chapter 190 of the Pennsylvania Transactions Guide, is entitled "Procedural Guide to Eliminating Defects of Record." Raymond J. Werner's book entitled Real Estate Closing briefly touches on the matter in Chapter 2. Chapter 27 and 28 of Harvey, Law of Real Property and Title Closings addresses the issue of title objections as disclosed by the search. McDermott's Deskbook on Land Title and Land Law is an excellent reference source and summary of all American Land Law which contain citations to all the major authors and Treatise on Real Property Law. The New York State Bar Association and James M. Pedowitz Esq. have written excellent Text entitled Real Estate Titles. Finally, Professor Bayse has written the definitive treatise entitled Clearing Land Titles. All of these books are readily available and invaluable to the serious title scholar. Combined, they offer both practical and theoretical solutions to most title objections which arise in the course of an examination of title. There are also many individual state texts which address the question of conveyancing and the Law of Titles and Abstracts in a particular state, too numerous to mention. All of these books offer suggestions on how to resolve title problems. None of them however point out one glaring misuse of a clearance procedure and that is the improper use of the indemnity. MISUSE OF INDEMNIFICATION Title Insurers are frequently called upon to omit existing encumbrances or liens from a title policy or commitment based upon the offer of an indemnity from a developer or some other party. All too often there is little if any thought given to whether the party offering the indemnity is a financially responsible party capable of performing upon that indemnity if called upon to do so. This is not prudent underwriting, it is credit underwriting. The purpose in issuing a title commitment is always preliminary to the issuance of a title policy. It is not intended to serve any separate purpose. However, this is the real world. The underwriter must remain cognizant of the fact that title insurance commitment and reports of title are frequently used as sources of information by persons intending to invest in real property, such as builders and developers or their counsel. In some cases title commitments are used for submission to regulatory authorities who require a title report disclosing the condition of title before permits will be issued, an offering accepted, or a bond issue floated. It should be company policy that title reports or commitments issued to such agencies or to others must accurately reflect the true condition of the title. Public and regulatory agencies view a title commitment or policy as a true representation of title. Therefore, as company policy, the insurer should report faithfully all encumbrances on title whenever the report goes to a regulatory body, investment group, financial institution or purchaser. If the company is willing to "insure over" a particular encumbrance, then the basis on which the risk is to be assumed should be reported to the customer to whom the commitment is issued. That might be expressed as follows:

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will not " (judgment, lien, encumbrance) shown as items appear in the policy to issue providing (set forth the terms here) . The deliberate deletion of known title defects, liens or encumbrances may result in the unintended assumption of liability over and beyond a loss under the terms of the title policy. Accordingly, any and all risks assumed, based on an indemnity or other clearance procedure, must be disclosed to the insured unless you are otherwise authorized by a senior underwriter or senior corporate officer. NB Please refer to Chapter 25A, Letters of Indemnity, this manual and Mr. Pedowitz memo at the end of that chapter. POLICY INSURING CLAUSE OBLIGATIONS The title insurer is contractually obligated to disclose the priority of any lien or encumbrance over the lien of the insured mortgage under insuring clause 6 of the ALTA Loan Policy. The ALTA Loan Policy further insures that the mortgage it covers is valid and insurable and further requires that all matters affecting title be shown in the policy. Furthermore, and of equal importance, is the fact that institutional lenders, such as insurance companies, savings banks, and savings and loan associations, if permitted by state statute to invest in mortgage loans, must have first lien position. If an omitted matter should later be determined to affect the lender's priority or enforcement rights that lender does not have an appropriate asset and may, therefore, demand that the title company purchase the loan. LEGISLATIVE AND CASE LAW CONCERNS Don't be pressured into removing or omitting a lien or encumbrance instead of insuring over it. Federal law, including the Interstate Land Sales Full Disclosure Act, provides that a title policy is acceptable to HUD as evidence of the state of title. It has been interpreted that this Act applies to other federal agencies. In the worst case scenario, failure to disclose an outstanding known interest may result in a later claim of deceit or fraud or allegation that the title company intentionally made false statements for the purpose of inducing a federally insured financial institution to grant loans and for aiding and abetting in the making of false statements in policies of title insurance submitted to federally insured banks. That is precisely what was alleged in U.S. v. Keskey, 863 F2d 474, and the title company and one of its employees lost big time. In that case the U.S. Prosecutor wasn't satisfied to sue under the policy. He sued for fraud and brought criminal charges alleging the above actions, all in violation of 18 U.S.C. 371. You want to avoid this possibility at all costs.

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STATUTORY REFERENCES TO NEW YORK CITY, STATE AND FEDERAL LIENS AND CHARGES ON REAL ESTATE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Assessments - Former New York City Charter, 314; Administrative Code, 415 (1)-12.0 and 415 (1) -13.0 Assignments of rents - Real Property Law, 294-a, 315, 316. Bankruptcy - petitions in -- Bankruptcy Act, 21; Real Property Law, 297-a. Conditional bills of sale and chattel mortgages (see Financing statements). Contracts, or Memorandum of Contract - Real Property Law, 294, 315, 316. Conveyances (deeds, leases, releases, etc.) - Real Property Law, 290, 291, 315, 316. Criminal surety bond liens - Lien Law, 246 to 251 and Code of Criminal Procedure, 556-b, 556-c. Decedents' debts -SCPA 1903. Decedents' estates - transfers of interest in - Real Property Law, 274. Domestic Relations bonds - Family Court Act, 472. Emergency Repair liens - Administrative Code, 564-24.0. Estate taxes - Federal - 26 U.S.C.A. 6324; see Detroit Bank v. U.S., 317 U.S. 329 Estate taxes - New York State - Tax Law, Article 10-C, particularly Sections 249-bb and 249-11, and Tax Law, Article 26. Federal tax lien notices - Lien Law, 240 to 245 and 26 U.S.C.A. 6321 to 6324. Financing statements - Uniform Commercial Code, 9-313, 9-401 to 405. Foreclosures by advertisement - Real Property Actions and Proceedings Law, 1401 to 1461

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17.

Franchise and license taxes - Corporation - New York State, Tax Law, 181, 197, 207, 209 213, 219, and Article 27 of the Tax Law, particularly Section 1092. (See also New York City General Corporation Tax.) General assignments - Debtor and Creditor Law 3

18.

18A. Harassment, Notice of - Administration Code, Section Y51-10.0 (d), Lien ProvisionSection Y51-11.0(b) (3) 19. Health Department liens (New York City) - Administrative Code, 564-22.0 to 25.0.

19A. Historic Districts (see Landmark Designation) Housing Development Authority A.D. Code D26 of Work Costs; also 564-20.0; superior lien also 1160-5.0 lien 20. 21. 22. 23. 24. Housing Maintenance Code - Failure to register ownership Administrative Code, D26-41.05 and D26-41.21. Housing Maintenance Code - recovery of expenses Administrative Code, D26-57.03 Insolvent assignments - Debtor and Creditor Law, 76. Judgments - CPLR, 5203 (Judgment execution sale - CPLR, 5236, etc.). Judgments - United States Court - 28 U.S.C.A. 1962: See Rhea v. Smith 274 U.S. 434.

24A. Landmark Designation - Administrative Code, Chapter 8-A, Section 207-2.0 et al. 25. 26. 27. 28. 29. Mechanics' Liens - Lien Law, 2, 3, 4, 9, 10, 11, 13, 17, 19, 20, 22. Mortgages and assignments - Real Property Law, 290, 291, 315, 316. Mortgage Tax (City) - Administrative Code, W46-1.0, et seq. Mortgage Tax (State) - Tax Law, Article 11, Section 253. Municipal Department Violations - New York City Departments with jurisdiction (Various Sections of Administrative Code) a) Department of Housing and Buildings b) Fire Department c) Department of Health d) Department of Highways

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e) Department of Marine and Aviation f) Department of Air Pollution Control New York State: Department of Labor, Division of Industrial Safety. (for office buildings, hotels, factories, and mercantile establishments.) Labor Law. 30. 31. New York City General Corporation Tax, Administrative Code, R46-1.0 to R4610.0; For lien provisions, See Section R46-73.0. Notices of pendency - CPLR, 6501 to 6515. Parking violation (Sec 883a-3.0(e), NYCAC) 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. Powers of attorney and revocations - Real Property Law, 294, 326. Public Welfare liens - Social Welfare Law, 322. Real Estate Transfer Tax - New York State - Tax Law, Article 31. Real Property Transfer Tax - New York City - Administrative Code, II 46-1.0, et seq. Real Property Transfer Tax - Yonkers - Tax Law, Section 1203(b); Code of Ordinances of City of Yonkers, Chapter 92, Article 6, effective 7/26/73 Relocation liens - Administrative Code, 1160-5.0. Sewer connection Liens - Administrative Code, 82d9-9.2. Sewer rents (New York City) - Administrative Code, 415 (1)-17.1, 687-1.0. Sheriff's sales of real property - CPLR, 5236(d). Sidewalks, fencing and filling - liens for - New York City Charter, Section 230. Spouse's notice of election - EPTL 5-1.1. Street openings and other condemnation proceedings in New York City Administrative Code, Chapter 15; Condemnation Law, 25. Surety bond liens - individual - CPLR, 2503. Tax collector's bonds - Administrative Code, 415 (1)-1.0; Town Law, 35.

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46. 47. 48. 49.

Taxes - New York City Charter, 1518, Administrative Code, E17-24.0. Town generally - Real Property Tax Law, 902, 1312. Tax Sales (New York City) - Administrative Code, 415 (1)-23.0 et seq. and D171.0; Real Property Tax Law, 902, 1312. Unsafe building liens (New York City) - Administrative Code, C26-204.0. Vaults, sidewalk. a) License fee - Administrative Code, 692e-1.0 et seq. b) Annual charge - Administrative Code, Z46-1.0 et seq. c) Lien - Administrative Code, Z46-11.0(c) - effective 6/5/73 Water rents (New York City) - Administrative Code, 415(1)-7.0 and 415 (1)-17.0.

50.

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MORTGAGES A. B. Definition - A conditional conveyance of real estate as security for the payment of a debt or the performance of some other obligation. Nature of a mortgage Burnett v. Wright, 135 N.Y. 543 People ex rel Van Schaick v. Title & Mortgage Guaranty Co., 149 Misc. 643, aff'd 264 N.Y. 69 Mooney v. Byrne, 163 N.Y. 86 1. Once a mortgage always a mortgage Luesenhop v. Einsfeld, 184 N.Y. 590 Goldblatt v. Iris Construction Corp., 28 Misc. 2d 621 2. C. Personalty - Cogan v. Taylor, 212 App. Div. 8

Types of mortgages 1. Term Mortgage - (Standing Mortgage) - Usually calls for quarterly or semi-annual payments of interest, with the principal debt payable in a lump sum at the end of the term Amortizing Mortgage - provides for a gradual liquidation of the mortgage debt through regular scheduled payments of principal and interest Budget Mortgages - In addition to the regular monthly payment of principal and interest. This mortgage also includes 1/12 of the annual cost of the taxes and fire insurance Blanket Mortgages - Covers more than one parcel of real estate - a partial release clause is usually incorporated into blanket mortgages in order to facilitate the sale of individual lots or parcels The Open-End Mortgage - provides that the mortgaged real estate shall serve as security not only for the original loan but for future borrowings as well a. Priority of re-advances over intervening liens i. actual notice

2.

3.

4.

5.

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6.

Purchase money Mortgage a. Ahead of prior judgment and franchise taxes Boies v. Benham, 127 N.Y. 620 b. Usury - not a defense Mandelino v. Fribourg, 23 N.Y. 2d 145

7.

Wrap Around Mortgage - A second mortgage subordinate in all cases to an existing first mortgage which remains outstanding and unsatisfied. However, such wrap around mortgage is an over statement of the actual indebtedness since the wrap around mortgage is the sum of an outstanding balance under the first mortgage plus the amount of additional funds, if any, to be disbursed by the wrap around mortgagee. The debt service is computed on this face amount. a. Unconditional assumption of the first mortgage by the wrap around mortgagee

8.

Equitable Mortgage a. Vendors Lien Dusenbury v. Hulbert, 59 N.Y. 541

9.

Sale leaseback - Financing Transaction a. Who may take the depreciation Frank Lyon Co. v. The United States No. 75-624, 4/18/78. Reversing CA-8, 76-1 USTC 9451, 536 F.2d 746, rehearing denied, 76-2 USTC 9589.

10.

Assignment a. By delivery Peoples Trust Co. v. Tonkonogy, 144 App. Div. 333

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b.

Subject to all equities and defenses in absence of an estoppel Liebowitz v. Arrow Roofing Co., 259 N.Y. 391 Beck v. Sheldon, 259 N.Y. 208 Central Trust Co. v. West India Improvement Co., 169 N.Y. 314 Assets Realization Co. v. Clark 205 N.Y. 105

c.

Necessity of assigning obligation (bond or note) Merritt v. Bartholick, 36 N.Y. 44 Manne v. Carlson, 49 App. Div. 276

d.

Assignor and assignee to join after collateral assignment Hoyt v. Martense, 16 N.Y. 231

11.

Disposition - Recording discharge of mortgage a. b. Section 321 Real Property Law Payment to 1 of 2 mortgagees - Sec. 321 Real Property Law People ex rel Eagle v. Keyser, 28 N.Y. 226 c. Payment to agent Crane v. Gruenewald, 120 N.Y. 274 Central Trust Co., v. Folsom, 167 N.Y. 285 d. Payment to personal representatives

12.

Release a. Danger of using quit-claim Curtis v. Moore, 152 N.Y. 159 Purdy v. Huntington, 42 N.Y. 334 b. May effect a pro tanto satisfaction in favor of parcels known to have been conveyed out by mortgagor Howard Insurance Co. v. Halsey, 8 N.Y. 271 Sherman v. Foster, 158 N.Y. 587

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13. 14.

Bar Claim Action - Article 15 Real Property Actions and Proceedings Law Merger a. Matter of intention Townsend v. Provident Realty Co., 110 App. Div. 226 b. Danger of relying on apparent merger Curtis v. Moore, 152 N.Y. 159 Purdy v. Huntington, 42 N.Y. 334

15.

Subordination McCarty v. Nostrand Lumber Co. Inc., 232 App. Div. 63

16.

Mortgage on a leasehold a. Basic requirements for leasehold mortgageability i) ii) iii) Term of lease - minimum term must remain unexpired at the time of closing of the mortgage Rent - does the proposed income exceed the expenses of running the premises plus the proposed debt service Use clause - is there a restricted use clause which will prevent a mortgagee from having the freedom to use the property for any purpose after foreclosure Tax clause - does the tenant have the right to contest (without payment thereof, if permitted by law) taxes and assessments with the landlord's cooperation and in the landlord's name. Insurance - does the ground lease provide for a standard New York type of first mortgagee endorsement, that the proceeds of insurance will be payable to the first leasehold mortgagee. Condemnation - is the mortgagee given first rights to the entire award to the extent of the then balance due on the mortgage.

iv)

v)

vi)

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vii) viii)

Assignment - mortgagee must have the right to freely dispose of the premises. Subletting - ground lease must provide for subleasing because the mortgagee's underwriting is on the basis of income derived from the subleases Estoppel certificate - inasmuch as the mortgagee is disbursing his funds based on the security of the leasehold estate, he should have the right to know the status of the leasehold estate at the time of closing the mortgage.

x)

RESTRICTIVE COVENANTS AS ENCUMBRANCES A. Restrictive covenants running with the land are encumbrances justifying rejection of title even if restrictions are unenforceable. Golden Development Corp. v. Weyant, 269 App. Div. 1039, aff'd 295 N.Y. 845 Even if prohibited uses are also prohibited by law. B. Restrictive covenants are not encumbrances under mortgage investment statutes if there are no provisions for forfeiture in the event of breach. Matter of City of New York (Tunnel Street), 160 App. Div. 29, aff'd 212 N.Y. 547 EASEMENTS A. B. Defined and compared with license. Greenwood Lake & P.J.R.R. Co. v. N.Y. & N.Y. & Greenwood Lake R.R. Co., 134 N.Y. 435, 440 Easement by necessity. Falcone v. Benjamin, 129 Misc. 143; Bauman v. Wagner, 146 App. Div. 191 C. Carried as an "appurtenance" Colburn v. Marsh, 68 Hun 269, 22 NYS 990, aff'd 144 N.Y. 657 Simmons v. Clooman, 81 N.Y. 557

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D.

Implied Paine v. Chandler, 134 N.Y. 385 Polhamus v. Hines, 128 Misc. 299 1. by constructive notice Historic Estates v. United Paper Board Co., 260 App. Div. 344, aff'd 285 N.Y. 658 2. in streets on a map White Bank v. Nichols, 64 N.Y. 65 Buffalo L & R.R. Co. v. Hoyer, 214 N.Y. 236 3. in park or breach area on filed map White v. Moore, 161 Appl. Div. 400

E.

Rights of Way Andrews v. Cohen, 221 N.Y. 148 Hatcher v. Wasserman, 92 Misc. 263 Holden v. City of N.Y. , 7 N.Y. 2d 840 (affects surface only)

F.

Utility easements in a street - affect marketability when contract includes any R.T. & I. in street and grantor owns bed of street Monogram Dev. Co. Inc. v. Natber Const. Co., 253 N.Y. 320 Sorosis Bldg. Corp. v. Prolay Realty Corp., 136 Misc. 890 aff'd 230 App. Div. 683

LEASES A. B. Memorandum of Lease Sec. 291-C Real Property Law Sec. 291-CC Real Property Law

Purchase Options in leases Gulf Oil Corp. v. Buram Realty Co., Inc., 11 N.Y. 2d 223 Masset v. Ruh, 235 N.Y. 462, 464 Jones & Brindisi v. Breslaw, 250 N.Y. 147, 151

C.

Subordination Clause

McCarty v. Nostrand Lumber Co. Inc., 232 App. Div. 63

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D.

Creation of Estate on Limitation - Assures reversion of buildings and improvements to landlord upon termination of or expiration of lease

JUDGMENT LIENS A. B. 10 year lien - Sec 5203 CPLR to 20 years - Sec. 211(b) CPLR Debtor must be served with summons. Nathan Mfg. Co. v. Edna Smelting & Ref. Co., 130 AD 512 C. D. Federal Judgments - Sec. 5018 (b) CPLR Not a lien if docketed after delivery of deed Trento Banking Co. v. Duncan 86 N.Y. 221 Tausk v. Siry, 110 Misc. 514 E. F. Registered Title - Sec. 417 Real Property Law Names Berkowitz v. Dam 122 Misc. 143 Aff'd 212 App. Div. 836 H.R. & C. Co. Inc. v. Smith, 242 N.Y. 267 Grygorewicz v. Domestic & Foreign Discount Corp., 179 Misc. 1017 FEDERAL TAX LIENS A. B. Duration and extent - Title 26 U.S. Code Sec. 6502 & 6321 to 6326 incl. Priority over real estate taxes U.S. v. New Britain 347 U.S. 81 Buffalo Savings Bank v. Victory, 11 N.Y. 2d 31, rev'd by 9 Law Ed. 2d 283 (1/7/63) OTHER INCUMBRANCES AFFECTING MARKETABILITY A. Estate Taxes Warner v. Doscher 213 App. Div. 117, Aff'd 241 N.Y. 605 Jackson Terrace Homes v. Rottkamp, 180 Misc. Aff'd 465 App. Div. 959

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B.

Decedents Debts Moser v. Cochrane, 107 N.Y. 35 & Sec. 233 Surrogate's Court Act.

C.

Mechanics Liens Bonding - Sec. 19 (4) Lien Law Deposit - Sec. 20 Lien Law

D. E.

Corporate Franchise Taxes - Sec. 213 Tax Law Taxes and charges peculiar to New York City 1. 2. 3. 4. Annual vault charges Relocation liens Emergency repair liens Other liens

F.

Options (Note: Refer to Option Chapter this Manual) 1. Title - Relation Back 50 ALR 1314; 66 CJ 487; 91 CJS Vendor and Purchaser 513 2. Bankruptcy a. b. Rejection of option as executory contract Erection of building by tenant In re N.Y. Investors Mut. Group 153 F Supp 772 aff'd 258 F. 2d 14 3. Exercise of Option a. b. c. Notice of exercise - must not deviate from terms of offer or may void notice Option in leases Pre-emption type options

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REAL ESTATE TAXES A. B. C. D. Chase v. Chase 95 N.Y. 373 Priority of lien Escrows and accumulations Assessments - a lien - installments not yet due and payable - payable in interim installments

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Federal Tax Lien Act of 1966, effective November 2, 1966, made many changes in the law relating to federal liens. Among the items of interest to our staff are the following: 1. PURCHASERS: The old law expressly protected purchasers, mortgagees, pledgees and judgment creditors against unfiled federal liens. The new law continues this protection with changes in language. The word "purchaser" is defined for the first time as a person who for adequate and full consideration acquires an interest in property which is valid under local law against subsequent purchasers without actual notice. Therefore a federal lien should not be passed unless the deed to the purchaser is recorded before the federal lien is filed, regardless of when the deed was delivered. The word "purchaser" is further defined to include the holder of a lease, the holder of an executory contract to purchase or lease, and the holder of an option to purchase or lease to renew or extend the lease. Section 6323 (H) (6), Internal Revenue Code. MECHANIC'S LIENS: A mechanic's lienor for the first time is now given priority over unfiled federal tax liens Section 6323 (a). Moreover, a mechanics lien based on a contract for not more than $1,000.00 against the owner of an owneroccupied residence containing not more than four dwelling units has priority even over a filed federal lien. Section 6323 (b) (7). TAXES: Taxes (including assessments, water and sewer rents) will have priority over federal liens, both filed and unfiled. This provision should end the difficulties arising out of the circular priority problem which arose under the old law when a mortgage had priority over a later federal lien, the federal lien had priority over a later land tax, and the land tax had priority over the existing mortgage. Section 6323 (b) (6). Notwithstanding, the new priority given to land taxes over earlier federal liens, the new statute expressly requires notice to the United States in nonjudicial foreclosures and execution sales under liens prior to the federal lien, thus modifying the rule of the Brosnan case. The United States is also given the right to redeem in such cases (Section 7425). We will continue to make federal lien searches in all cases, including titles coming through in rem foreclosures. FILING: After January 1, 1968 the filing of a notice of federal lien will become ineffective unless the notice is refiled within the one year ending thirty days after the expiration of six years from the assessment of the tax. Section 6323(g) (3) and (4). The Internal Revenue Service thus has the entire calendar year 1967 to refile federal liens which were assessed before January 1, 1962. However, since there is no requirement that the notice of lien be indexed against the subsequent purchaser when the property is transferred before renewal, we will have to continue our practice even after January 1, 1968 of searching for federal liens against all persons in the chain for the preceding fifteen years. We will then disregard those that have not been renewed within the required period (See Recommended Practice 35.)

2.

3.

4.

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Chapter 26 - Page 2 LIENS FEDERAL TAX LIENS Legal Bulletin 2

5.

FORECLOSURE OF PRIOR LIEN. REDEMPTION. Existing law permits joinder of the Untied States as holder of a junior lien in an action to foreclose a prior lien if the summons and complaint is served on the United States Attorney for the district where the property lies and a copy is served by registered or certified mail on the Attorney General and the complaint sets forth with particularity the interest of the United States. The United States has 60 days in which to answer. The amendment requires in addition that the complaint state the name and address of the taxpayer whose liability created the lien, the identity of the Internal Revenue office which filed the notice of lien and the date and place such notice was filed. 28 United States Code 2410 (b). Under the previous law the United States had one year from the date of the sale in which to redeem from the foreclosure of a prior lien. The new law shortens this redemption period to 120 days where the United States holds a Federal Tax Lien but the period remains one year where the United States holds any other lien, such as a money judgment or junior mortgage. 28 United States Code 2410, subdivision (c). Moreover the likelihood of redemption is made much greater by the appropriation of $1,000,000 for the use by the Secretary of the Treasury for that purpose. LIS PENDENS. The new statute expressly provides that the Federal Lien is divested by foreclosure action and sale even if the United States is not made a party if the notice of the Federal Lien had not been filed before the action was commenced. We must, therefore, make sure in such cases that a foreclosure action was actually commenced by service of the summons of a defendant within 30 days after filing of the Lis Pendens before the filing after the Lis Pendens was filed. Section 7425 (a) (2), Internal Revenue Code. SEARCHES AGAINST TENANTS BY THE ENTIRETY, JOINT TENANTS IN COMMON AND PARTNERS: a) The Second U.S. Circuit Court of Appeals in United States v. Kocher, 468F 2d 503 (10/30/72) has joined the Courts of Appeals in the Fourth, Seventh and Ninth Circuits in holding that the United States Government is entitled to enforce a federal tax lien by selling the entire property in which the delinquent taxpayer only owns an undivided interest, even though the lien may be satisfied only out of the delinquent taxpayer's share of the net proceeds of sale. The basis for these decisions is found in Sections 6321 and 7403 of the Internal Revenue Code. The foregoing principle should not affect partnership property when a federal tax lien exists against a partner individually (United States v. Kaufman, 267 U.S. 408) since the partner does not own an interest in the real property owned by the partnership, but only in the partnership itself. Although no problem should arise when the title is held in the partnership name, it is possible that when partnership property is held in the names of one or more of the individual partners that the result would be otherwise.

6.

7.

b)

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c)

Hereafter, we will run searches for Federal Tax Liens against all co-owners, whether tenants in common, joint tenants or tenants by the entirety and "except" all returns that affect any of their interests in the property, notwithstanding, that we may only be insuring the interest of the party against whom there is no lien. We will not limit a federal tax lien exception as affecting anything less than the entire property.

8.

DEPOSITS ON FEDERAL LIENS: a) We have found that the Internal Revenue Service has frequently declined to issue a release or satisfaction of a filed federal lien on payment of the amount due thereon unless there is also paid at the same time an additional sum for other federal taxes, even though no notice of lien was filed for the other taxes. We must, therefore, refrain from taking deposits to cover Federal Tax Liens noted in the title report unless satisfactory arrangements have been made in advance for the issuance of the necessary release.

b)

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Chapter 23 - Page 1 JOINT TENANTS Title

JOINT TENANTS
GENERAL Estates which are owned by more than one person are classified as either being: 1) in severalty; 2) joint tenancy; 3) tenancy in common; or 4) tenancy by the entirety (as to real property only). (N.Y. Est. Powers & Trust Law ∋6-2.1, 1967). DEFINITIONS A joint tenancy is an estate held by two or more persons jointly, with equal rights to share in its enjoyment during their lives. The distinguishing characteristic of a joint tenancy is the right of survivorship. CREATION Joint tenants must have the same interest accruing under the same conveyance, commencing at the same time and held under the same undivided possession. Where these unities are absent, no joint tenancy exists. (Moore Lumber Co. Inc. v. Behrman, 259 N.Y.S. 248 (1932)). A disposition of property to two or more persons creates in them a tenancy in common, unless the parties expressly state that it is a joint tenancy with right of survivorship. A disposition of real property to a husband and wife creates a tenancy by the entirety, unless they expressly declare it to be a joint tenancy or a tenancy in common. A disposition of real property to unmarried persons who are described as husband and wife creates a joint tenancy unless they expressly declare that it is a tenancy in common. A disposition of property to two or more persons as executors, trustees or guardians creates a joint tenancy. Property passing in intestacy or two or more persons creates a tenancy in common. (N.Y. Est. Powers & Trust law ∋ 6-2.2, 1977). SEVERANCE One of the joint tenants can sever the joint tenancy by disposing of his interest. If that interest is transferred to a third party, the transferee and the other joint tenant become tenants in common. (In re McKelway's Estate, 221 N.Y. 15, 116 N.E. 348 (1917)). The joint tenancy can be served without the consent of each of the joint owners. The doctrine of survivorship applies only if the joint tenancy is not severed. (Loker v. Edmans, 197 N.Y.S. 857, 204 App. Div. 223 (1923)).

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Chapter 23 - Page 2 JOINT TENANTS Title

If any of the joint tenants conveys his interest, his grantee holds as a tenant in common and the right of survivorship is extinguished. (In re Cossitt's Estate, 236 N.Y. 524, 142 N.E. 268 (1923)). An action for a partition if commenced by the decedent before he dies, is not a severance of the joint tenancy if the action is not completed by his death. Upon his death, the decedent's entire interest passes to the other joint tenant because of the right of survivorship. (Ellison v. Murphy, 219 N.Y.S. 667 (1927)). Each joint tenant owns an undivided interest in the land and has the power to alienate that interest, which would sever the joint tenancy. However, if the joint tenant does not convey his interest during his lifetime, it will pass to the other joint tenants by survivorship. (In re Weissbach's Estate, 183 N.Y.S. 771 (1920)). CONVEYANCE BY ONE MARRIED JOINT TENANT If the tenancy is expressly made a joint tenancy, despite the marriage relationship of the joint tenants, a conveyance by one of the married joint tenants acts to sever the joint tenancy and the grantee becomes a tenant in common with the other spouse. Since the right of survivorship is extinguished, the property will not pass to the other joint tenant. (In re Cossitt's Estate, supra). TERMINATION OF JOINT TENANCY BY DEATH Upon the death of one joint tenant, the interest of that person passes to the other joint tenant(s) by the right of survivorship. (In re Otte's Estate, 209 N.Y.S. 2d 885 (1960)). see also: Chapter 7 CONCURRENT ESTATES this manual.

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Chapter 25 - Page 1 LEASES AND LEASEHOLD ESTATES General

LEASES
1. POSSESSION AND UNRECORDED LEASES: Since title insurance policies offer protection against matters that are not of record as well as those shown of record, the Agent should determine whether there are any parties in possession or unrecorded leases affecting the real estate under examination before writing the policy. Until such determination has been made, the following exception should appear in the commitment: "Rights or claims of parties in possession." Commitments on apartments and commercial property should also except: "Rights or claims of parties under recorded leases." Proper execution of an appropriate affidavit showing no unrecorded leases or parties in possession will permit deletion of the above exception on the policy. 2. RECORDED LEASES: Any recorded lease or recorded memorandum of lease must be shown as an exception to title in the commitment and Schedule B of policy, as follows: "Lease executed by Book , Page 3. UNRECORDED LEASES: Any recorded lease, information of which is referred to, obtained from or disclosed by other recorded instruments, must also be set forth as an exception in the commitment and Schedule B of policy, as follows: "Unrecorded lease executed by to ." to dated and recorded in as more fully set forth in said lease."

Furthermore, exception must be made to rights of any tenants in possession under unrecorded leases as set forth in Paragraph 1, above. 4. INSURING THE LEASEHOLD When a policy insures the leasehold estate, the lease creating that leasehold interest should be identified in Schedule A, with the following exception set forth in Schedule B of the policy:

"Failure to comply with the terms, covenants and conditions of lease executed by , Lessee, dated , recorded in Book , Page ."

,

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Chapter 25 - Page 2 LEASES AND LEASEHOLD ESTATES General

The above exception is not necessary if the form of policy is an ALTA Leasehold Policy Form. NOTE: SEE also: Parties in Possession

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Chapter 25 - Page 1 LEASES Title Issues

LEASES - MEMORANDA OF Obtain the original for inspection by the county clerk if the statute so requires. Often minimum statutory requirements will exist with respect to the content of a recordable notice or memorandum or lease. Generally these include; 1. 2. Names and addresses of the parties to the lease; A reference to the full lease, with its date of execution, which defines the rights of the parties.

NB include specific reference to any rights such as easements or protective business covenants which the tenant may have, which extend beyond his/her/their specific demised premises such as, for example, rights of the tenant to take additional premises beyond the specific demised premises; rights of the tenant to have easements for parking, access, ingress and egress for employees and business visitors over premises beyond the specific demised premises; rights of the tenant to restrict building upon adjacent premises and the use to which they may be put. A tenant such as a major department store in a mall would wish to protect all of the foregoing rights against the acquisition by a subsequent party of inconsistent rights superior to his/her/theirs. 3. 4. 5. The term of the lease with the date of commencement and the date of termination; A description of the property demised under the lease so that it can be readily identified. If a right of extension or renewal is granted, a notation of the date by which such right must be granted and notation of the date by which such right must be exercised; If a right to purchase is granted, a notation of the date by which such right must be exercised; Under the Statute of Frauds the lease must be signed by the parties to be charged, which translates to the parties who can be sued; A reference to the place of location where the lease is to be on file.

6. 7. 8.

Failure to disclose the parties is fatal. See Mr. Justice Cardozo's opinion in Irvmor Corp. V. Rodewald 253 NY 472 Failure to include reference to special financing in the memo may wreck the transaction. For problems that can arise when the informal memo meets the required minimum elements for recording but contains the phrase "Formal contract to be signed on or

before", see Levine v. Lafayette Bldg Corp., 103 N.J. Eq. 121; reversed, 105 NJL (Error

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Chapter 25 - Page 2 LEASES Title Issues

and Appeals, 1929). reference: see Cribbet, Principles of the Law of Property, page 127 LEASES - MEMORANDUM - SURRENDER OF Where record title discloses (or information obtained at the closing table discloses) a lease or leases in existence, the title underwriter and closer should determine that they do not contain purchase options or rights of first refusal and if they do, that they have not been exercised and have been extinguished. The underwriter or closer should always get the consent of the lessor as to all aspects of the current transaction. The consent may be in the form of an estoppel certificate. They should also review a full copy of the lease agreement and avoid reliance upon a memorandum of lease. This is because specific reference to the tenants rights beyond the demised premises such as easements or business protective covenants may not be set forth on the memorandum of lease. See Kratovil, Modern Mortgage Law and Practice sec. 243 and 246 and Modern Real Estate Documentation sec 722. A lease may be assigned or pledged to secure a mortgage loan if its terms do not prohibit such action. The closer and underwriter should obtain consents of the landlord/lessor regarding any assignments of subletting if the lease is silent on these questions. Where a lease or memo of lease is recorded which contains a renewal option, require proof of surrender of the lease. This may be accomplished in one of two manners. Either obtain a copy of the surrender of lease or prepare a specific affidavit stating that the tenant has relinquished possession of the premises and the landlord has resumed possession thereof and that all conditions under the prior lease have been extinguished and that the two estates have wholly merged. For a Form of Surrender of Lease see Harvey on Title Closings page 509. Be alert to the fact that the surrender of the master lease does not always terminate the sub-leases where they were not made pursuant to the provisions of the master lease. The effect of the surrender in this case is to transfer the reversion to the owner and the sublessees becomes direct tenants [Metropolitan Life Ins. Co. v. Hellinger, 246 A.D. 7] When the lease is surrendered before its expiration, all judgments, liens and encumbrances affecting the lessee must be disposed of. These questions do not arise if the lease has expired or been legally terminated by judicial action. This may be regarded as a general TITLE RULE unless otherwise determined by statute or case law in the state where the land is located. LEASES - TENANTS RIGHT OF NON-DISTURBANCE In all large commercial loan transactions high credit sublessees are involved and they are likely to insist on non-disturbance clauses, which leave them in possession as long as

they pay their rent, no matter what happens to the ground lease. In those cases where

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Chapter 25 - Page 3 LEASES Title Issues

the lease contains within its terms a non-disturbance agreement do not automatically remove the pre-printed exception as to rights of tenants or parties in possession. The proper method by which such a condition should be handled is by excepting the lease and then affirmative insuring that the lessee's rights thereunder are subordinate to the mortgage being made but which lease contains a non-disturbance clause. LEASES-POSSIBLE USE RESTRICTIONS-OPPOSITION BY LANDLORD TO INTENDED USE BY PROPOSED ASSIGNEE Where we are put on notice that the landlord is opposed to the proposed use to which the leasehold assignee intends to operate the premises the title underwriter cannot ignore the objections. Actual notice by the insurer (and the insured) is addressed within the Exclusion From Coverage in the policy. The title commitment should be amended to include the following additional requirement and exception: "Terms, covenants and conditions as set forth in (unrecorded) lease agreement dated by and between and which contains but is not limited to those purposes more specifically set forth in paragraph no. therein. By (letter or other form of notice) we are advised that the landlord is strongly opposed to the use to which the leasehold assignee intends to use the leased premises. As a condition of underwriting title, this company shall require our insured to execute and deliver to the company an Indemnification and Hold Harmless Agreement for any loss or damage occasioned by the assertion that the said use constitutes a restrictive covenant." Naturally, the indemnitor would have to be a credit worthy financially responsible party capable of performing on the indemnity if called upon to do so. Refer to indemnities in Title Insurance Underwriting Principles and Exception Language. You must also continue to certify the usual lease exceptions. ASSIGNMENT OF RENTS Institutional lenders regularly require a collateral assignment of rents and leases as additional security for commercial loans. In the event of default and subsequent foreclosure, the lender can then step into the shoes of the former owner and continue to collect rental payments. A common fault in clearing title where an assignment of rents has been given as additional security for a mortgage, is to procure a release of the mortgage but forget about obtaining a release of the assignment of rents. This makes it necessary to obtain and record a release of the assignment of rents. Before you do this, check the mortgage. Some mortgages contain a provision that a release of the mortgage automatically releases the assignment of rents. See Kratovil, Supra. Chapter 26

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Chapter 25 - Page 4 LEASES Title Issues

INVESTMENT INCOME PROPERTY Commercial property is frequently bought and sold by developers and real estate investors. The lender will want the usual assurances that its lien is a first and paramount lien on the subject premises. Insuring clause 6 obligates the insurer of title to disclose all matters which may "prime" the insured mortgage. A common fault lies in the title examiner's failing to make inquiry of or requiring any or all of the following, all of which are necessary if we are to properly underwrite the transaction: 1. Assignment of Leases and Security Deposits 2. Assignment of Rent Roll 3. Surrender and Assignment of Original leases by seller at closing 4. Collateral Assignment of Rents and Leases for Mortgagee 5. Letter from seller to tenants advising of sale and instructing tenants to pay rents as directed by buyer 6. Delivery of "Estoppel certificates" from each tenant, acknowledging lease term and status of rent payments INSURING LEASEHOLD MORTGAGES WHERE THE FEE MORTGAGE IS TO BE SUBORDINATED. Reference notes: See Kratovil, Modern Mortgage Law & Practice, Preparation of Leases, 1962 PLI.

Generally, the leasehold mortgage made by the lessee to finance his leasehold improvements is second in priority to the ground rents. The following instruments will be delivered at the closing table. It is incumbent upon the closer to procure copies of all instruments, as they make up the moving papers. Remember, in "title states" such as Maryland, a mortgage is an absolute conveyance subject to defeasance. 1. 2. 3. Delivery of a copy of the original fee mortgage. Delivery of a proper corporate resolution authorizing the subordination of the fee mortgage to the leasehold mortgage. Delivery of Counsel's opinion as to the authority of the corporate officers to

execute the subordination of the fee mortgage.

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Chapter 25 - Page 5 LEASES Title Issues

4.

Delivery to the fee mortgagee of an agreement that there will be no amendments to the ground lease without his consent, where the effect of same would be to decrease the rent or increase the ground lessor's liability. Delivery of a subordination agreement subordinating the fee mortgage to the leasehold mortgage. Assignment of the ground lease as collateral security by the fee owner together with proper corporate resolutions authorizing same. If the original fee mortgage by its terms came prior to the lease, or held an assignment of the lease as collateral security, require the delivery of an assignment of the ground lease by the fee mortgagee to the leasehold mortgagee as collateral security for the mortgage debt. (This leaves only the reversionary fee prior to the leasehold mortgage. So long as the fee owner does not default on his fee mortgage, the fee mortgagee will not accede to the lessor's fee position. If the fee owner defaults, the leasehold mortgagee still remains superior so long as he controls the leasehold estate.) Production of a schedule of all subleases for inspection and assignment at closing; also, all guarantees by third parties of leases. Delivery of the fee mortgagee estoppel certificate stating the mortgage is in full force and effect and that the fee owner is not presently in default. Delivery of lease estoppel certificate from the holder of the ground lease representing that at the time of closing the lease is in full force and effect. Delivery by the ground lessor/fee owner of an affidavit listing all parties in possession which further represents that there are no rights or claims of said parties not shown of record together with the warranty that there exists no breach of covenant or conditions in existing leases. Delivery of an estoppel certificate from each tenant. Delivery of the service contracts. Delivery of receipted or unpaid tax bills and/or water bills. Delivery of the proper corporate resolution authorizing the execution of the leasehold mortgage. Delivery of the following for recording: subordination of the fee mortgage; ground lease; assignment of the ground lease as collateral security; the leasehold mortgage.

5. 6. 7.

8. 9. 10. 11.

12. 13. 14. 15. 16.

17.

Delivery of affidavits of title where required.

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Chapter 25 - Page 6 LEASES Title Issues

18. 19.

Production and delivery of the clearing proofs. Delivery of escrow agreements

INSURING LEASEHOLD MORTGAGES WITH FEE TITLE TO BE SUBORDINATED Note: For Advantages of Bringing the Fee Title under a Leasehold Mortgage see Kratovil, Modern Mortgage Law and Practice, ∋ 247; also Modern Real Estate Documentation, ∋ 722; also, Friedman, Commercial Leases, PLI The courts have not been kind to "future subordinations". Future subordinations are legally vulnerable. From a title insurance underwriting position they should be treated with great care. Liens can be subordinated but not ownership. The proper way for the owner of the fee simple title to subordinate his fee title to a leasehold mortgage is to join in the leasehold mortgage and the supporting documents. As inducement, the mortgage should contain clause (s) specifically exonerating the fee owner from liability on any express or implied covenants in the lease on the tenants part. If, despite the exculpatory language, the landlord will not covenant to join in the mortgage, the following alternatives may be employed upon approval of the Senior Title Officer: (i) delivery of a specific supplemental mortgage, executed by the fee owner at the time the leasehold mortgage is executed, conveying the fee to the leasehold mortgagee as security for payment of the leasehold mortgage debt, but without individual liability of the fee owner for payment of the debt or for breach of covenant. (ii) delivery of a specific subordination agreement signed by the fee owner at the time the leasehold is executed. (iii) in the event the latter alternative is used we shall require a written opinion of counsel stating that such subordination agreements are sanctioned by local court decisions. It is suggested, unless some form of indemnification is employed, that the closing be held in escrow to insure no prior liens may attach against the fee owner during the "gap" between execution and recording. The above outlined procedures are to be strictly adhered to unless otherwise amended on an individual basis. The problems with future or automatic subordinations are numerous. For example: (i) the fee owner is an individual who dies leaving minor heirs. Legal proceeding would need be commenced to appoint a guardian. In the event of foreclosure, the courts order directing sale would be hampered by (a) the fact that the fee was never conveyed to the mortgagee and (b) the possibility that title may be further subject to proceeding for guardian's sale of infant's lands.

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(ii) Bankruptcy is another problem, since an agreement to subordinate might be considered an executory contract, which the landlord's trustee in bankruptcy might disaffirm (∋ Old 70b Bankruptcy Act, sec 365 Bankruptcy Code; precluded by Bankruptcy Reform Act of 1994) Some or all of the following instruments will be required to facilitate the transfer of title. 1. Delivery by the ground lessor of a (i) supplemental mortgage, or (ii) specific subordination agreement subordinating his unencumbered fee title to the leasehold mortgage. 2. 3. In the event of (ii), delivery of opinion of Counsel. In the event the fee is encumbered by a mortgage, delivery of (i) the original fee mortgage; (ii) a subordination agreement subordinating the fee mortgage to the leasehold mortgage (iii) a proper corporate resolution authorizing the subordination. Delivery of fee mortgagee estoppel certificate stating that the fee mortgage is a valid and subsisting mortgage and that the fee owner is not presently in default or delivery of all paid notes on existing mortgage together with properly executed releases, discharges or satisfactions. Note: In New York, in order to delete in the latter instance, the closer will be obligated to do the pick-up. Delivery of a proper corporate resolution by fee owner authorizing the subordination of the fee or in the event the fee owner is a partnership the usual partnership requirements. Production of a schedule of delivery of all subleases for inspection (and assignment?) at closing; also, all guarantees by third parties of leases. Check for options to extend or cancel lease or abatement rights. Delivery of estoppel certificates from each tenant. Delivery of assignment of leases as collateral security for mortgage debt. Delivery by parent corporation of subsidiary lessee(s) of assignment of guarantee(s) insuring payment of rents and warranty (ies) that no breaches exist of covenants or conditions in existing leases. Delivery of any attornment or non-disturbance agreements. Delivery of the service contracts.

4.

5.

6.

7. 8. 9.

9a. 10.

11.

Delivery of receipted or paid tax bills.

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12. 13. 14. 15. 16. 17. 18.

Production of paid water bills. Delivery of the ground lease for recording. Delivery of the proper corporate resolution authorizing execution of the leasehold mortgage. Delivery of the new leasehold mortgage and assignments of leases as collateral security for recording. Delivery of affidavits of title if New Jersey property. Delivery of escrow agreements. Production and delivery of clearing proofs. The leasehold mortgage should contain a description of both the fee title and leasehold interest with a provision for separate foreclosure. However, if the lender insists on the mortgage simply describing the real estate as the property mortgaged, without the reference to the separate estates of the landlord and tenants. In that case call for:

Closer's Note:

19.

Production, if any, of a side agreement, stating that in the event of default the leasehold mortgagee will realize his security first against the leasehold and then against the fee title.

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ASSIGNMENT AND SUB-LETTING A. Assignment 1. An assignment is the transfer by the lessee of his entire estate without reserving any reversion therein himself. a. b. c. If the lease itself is required to be in writing, the assignment thereof must be in writing. A covenant against sub-letting does not prohibit an assignment. A covenant not to be assigned does not prevent an assignment by operation of law. Charcowsky v. Stahl, 189 N.Y.S. 2d 384 (1959) Putch v. Jacard Realty Co., 253 N.Y.S.2d 335 (1964) (1) R.P.L. ∋ 236 eff. May 11, 1965. Notwithstanding any provision to the contrary in lease made after May 11, 1965 relating to property used for residential purposes or partly for residential and partly for professional purposes: (a) The legal representative of a deceased tenant may request the landlord to consent to an assignment of the lease or to a sub-letting (i) The request must be accompanied by the written consent of any co-tenant or guarantor of the lease, and (ii) The name, business and home address of the proposed assignee or sub-lessee. Within 10 days after the request is mailed, the landlord may ask for additional information which would enable him to determine whether he would be acting unreasonably if he rejected the request. Within 30 days after the original request for consent or the additional information is mailed (whichever is later) the landlord must send a notice of his election either to terminate the lease or to grant or withhold his consent. If the landlord fails to send this notice, it shall be deemed a consent to the proposed assignment or sub-letting. If the landlord consents, the lease may be assigned provided the assignee assumes the lease and a written assumption agreement is delivered to the landlord, or the

(b)

(c)

(d)

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premises may be sub-let. In either case, the estate of the deceased tenant and any co-tenant remains liable for the performance of the provisions of the lease for the unexpired term. (e) If the landlord terminates lease or unreasonably refuses to consent, the lease is deemed terminated and the estate of the deceased tenant is discharged from liability. If the landlord reasonably refuses his consent, the lease continues in full force, subject to the right to make further requests for consent to an assignment or a subletting. The statute does not apply to proprietary leases, i.e., a lease held by a tenant by reason of ownership of stock in a corporate owner of property operated on a co-operative basis. Waiver of the statute is void as against public policy.

(f)

(g)

(h) 2.

The assignor remains liable on the express covenants in the lease-privity of contract. a. Assignor relieved when privity of contract destroyed.

3.

Liability of Non-Assuming Assignee a. Is bound by all the covenants in the original lease which run with land. (1) Liability terminates when privity of estate ceases to exist.

4.

Liability as Between Assignor and Non-Assuming Assignee a. The assignee is primarily liable.

5.

Liability of Assuming Assignee a. Is bound by all the covenants in the original lease from the time of the assignment. (1) (2) Is in privity of contract as well as privity of estate with landlord. Landlord may enforce assumption agreement as third party beneficiary.

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Kottler v. N.Y. Bargain House, 242 N.Y. 28 (1926) 6. Liability as Between Assignor and Assuming Assignee a. 7. The assignee is primarily liable.

Conditioner Leasing Corp v. Sternmor Realty, 17 N.Y. 2d 1 (1966) (Real estate purchaser of apartment house took possession of property and leased air conditioning equipment installed therein. He knew that rental for balance of term of lease of the equipment had already become due and payable and insisted upon possession of leased equipment. Held: He became liable as assignee of lease to pay accrued rent for balance of term under acceleration clause.)

B.

Sub-Letting 1. A sub-lease is a transfer of only part of the lessor's estate, leaving a reversion in him as to the premises sub-let. a. b. c. 2. Creates a new relationship of landlord-tenant between sub-lessor and sub-lessee. A sub-letting for more than one year must be in writing. A covenant against assignment does not prohibit a sub-letting.

Liability of Sub-Lessee to Original Landlord a. Is not liable to original landlord on any of the covenants contained in the original lease.

3.

Liability of Sub-Lessee to Sub-Lessor a. Sub-lessee is liable to sub-lessor on all covenants contained in sublease.

4.

Sub-Lessee's Rights a. b. Sub-lessee's rights may be limited by terms of paramount lease. Sub-lessee may pay to landlord rent for which sub-lessor is in default if landlord is willing to accept it. 305 Broadway Co. v. Stanpud Operating Corp., 264 N.Y.S.2d 327 (1965)

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C.

Cooperatives and Condominiums 1. Cooperative bylaws frequently provide that leases may not be assigned and share transferred without the consent of the board of directors or of a stipulated proportion of the tenant-stockholders. Absent a showing of discrimination based upon race, creed, color or national origin, this is valid and not a void restraint on alienation. Weisner v. 791 Park Ave. Corp., 6 N.Y.2d 426 (1959). 2. Condominium bylaws may include provision governing alienation provided the restriction is not based upon race, creed, color or national origin. R.P.L. ∋ 339-v.2.

RENEWALS AND EXTENSIONS A. No distinction between renewal - as requiring a new lease and extension - as being merely a continuation of the old term. Masset v. Ruh, 235 N.Y. 462 (1923) (T had lease for 3 years with option to renew and option to buy "at any time during term and existence of lease." T renewed lease and then sought to exercise option to buy. L refused to convey and T sought specific performance. Held: For T.) Gulf Oil Corp v. Buram Realty Co., 11 N.Y.2d 223 (1962) (T had option to buy "at any time during term of lease." After lease expired parties entered into 22 successive extension agreements and T sought to exercise option to buy 19 years after original lease made. Held: For landlord. Masset v. Ruh distinguished.) 1. An option to renew may be exercised by the original tenant or his assignee. Probst v. Rochester Steam Laundry Co., 171 N.Y. 584 (1902) a. If assignee exercises option to renew, he becomes personally liable for all rent to accrue during term as extended. Probst v. Rochester Steam Laundry Co., supra (1) b. Assignor also liable for breaches of lease by assignee during term as extended.

It may not be exercised by a sub-lessee. Loudave Estates, Inc. v. Cross Roads Improvement Co., Inc.,

214 N.Y.S.2d 72 (1961)

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2.

An option to renew is not self-perpetuating unless the intent of the parties that it shall be is explicitly stated. Burns v. City of New York, 213 N.Y. 516 (1915) a. No provision of a lease of real property which states that the term shall be renewed for a specified additional period unless tenant gives notice to lessor of his intention to leave the premises at the expiration of such term shall be operative unless the lessor at least 15 days and not more than 30 days prior to the time specified for the furnishing of such notice to him, shall give the tenant written notice, served personally or by registered or certified mail calling the attention of the tenant to the existence of such provision in the lease. G.O.L. ∋5-905 A waiver of G.O.L. ∋5-905 in advance is contrary to public policy. Boyd H. Wood Co. v. Horgan, 291 N.Y. 422 (1943) c. G.O.L. ∋5-905 is for the benefit of the tenant and he may take advantage of the automatic renewal clause even though the landlord did not give the required statutory notice. J.H. Holding Co. v. Wooten, 291 N.Y. 427 (1943)

b.

4.

Where lease gave tenant option to renew at a rent to be determined by the landlord, tenant exercised the option and landlord increased the rent fivefold, court could hold increase was unconscionable and fix an appropriate rent. Tai on Luck Corp. v. Cirota, 35 A.D. 380 (1970)

5.

In lease expiring in June tenant had the option to renew exercisable in writing before the end of March. Tenant during March in letter sent notice of his exercise thereof but the letter was misdelivered. When landlord came to the premises in early May to post a "For Rent" sign tenant informed landlord about the notice. Landlord refused to let the tenant exercise option at this late date. Held, the option had not lapsed on these facts since tenant was not guilty of bad faith and landlord was put on notice before he had started any steps to find a new tenant. Sy Jack v. Pergament Syosset, 27 N.Y.2d 449 (1971)

ASSIGNMENT OF RENTS Institutional lenders regularly require a collateral assignment of rents and leases as

additional security for commercial loans. In the event of default and subsequent

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foreclosure, the lender can then step into the shoes of the former owner and continue to collect rental payments. A common fault in clearing title where an assignment of rents has been given as additional security for a mortgage, is to procure a release of the mortgage but forget about obtaining a release of the assignment of rents. This makes it necessary to obtain and record a release of the assignment of rents. Before you do this, check the mortgage. Some mortgages contain a provision that a release of the mortgage automatically releases the assignment of rents. See Kratovil, Supra. Chapter 26 A. Common law rule - not deemed to be a conveyance of an interest in real property within meaning of Recording Act. Conley v. Fine, 181 App. Div. 675 (1919) B. R.P.L. ∋294-a changed common law rule: An assignment of rent may be recorded as a conveyance of an interest in real property and if not recorded is void as against a subsequent assignee of the rent or a subsequent purchaser of the land in good faith, for value, whose assignment or conveyance is first recorded. 1. The recording of an assignment of rent of itself is not notice to a tenant so as to invalidate a payment of rent made by him to the assignor. The tenant must have actual notice of the assignment.

C.

An assignment of rent must be in writing. King v. Kaiser, 3 Misc. 523 (1893)

HOLD-OVER TENANTS A. A hold-over tenant is one who voluntarily remains in possession after the expiration of his term or as a trespasser. Schuyler v. Smith, 51 N.Y. 309 (1873) a. As to holding-over commencing on or after Sept. 1, 1959: Where a tenant whose term is longer than one month holds over after the expiration of such term, such holding over shall not give to the landlord the option to hold the tenant for new term solely by virtue of the holding over. The landlord may, instead, proceed in any manner permitted by law to remove the tenant, or, if the landlord shall accept rent for any period subsequent to the expiration of such term, then, unless an agreement either express or implied is made providing otherwise, the tenancy created by the acceptance of such rent shall be a tenancy from month to month commencing on the first day after the expiration of such term. R.P.L ∋232-c

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(1)

When tenant remained in possession after end of term and landlord thereafter accepted rent, the tenant became one month-to-month liable for the rent fixed in the lease and not an amount calculated upon the value of use and occupation. Bonner v. Nash, 70 Misc. 2d 752 (1972)

(2)

When tenant knowing termination date of lease held over even though landlord had given him notice 21 days earlier that the rent after the term ended should increase, tenant was liable for the rent set by the landlord and had no right to claim he was entitled to 30-day notice. Rita Knitting Mills v. Seidler, 243 N. Y.S.2d 1002

2.

The holding over by an assignee will not be attributable to the assignor. Phelan v. Kennedy, 185 App. Div. 749 (1919)

3.

The hold-over by a sub-lessee will be attributable to the sub-lessor. Sullivan v. Ringler & Co., 59 App. Div. 184 aff'd, 171 N.Y. 693 (1901)

4.

Effect of landlord's action in refusing to accept rent from holdover tenant. Matter of Jarslow v. Lehigh Valley Railroad, N.Y. 2d 991 (1969)

TERMINATION OF LEASES A. The Expiration of the Term Matter of Vinson v. Greenburgh Housing Auth., 27 N.Y.2d 675 (1970) (Public housing authority cannot terminate a month-to-month tenancy simply by giving tenant one month's notice as provided in the lease, because the due process concept prohibiting arbitrary behavior by agents of government and the relationship between a housing authority and its tenants combine to require the housing authority to state a reason for the termination.) B. C. By Merger Surrender - The tenant yields up his unexpired term to the landlord so that it merges with the landlord's reversion. 1. Express

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a. 2.

When the unexpired term to be surrendered exceeds one year, the surrender must be in writing. G.O.L. ∋ 5-703

By Operation of Law - The parties to the lease do some act which is so inconsistent with the existing landlord-tenant relationship as to indicate that they have both agreed to regard that relationship as having terminated. Gray v. Kaufma Dairy & Ice Cream Co., 162 N.Y. 388 (1900) In re Barnes' Estate, 137 N.Y.S.2d 183 (1962) a. b. No writing is required. An abandonment by the tenant of the leased premises prior to the expiration of his term is not in itself a surrender and the landlord is under no duty to relet the premises to minimize his damages. Becar v. Flues, 64 N.Y. 518 (1876) c. If the tenant agrees that the landlord may relet the premises for the tenant's account and the landlord does so, he acts as agent for the tenant, does not re-assume control for his own account and does not effect a surrender by operation of law. Underhill v. Collins, 132 N.Y. 269 (1982)

D.

Summary Proceedings 1. The issuance of a warrant in a summary proceeding annuls the landlordtenant relationship. RPAPL ∋ 749 (3) a. The voluntary removal from premises by the tenant after issuance and service of petition and before issuance of warrant cancels the lease. Hoffman Brewing Co. v. Wuttge, 243 N.Y. 469 (1923)

E.

Survival Clauses 1. After the landlord-tenant relationship has been terminated, the lease is at an end and what survives is liability for damages and not for rent. Hermitage Co. v. Levine, 248 N.Y. 333 (1928) a. Liability for damages is single and entire and the amount thereof is to be ascertained when the term would have ended.

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b.

A damage clause may provide that the tenant shall be responsible for monthly deficits after re-entry by landlord. McCready v. Lindenborn, 172 N.Y. 400 (1902) Tenant will pay the difference in rent in equal monthly payments as the amount of such difference shall from time to time be ascertained. See also, Bedford Myrtle Corp. v. Martin, 209 N.Y.S.2d 201 (1960)

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Chapter 25- Page 1 LEASES ESTOPPEL CERTIFICATES AND LEASES AND MORTGAGE ON LEASE Legal Bulletin

1.

When we are to insure an assignment of a lease, a mortgage on a lease, an assignment of a mortgage on a lease or a sub-lease, call for the following: A duly acknowledged Estoppel Certificate is required from the landlord certifying that the lease is in full force and effect and that there is no existing default by the tenant in respect to any of the terms, covenants, conditions and agreements contained in said lease.

2.

When we are to insure an assignment of a sub-lease, a mortgage on a sub-lease or an assignment of such mortgage, we must call for two such Estoppel Certificates, one from the landlord in the sub-leases and one from the landlord in the main lease. In a separate exception we must call for the landlord's consent to the assignment, mortgage or sub-lease, if the lease requires it, or compliance with the requirements of the lease for assignment, mortgage or sub-lease.

3.

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MORTGAGES
DEFINITION AND DISTINCTIONS FROM OTHER FORM OF SECURITY A "mortgage" is any conveyance of land intended by the parties to be a security for payment of money or doing of some prescribed act. (Jeffrey Towers, Inc. v. Straus, 297 N.Y.S. 2d 350, 31 A.D. 2d 319 (1969)). It is not an alienation or transfer of title but is merely an imposition of a lien. (Resnick v. Croton Park Colony, Inc., 151 N.Y.S. 2d 328, 3 Misc. 2d 109 (1956)). A mortgage is in effect a contract and must be construed in accordance with the intention of the parties as expressed by the language they chose to imply. (Brayton v. Pappas, 383 N.Y.S. 2d 723, 52 A.D. 2d 187 (1976)). What distinguishes a mortgage from any other kind of security is the condition that if the debt it is given to secure is paid in accordance with its terms, it becomes a nullity; if not, it becomes, either automatically by its own operation, or by means prescribed by law, a conveyance absolute. (Wright v. Holbrook, 25 N.Y.S. 516, 18, affirmed 32 N.Y. 587 (1865)). A mortgage has been defined as "any conveyance of land intended by the parties at the time of making it to be a security for the payment of money or the doing of some prescribed act." (Burnett v. Wright, 135 N.Y. 543 (1892)). Although a mortgage is generally referred to as security for a debt for the payment of money, it may also be for the performance of a promise or non-monetary obligation. (Dechow v. Haverkamp, 198 App. Div. 83, 189 N.Y.S. 617 (1921)). TRUST DEEDS Trust deeds intended as security are generally deemed mortgages. (N.Y. Real Prop. Law ∋320). There is no statutory form for trust deeds as such in New York. PROPERTY AND INTERESTS SUBJECT TO MORTGAGE Property capable of being sold, transferred and delivered, or charged, by means of legal proceedings, with the payment of debts is such an interest as enables its owner to create a charge thereon. (Mutual Life Inc. Co. v. Shipman, 119 N.Y. 324 (1890)). In the narrow contemplation of the common law, it was insisted that a man could not transfer what was not his and therefore could not mortgage property or interests to be acquired in the future. (Jacobson v. Smith, 73 App. Div, 412, 77 N.Y.S. 49 (1902)). However, equity gave effect to such mortgages not recognized at law, deeming them implied contracts to pledge such interests when acquired by the mortgagor, and holding that an equitable mortgage attached upon such acquisition. (Kribbs v. Alford, 120 N.Y.

519 (1890)).

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Despite the different nature of realty and personalty, it is always within the competence of the parties to include within the charge of lien of a realty mortgage personalty or chattels. (Madfes v. Beverly Development Corp., 251 N.Y. 12 (1929)). Personal property therefore is not covered by the lien of a real property mortgage, unless included by a personal property clause. (Cohen v. 1165 Fulton Ave. Corp., 251 N.Y. 24 (1929)). The lien of a mortgage attaches not only to the land in the condition in which it was at the execution of the mortgage, but to everything which becomes by annexation a part of the realty during the existence of the mortgage. Improvements made upon the land and structures are immediately covered by the lien of the mortgage. (Gates v. DeLaMarc, 142 N.Y. 307 (1894)). DEBT OF OBLIGATION SECURED A debt which is the subject of a mortgage is a duty or obligation to pay money and an action can be brought to enforce that obligation. The debt secured by the mortgage may exist at the date of the execution of the mortgage or can be created later if the parties agree. (59 C.J.S. Mortgages 160-161; Brandenburg v. Tirino, 324 N.Y.S. 2d 126 (1971)). The character, terms and amount of the debt must be determined by looking at the instrument to find the actual intent of the parties. (Comellas v. Varicon Corp., 81 N.Y.S. 2d 449 (1948); Ketcham v. Willis, 28 N.Y.S. 2d 52 (1940)). Performance of unliquidated engagements, such as promises to build a new road and sewer, can be secured by a mortgage. (Application of Jeffrey Towers, Inc., 291 N.Y.S. 2d 41 (1968)). A mortgage given to secure an unliquidated demand which contains a limitation on the total amount for which it stands as security, must be strictly construed not enlarged. (59 C.J.S. Mortgages 167). Where a partial mortgage is given to secure a larger indebtedness, the presumption is, in the absence of evidence to the contrary, that it was not given as security for more than its principal sum. (Brandenberg v. Tirino, supra). A pre-existing debt or liability is a sufficient consideration for a mortgage. No new consideration is necessary at the time of the execution of the mortgage unless the mortgagor is a stranger to the debt. (59 C.J.S. Mortgages ∋ 91). FUTURE ADVANCES A mortgage may be made to secure future advances or indebtedness if it is executed in good faith. (In re Mayerhofer's Estate, 249 N.Y.S. 2d 896 (1964); In re Harris' Estate, 282 N.Y.S. 571 (1935)).

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There is no question as to the validity of mortgages to secure future advances or liabilities. They have become a recognized form of security. Their frequent use has grown out of the necessities of trade, and their convenience in the transaction of business. (Ackerman v. Hunsicker, 85 N.Y. 43 (1881)). SUPPORT AND MAINTENANCE A mortgage may be given to secure the performance of a contract or agreement by the mortgagor to provide support and maintenance to the mortgagee or to another person. (59 C.J.S. Mortgages ∋169). However, the mortgage must indicate or refer to the property as security for the obligation for support and maintenance. A separate agreement is not part of the mortgage. (Castelli v. Walton Lake Country Club, 112 N.Y.S. 2d 179 (1952)). INDEMNITY MORTGAGES An indemnity mortgage is a mortgage which is not based on a present debt but is meant to secure the mortgagee against loss or damage which may result because of a contingent liability or responsibility which he has agreed to assume on behalf of the mortgagor. It is valid and enforceable. (59 C.J.S. Mortgages ∋171). Generally, an indemnity mortgage cannot be enforced by foreclosure or sale of the mortgaged property until the mortgagee has become immediately and absolutely liable for its payment to a fixed amount, so that the fact and extent of the damage to him are definitely fixed. (Lewis v. Duane, 141 N.Y. 302, 36 N.E. 322 (1984)). EXTENSION OF SECURITY TO OTHER DEBTS OR LIABILITIES A mortgage which is given to secure a particular debt cannot be enforced as security for another or different debt, unless the parties agree otherwise. (Fulbany Realty, Inc. v. Perkins, 185 N.Y.S. 2d 605 (1959)). Unless the parties intend otherwise, a mortgage will cover any renewals of the note, bond, or other evidence of the original secured debt. (59 C.J.S. Mortgages ∋ 178b). INTEREST The right to recover interest on a mortgage debt arises because of a contract in or accompanying the mortgage. If no contract exists, no interest is owed by the mortgagee. (Washington St. Corp. v. Peninsular Nat. Bank, 279 N.Y.S. 2d 204 (1967)). BONUS TO MORTGAGEE Unless a bonus agreement violates usury statutes, a mortgagor can agree to pay a bonus to the mortgagee. The bonus or commission, if stipulated in the mortgage, becomes a

part of the mortgage debt and is covered by the security of the mortgage. (59 C.J.S. Mortgages ∋180).

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PARTIES The basic rule in determining the nature of the mortgage transaction, is that which requires the effectuation of the intention of the parties; similarly, this is the basis of the determination of who shall be deemed the parities in the transaction. Whether those who execute it are bound, depends upon the circumstances under which the instrument was delivered. These circumstances are open to proof by parol, and who is bound by the mortgage is subject to the equitable considerations of the court. (Chouteau v. Saydam, 21 N.Y. 180 (1860); Sprague v. Cochran, 144 N.Y. 104 (1894)). A mortgagor is one who owns property and, by a written instrument, pledges that property for some particular purpose, such as security for a debt. He must possess some title or interest in the mortgaged property. (Goodell v. Silver Creek Nat. Bank, 48 N.Y.S. 2d 572 (1944)). A person may act as a trustee even if he has an interest in the subject matter or debt secured by the mortgage. (59 C.J.S. Mortgages ∋84). The trustee does not have to be a resident in the state in which the mortgaged land is located. (Chelten Trust Co. v. National Automatic Press Co., 215 N.Y.S. 200 91926)). CONTENTS A mortgage of real property must be in writing to be valid and binding. No particular form or words are necessary to create a mortgage. The only requirement is that the instrument should clearly show: a) a present purpose on the part of the mortgagor/grantor to b) convey the title to a designated person as mortgagee c) which is to be held by the mortgagee as security for the payment of a certain sum of money or for the performance of an act by the mortgagor. (Citizen's National Bank and Trust Co. of Oneonta v. State Tax Commission, 87 N.Y.S. 2d 321 (1971)). The instrument must contain a sufficient description of the following subjects in order to be valid: 1) The first formal essential of the mortgage instrument is that it set forth the names of the parties. An instrument, purporting to be a mortgage, which is left blank as to the name of the payee, is absolutely void... However, if authority is expressly granted to fill in blank spaces left in a deed or mortgage, or if the granting of such authority is to be a legitimate factual inference, the grantor or mortgagor with respect to innocent third parties, may be bound by the words inserted. (Harlburt v. Walker, 258 N.Y. 8 (1932)).

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2)

The mortgage instrument must describe the property against which it creates a lien, so that "the thing granted can be sufficiently ascertained." (People ex rel. Myers v. Storms, 97 N.Y. 367 (1885)). And a description of the debt or liability secured. The mortgage must clearly refer to the obligation which the real property is to secure. (Jeffrey Towers Inc. v. Straus, 297 N.Y.S. 2d 450 (1969)).

3)

The covenant to pay a specified sum may be contained in a collateral instrument or in a mortgage by which the instrument is secured. (Broward Operating Co. v. Harding, 3 N.Y.S. 2d 696 (1938)). EXECUTION No problem poses itself when the mortgage is executed by the individual mortgagor in person, if the instrument is "in writing, subscribed by" him, as required by Section 5-703 of the General Obligations Law. However, when such mortgagor seeks to execute it otherwise than personally, other questions arise. The statute of Frauds as cited requires not only that the conveyance be in writing, but also that the power of attorney be in writing. (Sleeth v. Sampson, 237 N.Y. 69 (1924)). The execution of mortgage instruments by a corporate mortgagor involves different problems, and entails different considerations, than an individual's. The corporation, as an artificial entity can act only through its officers and agents. Whether any specific officer or agent is authorized to execute on the corporations behalf must be determined under the usual values of agency, in the absence of provisions to the contrary. (New York etc. R. Co. v. Dixon, 114 N.Y. 80 (1889)). ASSIGNMENT OF OBLIGATION 1. Assignment An assignment may be effected by delivery of the bond or note, or other evidence of the debt, together with the mortgage. (Weaver Hardware Co. v. Solomowitz, 235 N.Y. 321 (1923)). It may in some circumstances be effected by parol. (Levy v. Louvre Realty Co., 222 N.Y. 14 (1917)). But the assignment in writing is the surest and safest method of accomplishing the transfer. (Sanzoro v. Tassone, 120 N.Y.S. 2d 22 (1953)). The possession of an instrument of assignment by the assignee "is presumptive evidence of a delivery of the instrument . . . for valid consideration. (Davin v. Isman, 228 N.Y. 1, 7 (1920). An assignment of a mortgage should be in writing in order to pass the legal title to the assignee. (Sanzoro v. Tassone, supra).

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2.

CAPACITY OF PARTIES The parties to an assignment of a mortgage must have general contractual capacity and a capacity to consummate a transaction of this particular nature. (Application of Cosgrove, 87 N.Y.S. 2d 705 (1949); Larken v. Rejebian, 66 N.Y.S. 2d 776 (1946)). The capacity of a person to take an assignment of a mortgage is usually tested by the same rules which determine his capacity to hold the estate as original mortgagee. An interest in the mortgage or mortgaged premises will not usually affect his capacity to take the mortgage. (Mintz v. Kupferstein, 177 N.Y.S. 2d 652 (1958)).

3.

CONSENT The consent for an assignment may be implied. (Clark v. Rowell, 298 N.Y.S. 232 (1937)).

4.

CONSIDERATION An assignment of a mortgage must be supported by a good and valuable consideration in order to be valid. (59 C.J.S. Mortgages ∋ 351). As a general rule, an assignment given in satisfaction of, or as collateral security for, a pre-existing debt is not made on a valuable consideration unless something in addition is done to create a greater or different liability. (Orthey v. Bogan, 226 N.Y. 234, 123 N.E. 487 (1919)). The lack of consideration is not available as a defense to a person who is not a party to the assignment. (59 C.J.S. Mortgages ∋ 351).

5.

DELIVERY A physical transfer of the mortgage instrument or instrument evidencing the debt is not necessary to make an effective assignment. (Felin Associates, Inc. v. Rogers, 326 N.Y.S. 2d 413 (1971); Hebrew Home for Orphans and Aged of Hudson County, N.J. v. Freund, 144 N.Y.S. 2d 608 (1955)).

6.

NOTICE A mortgagor may deal with his mortgagee until he receives notice of facts putting him on notice of the assignment. (Chittick v. Thompson Hill Development Corporation, 245 N.Y.S. 71 (1963)). Once the mortgagor learns that the mortgage has been assigned, he is charged with "facts which could have been found by diligent investigation." (Finn v. Wells, 237 N.Y.S. 580 (1929)). However, until he has notice, the mortgagor may do whatever he legally might have done if no

assignment had been made. (59 C.J.S. Mortgages ∋ 353).

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If the assignee gives notice to the mortgagor, it must be distinct, unequivocal and clearly identify the assignee. (Barnes v. Long Island Real Estate Exch. and Inv. Co., 84 N.Y.S. 951 (1903)). 7. RECORDATION The recording of an assignment of a mortgage is permitted in New York but recording is not necessary to give notice of the mortgage to subsequent purchasers of the mortgaged premises. (Drobney v. Sullivan, 266 N.Y.S. 245 (1938)). The recording act applies only to subsequent assignee of the same mortgage but not to a subsequent purchaser or encumbrancer of the premises. (Chittick V. Thompson Hill Development Corporation, Supra). It is necessary to record an assignment of a recorded mortgage against a subsequent purchaser of the mortgaged premises but it may be necessary to protect against a subsequent purchaser of the mortgage. (Drobney v. Sullivan, supra). 8. TRANSFER OF A DEBT AS ASSIGNMENT OF MORTGAGE Where the holder of the evidence of the debt secured by the mortgage assigns that evidence without specifically assigning the security, the security passes to the assignee who succeeds to all of the rights of the assignor under the security. (Felin Associates, Inc. v. Rogers, supra). 9. OPERATION AND EFFECT OF A VALID ASSIGNMENT As a general rule, the operation and effect of a valid assignment or transfer of a mortgage transfers all rights and interests of the assignor. (Nichol v. Royal Nat. Bank of New York, 336 N.Y.S. 2d 916 (1972); Application of Riverside Drive 82nd St. Corp., 90 N.Y.S. 2d 549 (1949)). An assignment of a mortgage: 1) carries with it a power of sale if it is incorporated in the mortgage, 2) may operate to transfer the legal title to the mortgaged property where the mortgagee has the title, and 3) implies a warranty that is valid and subsisting agreement . (In re Brooklyn Trust Co., 295 N.Y.S. 1007 (1936)). 10. PRIORITIES OF ASSIGNEE The assignee of a mortgage is entitled to the same priority that the original mortgagee would have had. (Flushing Fed. Savings and Loan Assn. v. Kapner, 133 N.Y.S. 2d 187 (1954)).

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11.

RIGHTS OF ASSIGNEE The assignee of a mortgage has all the rights under the mortgage that his assignor had but no other or greater rights. (Mereogliano Lumber Corp. v. Sea Cliff Homes, 221 N.Y.S. 2d 920 (1961)). In taking an assignment of the mortgage, the assignee is justified in relying upon its terms. (Exchange Place Corp. v. Towan Realty Inc. 225 N.Y.S. 2d 1002 (1964)). The assignee of a purchase money mortgage has no greater rights than the mortgagee/assignor. (Gitlin v. Schneider, 247 N.Y.S. 2d 779 (1964)).

12.

LIABILITIES OF ASSIGNOR After the assignment, the assignor of a mortgage usually has no claim on the mortgage against the mortgagor. (59 C.J.S. Mortgages ∋384). However, the assignor is entitled to the purchase price from the assignee. (Melnick v. Drucker, 18 N.Y.S. 2d 928 (1938)).

PRIORITIES Unless the parties agree, there is generally no priority between several concurrent debts secured by the same mortgage. (Lowenfield v. Wimpie, 124 N.Y.S. 178 (1920)). However, the parties may agree on the order in which they shall be paid out of the proceeds (59 C.J.S. Mortgages ∋213). If several debts are secured by the same mortgage and are due or mature at different times, the priority of the lien is established by the order of their maturity. As a general rule the property of successive mortgages on the same property is determined in the order in which they have attached as liens. Where one gives a mortgage on property which he does not own at that time but later acquires title, the mortgage covers only the interest which he takes when title vests in him. A mortgage executed before the mortgagor acquired title to the premises is superior to a mortgage given by him after he had title in the property. (59 C.J.S. Mortgages ∋215). The assignee of the mortgage is of course, entitled to whatever priority his assignor would have had. (Flushing Fed. Sav. and Loan Assn. V. Kapner, 206 Misc. 564, 133 N.Y.S. 2d 187, 190 (1954)). But when the assignee seeks to enforce his claim he must be able to establish the bona fides of his assignor or any other facts essential to his priority. (Ardisco, Ltd. v. Taconic Holding Corp., 201 N.Y.S. 2d 992, 10 App. Div. 2d 973 (1960)).

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Where an assignee or mortgagee cannot refuse to perform or make advances without subjecting himself to damage or loss, such assignee or mortgagee takes precedence over subsequent lienors who file their liens, after the assignment or mortgage is made, but before the performance is rendered or advances are made. (Hyman v. Hauff, 138 N.Y. 48 (1893); New York & Suburban Fed. Sav. & Loan Assn. V. Fi-Pen Realty Co., 133 N.Y.S. 2d 33 (1954)). A conveyance of real property within New York may be recorded in the office of the clerk of the county in which the real property is situated. Any conveyance of real property which is not recorded is void as against: 1) any subsequent purchaser of the same real property (or portion) who acquires it in good faith and for a valuable consideration from the same vendor or assignor. However, it will not be void unless this subsequent purchaser records before the original conveyance, and 2) the lien upon the same real property (or portion) arising from payments made upon the execution of the contract with the same vendor. Again, however, the original conveyance is not void unless the lien is recorded first and the contract was made in good faith. (N.Y. Real Prop. Law ∋291, 1968). SATISFACTION AND DISCHARGE 1. DISCHARGE IN GENERAL The lien of a mortgage continues until the debt is paid or it is extinguished by release or operation of law. (Application of Haber, 230 N.Y.S. 2d 755 (1962)). Because of the modern doctrine which holds that the secured debt or obligation is the principal thing and that the mortgage is an incident or accessory to it, the general rule is that whatever extinguishes, discharges or satisfies the debt or obligation will also discharge the mortgage. (Carousel, Inc. v. Ingegno, 247 N.Y.S. 2d 534 (1963)). However, the debt and the mortgagor's liability for it are not the same thing so the mortgage is not discharged if it is the intention of the parties only to release the mortgagor's personal liability for it and not to extinguish the debt. (59 C.J.S. Mortgages ∋444). 2. PAYMENT OF THE SECURED DEBT the mortgage debt is satisfied when the debt is paid in full by the person primarily liable. The amount owned depends on the terms of the agreement. (In re Realty Associates, 267 N.Y. 91, 195 N.E. 694 (1939)). In order to discharge the mortgage, the payment should be made to the rightful owner of the mortgage or to one authorized by the mortgagee to receive payment. (Yuni v. Herscovitz, 32 N.Y.S. 2d 199 (1942)).

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The trustee in a deed of trust generally has no authority to receive payment. (Dye v. Lewis, 324 N.Y.S. 2d 172 (1971)). If the mortgage does not specify a time for payment, a reasonable time will be allowed. The mortgagor will generally not be compelled to make, or the mortgagee compelled to accept, payment before the due date. (59 C.J.S. Mortgages ∋447). Payment after default but before foreclosure is sufficient under the equitable or lien theory to discharge the lien. (59 C.J.S. Mortgages ∋ 447). 3. WHAT CONSTITUTES PAYMENT IN GENERAL The intended payment must actually reach the creditor or his agent before it is effective. (Union Bank v. Schneider, 128 N.Y.S 878 (1911)). The question of whether payment has been made so as to act as a discharge of the mortgage is dependent on their intention. (Sawyer v. Marmaro, 235 N.Y.S. 631 (1929)). Unless otherwise agreed, payment of the mortgage must be made in money. The taking of a note or bond for the amount due on the mortgage will not constitute payment unless the parties intend it to be payment. (59 C.J.S. Mortgages ∋ 448). 4. PAYMENT'S EFFECT Payment of the mortgage debt generally discharges the mortgage and terminates the mortgagee's rights. (Mann v. Sterling Holding Company, 179 N.Y.S. 2d 821 (1958)). The mortgagee is entitled to not more than full payment of the secured amount. (Central Hanover Bank and Trust v. Roslyn Estates, 42 N.Y.S. 2d 130 (1943)). Although payment is made, the parties may agree to keep the mortgage alive if innocent third parties are not prejudiced by such action. (Application of Cumberland Garage, 73 N.Y.S. 2d 571 (1937)). 5. PERFORMANCE OF PARTICULAR CONDITIONS If a mortgage agreement stipulates that the mortgage can be satisfied or released on the performance of some particular condition, performance of the condition discharges the mortgage by operation of law. (Jeffrey Towers, Inc. v. Straus, supra). A mortgage can also be conditioned to become void on the occurrence of a future event other than payment. If the future event occurs, the mortgage is discharged by operation of law. (Kellerman v. Kellerman, 164 N.Y.S. 2d 557 (1957)).

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6.

TENDER OF PERFORMANCE An unaccepted tender of the amount due on a mortgage does not discharge the mortgage debt. (Geary v. Dade Development Co., 29 N.Y.S. 2d 457 (1972)). A mortgage is discharged in New York by a proper tender made at any time after the mortgage becomes payable and before foreclosure. (In re Greenbaum, 14 N.Y.S. 983 (1939)).

7.

COMPROMISE AND SETTLEMENT A mortgagee's offer to accept less than the amount due on the mortgage debt is revocable before acceptance by performance by the mortgagor. (M.V.T. Corp. v. Mount Vernon Lodge, 31 N.Y.S. 2d 705 (1942)).

8.

CHANGE IN FORM IN DEBT As long as there is no agreement or mutual intention that the change of form operates as a payment of any express release, a mortgage is not discharged or its lien affected by any change in the form of the debt which it secures. (First national of Glens Falls v. Myers, 192 N.Y.S. 2d 940 (1959)). Where a note secured by mortgage is taken up, at or before the maturity date, and a new or renewal note is substituted for that note, the mortgage continues as security for the debt in its new form. The rights and remedies of the mortgagee do not change unless there is an actual agreement or mutual intention of the parties that the mortgage shall be discharged. (Felin Associates Inc. v. Rogers, supra). A mere change in the mode or terms of payment does not discharge or in any way impair the mortgage security unless there is an express release. (Schuler v. Schuler, 357 N.Y.S. 2d 572 (1974)). The mortgagor may agree by express or implied contract, to pay and the mortgagee to accept payment of the mortgage debt before its maturity. However, the agreement must be founded on or supported by some new consideration in order to be enforceable. (Feldman v. Rockford Co., 126 N.Y.S. 646 (1910)).

9.

ENTRY OF SATISFACTION; SATISFACTION OF RECORD If a mortgage is recorded, space is usually provided for an entry of satisfaction. (Drobeny v. Sullivan, 266 N.Y.S. 245 (1933)).

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ENFORCEMENT & FORECLOSURE A. FORECLOSURE Foreclosure is the means by which the mortgagor is deprived of the right to redeem the mortgaged estate. It denotes the end of a procedure adopted by the mortgagee to bar the rights of the mortgagor and includes the sale of the mortgaged property. (Capone v. Hinck, 296 N.Y.S. 346 (1937)). B. STEPS IN ACTION TO FORECLOSE An action to foreclose the mortgage cannot be commenced until: a) the plaintiff/mortgagee obtains a final judgment on the mortgage debt and b) an execution against the mortgaged property has been issued upon the judgment to the sheriff and c) the execution has been returned wholly or partly unsatisfied. The complaint must state whether any other action has been brought to recover any part of the mortgage debt, and, if so, whether any part has been collected. No other action shall be commenced or maintained to recover any part of the mortgage debt. (N.Y. Real Prop. Acts Law ∋1301, 1963). The purpose of this section is to avoid multiple litigations to recover the same mortgage debt and to confine proceedings to collect the mortgage debt to one court and one action. (Citibank Mid--Hudson, N.A. v. Rohdie, 368 N.Y.S. 2d 109 (1975)). In an action to foreclose a mortgage, the plaintiff must join all of the parties whose interests are subordinate to that of the mortgagee. (G.B. Seely's Son, Inc. v. Fulton-Edison, Inc., 382 N.Y.S. 2d 516 (1976)). The following persons must be made a party defendant if their claim is subject and subordinate to the plaintiff's lien: 1) every person who has an estate or interest in the property and every person entitled to the reversion, remainder or inheritance of the real property or any interest in the property; 2) every person having a right of dower or an inchoate right of dower in the real property or any part of it; 3) every person having any lien or encumbrance upon the real property which is claimed to be subject and subordinate to the lien of the plaintiff; and 4) where the mortgage is upon any of the public utilities regulated by the public service law. (N.Y. Real Prop. Acts Law ∋1311, 1963)..

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Any person who is liable to the plaintiff/mortgagee for payment of the debt secured by the mortgage may be made a defendant in the action. (N.Y. Real Prop. Acts Law ∋1313, 1963). If the defendant fails to answer or admits the right of the plaintiff , the court shall determine the amount due and whether a sale of the mortgaged premises will provide an amount sufficient to pay for the debt. (N.Y. Real Prop. Acts Law ∋1321, 1963). The plaintiff must file a notice of the pendency of that action at least twenty days before a final judgment directing a sale is rendered. The notice must specify the date of the mortgage, the parties and the place of recording. (N.Y. Real Prop. Acts Law ∋1331, 1963). The function of this notice is to carry out the public policy that a plaintiff's action shall not be defeated by an alienation of the property during the course of the lawsuit. (Mechanics Exchange Savings Bank v. Chesterfield, 309 N.Y.S. 2d 548 (1970)). The defendant/mortgagor can avoid foreclosure proceedings by paying the amount due for principal, interest and costs of the action into the court. (N.Y. Real Prop. Acts Law ∋ 1341, 1963). If a judgment of sale is given to the plaintiff/mortgagee, it must direct that the mortgaged premises be sold to pay the debt. (N.Y. Real Prop. Acts Law ∋1351, 1963). The primary purpose of a mortgage foreclosure judgment is to divest the mortgagor of his ownership of the mortgaged property and to make it, or the proceeds of the sale, available to the mortgagee to satisfy his claim. (DaCosta v. Hamilton Republican Club of Fifteenth Assembly District, 65 N.Y.S. 2d 500 (1946)). The right to redeem is an essential part of the mortgage. (Wallace v. McCabe, 245 N.Y.S. 2d 854 (1963)). The mortgagor has a right to redeem but if he fails to do so, he shall be excluded from claiming any title or interest in the property. (N.Y. Real Prop. Acts Law ∋ 1352, 1963). If there has been no redemption, the officer who conducts the foreclosure sale will execute a deed to the purchaser. The mortgagee/plaintiff may become a purchaser, as well as any other party to the action. However, before the officer executes the deed to the purchaser, the plaintiff must file the mortgage in the county recorder's office. (N.Y. Real Prop. Acts Law ∋ 1353, 1963).

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C.

NOTICE OF SALE Proper notice must be given by the person entitled to execute the power of sale. Proper notice as described by N.Y. Real Prop. Acts Law ∋ 1402 must state time and place of sale. Notice must be published in the county or in the municipal corporation a part of which is within the county in which the property to be sold is situated. A copy of the notice must be posed eighty-four (84) days before the date of sale, in a conspicuous place, at or near the entrance of the building where the sale is to be held. A copy of the notice must also, be delivered to the county clerk at least eighty-four days prior to the sale. (N.Y. Real Prop. Acts Law ∋1402, 1963). A copy of the notice may also be served in a like manner upon subsequent grantee or mortgagee of the property whose conveyance was recorded, in the proper office for recording in the county, at the time of the first publication of the notice of sale. (N.Y. Real Prop. Acts. Law ∋1402, 1963). Notice of sale will be given by personal service at least fourteen (14) days prior to the sale to any person whose conveyance is upon record. For foreign corporations or individuals not in the state notice will be given in a like manner at least twenty-eight (28) days prior to the day of sale. Notice will be given to any others in the same manner or by depositing a copy of the notice in the post office directed to the person to be served, at his place or residence, at least twenty-eight (28) days before the sale. (N.Y. Real Prop. Acts Law ∋ 1403, 1963).

D.

SALE The sale must be at public auction, in the daytime, on any day other than Sunday or a public holiday, in a county in which the property is situated. (N.Y. Real Prop. Acts. Law ∋ 1407, 1963). A purchaser of the mortgaged premises, upon a sale conducted as prescribed by this statute, obtains title thereto, against all bound by the sale, without the execution of a conveyance. (N.Y. Real Prop. Acts. Law ∋ 1425, 1962). The purchaser at the foreclosure sale is not required to pay the purchase money until affidavits setting forth the particulars of the notice and sale (as required by section 1421 and 1422) are filed or delivered to him for filing. (N.Y. Real Prop. Acts Law ∋ 1425, 1962).

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MORTGAGES - CLEARANCE One of the most important title defects to be considered by the contract draftsman and underwriter is the mortgage to be cleared at closing. See 53 ALR3d 678. This is considered elsewhere. See Kratovil, Modern Real Estate Documentation Chapters 16,17 and 19. The important thought to bear in mind is that all outstanding mortgages must be satisfied, subordinated or otherwise disposed of. Title practices are different throughout the country. Local custom will rule. Whenever possible, obtain the original mortgage with a satisfaction piece together with the canceled note or bond. If the mortgage has been spread, you must also obtain the original spreader agreement with the satisfaction piece. If the mortgage is to be satisfied, obtain a pay-off letter from the lender in advance of closing and verify the per diem interest through the date of closing, plus a cushion sufficient to cover the number of days necessary to get the closing proceeds to the prior lender. MORTGAGES AND OTHER LIENS If the title commitment shows a recorded mortgage or other lien, it is quite customary to pay off the lien at closing, by use of part of the purchase price. Where a purchaser is paying off the mortgage, he must pay the right party. He comes under the payment rule rather than the release rule. Kratovil, Modern Mortgage Law and Practice Chapter 37. Where the mortgage is a deed of trust running to a corporate trustee, a release deed by the corporate trustee is usually acceptable. Where the trustee is an individual, the title company will ask to see the canceled deed of trust and note. At times the deed of trust and note cannot be produced. They have been destroyed or mislaid. In such case, the title company or purchaser will usually demand a lost mortgage or note affidavit and surety company bond. Who knows, for example, who is holding a bearer note secured by a deed of trust? If, however, the deed of trust secures a note running to a well-known lending institution, a corporate trustee will issue its release deed on proof furnished by the lending institution that the institution never sold, pledged, or otherwise disposed of the papers and that the debt was paid in full. If the party holding the mortgage or other lien cannot be paid in full, usually because the amount of his lien is larger than the sale price, he may be willing to give a partial release of his lien as to the property sold. This is a release in ordinary form coupled with a statement that the release is confined to the particular land described. Obviously a satisfaction of mortgage cannot be used in this situation. That form is used only where the debt is paid in full. In some cases a lienor may be willing to subordinate his mortgage to the new mortgage, in which case a subordination of lien is employed. See Subordinations and Kratovil, Modern Real Estate Documentation, Chapter 36.

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MORTGAGES - ACCOMMODATION MORTGAGES MADE BY CORPORATION When an accommodation mortgage is made by a corporation for the benefit of the individual(s) in the corporation, question arises as to whether the first requirement appearing in Schedule B-1 of the Title commitment has been complied with. In such a situation the proceeds of the mortgage go to the individual and not to the corporation in which case the corporation does not have the use of the funds which are secured by corporations mortgage on its property. Such a mortgage is likely to be determined to be as to both present and future creditors. A similar risk is present where a mortgage is given by a corporation for the sole purpose of financing the purchase of the stock of the corporate mortgagor by third party stockholders. In that instance the risk is that the proceeds of the loan will be used by the third party individuals to finance the purchase of corporate stock. See Roxbury State Bank v. The Clarendon, 303 A2d 340. Therein the court held that "a corporation may not lawfully executed a bond secured by a mortgage on corporate property, to the detriment of its creditors, as a pure accommodation to one or more of its stockholders". In such a case the creditors rights exclusion must not be removed or modified. Such a transaction may also constitute a reduction of corporate capital without complying with statutory procedures for such purpose, in which case the transaction would be void. This requires a review of the state statutes. If the transaction would be void the title insurer should decline to guaranty the validity of the lien altogether. see also: Collateral Mortgages in Title Insurance Underwriting Principles and Exception Language. MORTGAGES - AFTER ACQUIRED PROPERTY CLAUSE In commercial loan transactions it is customary to insert in corporate mortgages or deeds of trust an after-acquired property clause, by which it is agreed that the lien of the mortgage or deed of trust will extend to and cover property subsequently acquired and attached to or installed in or upon the mortgaged property. Such clause is valid and enforceable against the mortgagor [Pa. cases cited in Ladner, Conveyancing in Pennsylvania, sec 12.18 n.44] With regard to a mortgage which may also extend to lands acquired by the mortgagor in the future, such property is said to be subject to an equitable mortgage [Cunningham and Tischler on Mortgage, sec. 55, 113 and 114 (1975)]. Such mortgages will frequently not appear in the chain of title to the property being examined. A subsequent mortgagee or purchaser for value without notice of the prior mortgage will obtain priority over the mortgage containing an after acquired property clause, also sometimes called a "Dragnet Clause", Tischler, supra, sec 113 n. 94 citing major Treatise. The underwriter should take note of the fact that while the law is pretty clear on the effect of such a mortgage clause upon the priority rights of a subsequent purchaser or lender without knowledge, it is less clear as to how it may apply to the contractual obligations of a title insurer under insuring clause 6 of the loan policy. Remember, real property law and contract law can sometimes conflict and a title insurer must look to both sometimes when undertaking his task. For example, if the mortgages

which do appear in the chain of title contain cross default or cross collaterization

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provisions to other mortgages prudent underwriting would necessitate further investigation. This highlights an important point that cannot be emphasized enough. When examining title to commercial property, the title examiner/underwriter must examine, review and read thoroughly all mortgages set forth in the title search in their entirety. For general observations on clauses in large-scale transactions refer to Kratovil, Modern Real Estate Documentation, chapter 25 in its entirety. Examining abstracts will not suffice. If the examiner or underwriter does this, he/she runs the risk of certifying either those mortgages or the mortgage to be insured in the wrong position of priority. Furthermore, every effort must be made to avoid referring to the insured mortgage by reference to recording data in lieu of a property description. This is particularly crucial in the case of commercial mortgages which contain after-acquired property clauses. Title insurers do not wish to be seen as insuring (by implication) the validity of such a clause, or that the mortgagor will acquire an interest in a particular parcel of property in the future. MORTGAGES - ASSIGNMENTS OF MORTGAGE - PROCEDURE No assignment of a mortgage should be insured unless there is evidence of delivery of the bond or note and the mortgage which it secures. In addition, instruments of estoppel should also be secured. By way of brief explanation, it is fundamental that the bond or note is the evidence of the debt while the mortgage is the security for the indebtedness. Because the mortgage is the security for the obligation the courts have held that an assignment of the mortgage alone would be of no effect. The security cannot be separated from the indebtedness and cannot exist independently of it. Therefore, no assignment of a mortgage can be insured unless the bond or note are also delivered with the assignment. Delivery is essential. In confirmation of the validity and value of the bond and mortgage, an estoppel certificate must be obtained from the owner of the property and the indebtedness and should state the amount presently due on the mortgage, the interest rate, and that there are no offsets or defenses to the mortgage. From the assignor the company requires a statement that the assignor has not accelerated the maturity of the indebtedness or, if he has, that there has been a proper reinstatement of the obligation. MORTGAGE - DOCTRINE OF MERGER Where the record title shows that the owner of the mortgage subsequently acquired fee title the doctrine of merger of estates should not be presumed. While a merger at law follows inevitably upon the union of the greater and lesser estates in the same ownership it does not so follow in equity. The doctrine is not favored in equity and there the estates will be kept separate where such is the intention of the parties. The examiner or underwriter must also consider the possibility of an unrecorded assignment. The courts have held in some cases that an assignee of an unrecorded mortgage may prevail against a subsequent bona fide purchaser. See Curtis v. Moore, 152 N.Y. 159 decided by the New York Court of Appeals. The facts of that case are as follows: The holder of the mortgage assigned it to a person who did not record the assignment. Thereafter, the mortgagee and holder of the mortgage acquired the fee title. On the face o