Volume 1 Number 4

 

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Title Tips by Tute

Volume 1, Number 4 
Winter 1995


Dear Tute: 

            John and Mary Homeowner owned property as tenants by the entirety.  There was significant tension in their relationship, which was released when John (it is alleged) killed Mary. Shortly thereafter, John was found by the police in The Flophouse Motel, refused to submit to custody, and died himself in a hail of bullets.  Mary's will left her property to her husband, and if he predeceased her, to her children.  John's will left his property to his wife, and if she predeceased him, to a trust for the use of his children.  The children are minors.  The executor of the wife's estate has the power to convert all her assets to cash prior to distribution to the spouse or children.  The husband's will contains no such language.  Who owns the property, the kids or the trust?  

                                                            - M.A. 

Dear Tute: 

            Bill and Betty Boop owned property as tenants by the entirety.  Their marriage was not going well, and after catching Betty in flagrante delicto with a paramour, Bill filed for divorce and custody of their children.  The court granted Bill's petitions, and two days after entry of the divorce and custody decree Betty committed suicide.  Bill is now trying to sell the property.  Can he? 

                                                            - D.D. 

  
Dear M.A. and D.D.: 

            This is not Dr. Ruth, or Dr. Joyce, or Oprah!  It is a good thing you both remembered to ask some sort of title questions, or Tute would have referred you to the TV talk shows.   Since these questions both involve marital discord, I'll try to answer them together.  

            First, Tute expresses condolences to the children.  What chance do they have of growing up sane in a world where their parents are falling apart right in front of them? 

            D.D., your question reminds me of an episode of L.A. Law several years ago.  The bad guy was accused of swindling little old ladies out of their retirement accounts.  While undergoing cross examination, he drops dead of a heart attack.  The only asset left in the known world (apparently everything else is hidden in trusts for his family) is a life insurance policy. Even before trying to administer CPR, the attorney moves to attach the life insurance policy.  (Gee, attorney's can be real cold, can't they?)  If Bill's attorney had petitioned the court to vacate its decree and dismiss the divorce petition as if it hadn't been filed, he might have inherited the property pursuant to the tenancy by the entireties.  (And I called attorneys cold. Shame on me!) 

            As it is, the divorce decree converted the entireties estate to one of tenants in common.  When Betty died, her half passed according to her will, or by the statute of descent.  Tute would wager that either way, the children now own a half interest.  If they are still minors, a petition to the court pursuant to §8.01-67, et seq., for the sale of their half interest would be in order. 

            M.A., you may be in luck.  Virginia has a "slayer's" statute, which prohibits anyone from inheriting property from a person they have murdered.  See § 55-401, et seq.  The section dealing with tenants by the entireties states that the interest of the slayer vests in the estate of the decedent.  § 55-405. This suggests that John's estate has no interest in the entireties property. 

            Unfortunately, John was shot down like the dirty dog he apparently was, and there will never be a criminal case and conviction as required in § 55-401.  A civil proceeding may be instituted to reach a fact finding that John killed Mary.  The statute permits that, stating 

"Slayer shall mean any person (i) who is convicted of the murder of the decedent or, (ii) in the absence of such conviction and where such person has not been acquitted and is not available for prosecution by reason of his death by suicide or otherwise, who is determined by a court of appropriate jurisdiction by a preponderance of the evidence to have murdered the decedent.


            Since the Commonwealth rarely prosecutes dead people, Tute thinks it would be safer all around to obtain a court order finding John was the slayer, and Mary's estate includes all the entireties property.  Gentlemen, start your timeclocks.  You're going to litigate!  Tute learned long ago that it was safer and more profitable to wager on horses and greyhounds than on the anticipated results of litigation. 

            To go out on a limb, it might be possible to insure a voluntary transaction if John's Executor and Trustee were to join in the conveyance instrument prepared by Mary's Executor in order to release any claim of title arising by reason of the entireties deed.  Such a joinder, especially if coupled with a waiver of the right to receive proceeds might be tantamount to an admission by John's estate that he was a "slayer."  If that admission were to significantly impact on John's estate plan, it might be difficult to obtain. 

                                                                Tute  




Dear Tute: 

            I am examining the title to property to be purchased at a foreclosure sale.  In addition to the land, this deed of trust also described a number of personal property items, including the stove, dishwasher, refrigerator, wall to wall carpet and air conditioning system.  After the recordation of the deed of trust, the borrower apparently made some improvements.  I found UCC financing statements from a local furniture store listing as collateral a stove and refrigerator.  I also found one from a "home improvement" group listing siding as the collateral.  Both are marked as "index against the owner of the real estate" by the creditor, and both statements attached a description of the property I am searching.  Should I report these to the underwriter, and what is their priority? 

                                                                C.B.L. 



Dear C.B.L.: 

            One of the primary rules of examining is "Admit to the underwriters what you don't know."  Then make sure they get full copies or abstracts of the pertinent documents so they can forward it to their underwriting counsel, since the underwriter probably doesn't know either.   

            This question gets into the very tricky area of fixtures, fixture filings, and conflicting priorities between types of security instruments.  The Uniform Commercial Code was designed, in part, to codify the body of law dealing with the sale of goods, and the creation and retention of security interests in those goods.  The UCC (located in Title 8.1 through 8.11 of the Code) defines goods at least twice.  Virginia Code § 8.2-105 (which is in the section dealing with sales) defines goods to mean: 

all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Title 8.8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (§ 8.2-107).

. . . Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are "future" goods. A purported present sale of future goods or of any interest therein operates as a contract to sell. 

 

Virginia Code § 8.9-105 (which is in the section dealing with secured transactions) defines "goods" as 

all things which are movable at the time the security interest attaches or which are fixtures as provided in § 8.9-313, but does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like (including oil and gas) before extraction. "Goods" also includes standing timber which is to be cut and removed under a conveyance or contract for sale, the unborn young of animals, and growing crops;


That doesn't seem to help much, does it?  Fixtures and fixture filings are defined in § 8.9-313 as 

   (a) goods are "fixtures" when they become so related to particular real estate that an interest in them arises under real estate law;  

   (b) a "fixture filing" is the filing in the office where a mortgage on the real estate would be filed or recorded of a financing statement covering goods which are or are to become fixtures and conforming to the requirements of subsection (5) of § 8.9-402; 

 

Any clearer yet?  No, well, let's see their definition of "mortgage" which is in § 8.9-105: 

   (j) "Mortgage" means a consensual interest created by a real estate mortgage, a trust deed on real estate, or the like;


That almost makes sense, even though it doesn't really add much to the discussion.  Things start to get interesting when we look at those sections of the UCC which deal with rules of priority. For instance, in § 8.9-313, 

  (2) A security interest under this title may be created in goods which are fixtures or may continue in goods which become fixtures, but no security interest exists under this title in ordinary building materials incorporated into an improvement on land.  

  (3) This title does not prevent creation of an encumbrance upon fixtures pursuant to real estate law. 

  (4) A perfected security interest in fixtures has priority over the conflicting interest of an encumbrancer or owner of the real estate where  

   (a) the security interest is a purchase money security interest, the interest of the encumbrancer or owner arises before the goods become fixtures, the security interest is perfected by a fixture filing before the goods become fixtures or within twenty days thereafter, and the debtor has an interest of record in the real estate or is in possession of the real estate; or . . . 

   (c) the fixtures are readily removable factory or office machines or readily removable replacements of domestic appliances which are consumer goods, and before the goods become fixtures the security interest is perfected by any method permitted by this title; or . . .


            This almost looks like it might answer your question.  If the stove and refrigerator are treated as fixtures, and the furniture store retained a security interest as part of the purchase money, then it would still have priority over the mortgage if the store perfected its security interest before the appliances were installed in the house, or at least within 20 days of the sale.  Subsection 4(c) suggests that as long as these are "readily removable replacements of domestic appliances" time limits may not matter. 

            If the siding was considered "ordinary building materials incorporated into an improvement on land" then it appears that there may be no security interest left per sub-paragraph 2.  If treated as a fixture filing under sub-paragraph 4(a), then it appears that the financing statement for the siding will have priority, so long as it is to secure the purchase money and was perfected within 20 days. 

            Before you can begin to know the answer to the question of priority, you will need to obtain additional information about the appliances (Are they still there? Did the borrower remove them, or the store repossess them?), dates (date of purchase as compared to date of filing), installation (free standing or installed?).  Transactional questions may make a decision irrelevant.  The foreclosing lender could take the appliances back and require a release.  The purchase price brought at the sale might be sufficient to pay both the note, and the balance of the price on the appliances and the siding.  In such a case, the releases could be obtained without asking the hard question of who had priority over what. 

            Unfortunately, this puts you and your underwriter in the unpleasant position of asking for additional facts, and attempting to draw legal conclusions from those facts in order to issue your title policy.  There are some segments of the population who feel that title companies should not do those things.  Thus, since title insurance is a "risk-elimination" line of insurance, and the the answers to these questions depend on facts which may or may not be answerable, the proper decision on your part is to list the financing statements, and require their release.

                                                                Tute 

 

 

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