The Race to the Courthouse is fixed

 

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The Race to the Courthouse is fixed:

In Virginia Beach, You Lose!

 

June 12, 2003

 

Another milestone in the efforts of Government to destroy private property rights?

 

 

            To a seasoned title examiner, the words of Franklin D. Roosevelt, "a day which will live in infamy," are not too strong for what happened today.  Today the last major title insurance underwriter trying to do its job and examine the land records before recording transactional documents was forced to give up its efforts to do its job in the City of Virginia Beach.  A private enterprise devoted to protecting the public (and its shareholders and its existing policyholders) was forced to sacrifice its sound business judgment on the altar of governmental inefficiency. 

 

            To provide a little background.  The Clerk of the Circuit Court is the "office of record" for documents affecting land titles.  The Clerk is required by statute to record those documents (if they otherwise comply with the statutory requirements). 

 

17.1-223. Duty of clerk to record writings, etc., and make index.

Every writing authorized by law to be recorded, with all certificates, plats, schedules or other papers thereto annexed or thereon endorsed, upon payment of fees for the same and the tax thereon, if any, shall, when admitted to record, be recorded by or under the direction of the clerk on such media as are prescribed by 17.1-239. However, the clerk may refuse to accept any writing for filing or recordation unless (i) each individual's surname only, where it first appears in the writing, is underscored or written entirely in capital letters, (ii) each page of the instrument or writing is numbered, (iii) the Code section under which any exemption from recordation taxes is claimed is clearly stated on the face of the writing, (iv) the names of all grantors and grantees are listed as required by 55-48 and 55-58, and (v) the first page of the document bears an entry showing the name of either the person or entity who drafted the instrument, except that papers or documents prepared outside of the Commonwealth shall be recorded without such an entry. In addition, no deed shall be accepted for record by the clerk unless it is accompanied by a current business or residence address of the grantee or a designee. However, if the writing or deed is accepted for record and spread on the deed books, it shall be deemed to be validly recorded for all purposes. Such books shall be indexed by him as provided by 17.1-249 and carefully preserved. Upon admitting any such writing or other paper to record the clerk shall endorse thereon the day and time of day of such recordation. More than one book may be used contemporaneously under the direction of the clerk for the recordation of the writings mentioned in this section whenever it may be necessary to use more than one book for the proper conduct of the business of his office. After being so recorded such writings may be delivered to the party entitled to claim under the same.  (Code 1919, 3392, 17-59; 1926, p. 465; 1934, p. 514; 1979, c. 527; 1983, c. 293; 1985, c. 246; 1986, c. 167; 1990, c. 374; 1996, c. 454; 1998, c. 872.)

 

            The Clerk is required by statute to make up a general index, and if the general index cannot be kept current, is permitted to create and use a "daily index" until the instruments can be entered into the general index.

 

17.1-249. General indexes for clerks' offices; daily index.

A. There shall be kept in every clerk's office modern, family name or ledgerized alphabetical key-table general indexes to all deed books, miscellaneous liens, will books, judgment dockets and court order books. The clerk shall enter daily either in such general indexes or in the daily index to instruments admitted to record every deed, corrected or amended deed, deed of release, deed of trust, contract of sale, or any addendum or memorandum relating to any of these instruments, indexing each instrument in the names of all parties listed in the first clause of each instrument as required by 55-48 and 55-58. Any clerk, deputy clerk, or employee of any clerk who so indexes any such instrument shall index any name appearing in the first clause of the original instrument.

B. A deed made to one or more trustees to secure the payment of an indebtedness, and any certificate of satisfaction or certificate of partial satisfaction, assignment, loan modification agreement, substitution of trustees or similar instrument subsequently recorded with respect to such deed, shall be sufficiently indexed if the clerk enters in the appropriate places in the general index to deeds provided for in subsection A the names of the grantor and the name of the beneficiary or, in lieu of the name of the beneficiary, the first listed trustee as grantee. The beneficiary need not be named in the first clause of the deed as a condition of recordation.

. . . 

E. Every deed of conveyance of real estate in which a vendor's lien is reserved shall be double indexed so as to show not only the conveyance from the grantor to the grantee in the instrument, but also the reservation of the lien as if it were a grant of the same from the grantee to the grantor by a separate instrument and the fact of the lien shall be noted in the index.

F. All deed books, miscellaneous liens, will books, judgment dockets, and court order books shall be numbered or otherwise adequately designated and the clerk upon the delivery of any writing to him for record required by law to be recorded shall duly index it upon the general index in the manner hereinbefore required. When the writing has been actually transcribed on the book, the clerk shall add to the general index the number of the book in which, and the page on which, the writing is recorded.

G. The clerk on receipt of any such writing for record may immediately index it in a book to be known as the "daily index of instruments admitted to record" and within ninety days after its admission to record the clerk shall index all such writings indexed in the daily index in the appropriate general index as hereinbefore provided. The daily index book shall, at all times, be kept in the office of the clerk and conveniently available for examination by the public. During the period permitted for transfer from the daily index to the general index, indexing in the daily index shall be a sufficient compliance with the requirements of this section as to indexing.

. . .

I. The clerk may maintain his indexes on computer, word processor, microfilm, microfiche, or other micrographic medium and, in addition, may maintain his grantor and grantee indexes on paper.

(Code 1919, 3394, 17-79; 1920, p. 105; 1926, p. 125; 1936, p. 82; 1944, p. 355; 1952, c. 34; 1960, c. 146; 1974, c. 515; 1983, c. 293; 1990, c. 374; 1991, cc. 203, 204; 1998, c. 872; 2002, cc. 276, 832.)

 

How important is timely handling of real estate transaction documents?  Important enough that a lender forfeits $500 for failure to deliver a release within 90 days, 55-66.3.  A Clerk is subject to a fine of between $25 and $100 if the release is not indexed within 10 days of recording, 55-66.6. (30 days after July 1)  Important enough that prior to the 1998 amendments creating 17.1-223, a clerk could be penalized $20 for every failure to comply with the requirements of the statute.

 

Any clerk failing to comply with the provisions of this section or of 17-79 (now 17.1-249) shall, for every such failure, forfeit the sum of twenty dollars. (from repealed 17-59)

 

A Clerk is subject to a fine of between $25 and $500 if they fail to comply with the duties imposed by Article 7 of Title 17.1, 17.1-291.  That article deals with fees.

 

    17.1-283. Statements required of clerks of courts of record; exceptions.

 

    A. Every clerk of a court of record, except the Clerks of the Supreme Court and the Court of Appeals, shall file monthly with the Compensation Board a full and accurate statement showing all such fees, allowances, commissions, salaries or other compensation or emolument of office, derived from the Commonwealth or any political subdivision thereof, or from any other source whatever, collected or received by him. The statements shall include the date of collection and sources from which the collections were made, and shall be verified by a procedure agreed upon by the Compensation Board and the Auditor of Public Accounts. The statements shall be open to public inspection at all times.

 

    B. The statements shall show in detail all sums actually paid for necessary office expenses, premiums on official bond of the principal and deputies, name and amount of compensation to each deputy or assistant, and a detailed statement of every other expense in connection with the administration of the office actually paid out. (Code 1950, 14-145, 14-147, 14-148; 1952, c. 446; 1960, c. 584; 1962, c. 439; 1964, c. 386, 14.1-136, 14.1-138, 14.1-139; 1971, Ex. Sess., c. 155; 1983, c. 293; 1996, c. 696; 1998, c. 872.)

 

How can a Clerk report revenues received in a month when they haven't even been looked at?

 

The Clerk of the Circuit Court of the City of Virginia Beach receives 900 to 1200 documents per day.  The Commonwealth of Virginia, as is the case with many state governments, has a budget problem.  Last spring, the Governor of Virginia, Mark R. Warner (D), required all state agencies to cut spending and staff.  At that time, the Clerk's Office was holding even . . . falling behind a couple of days at the end of the month when many transactions occur, but catching up again shortly thereafter. 

 

            Today, the Clerk's Office has a backlog of approximately 40 to 50 boxes of documents.  These documents have not been indexed in the land records.  They have not been reviewed by the Clerk's staff for suitability for recording, or to determine if the proper amount of recording fees and taxes are attached.

 

            That last feature is part of what makes this debacle an example of the most criminal features of the governmental practice of "across the board" staff reductions.  Organizing, administering and preserving the records of land ownership is one of the sacred duties of government.  You and I and every land-owning resident of the Commonwealth relies on our government for the land records system.  The importance of this duty is reflected in the fact that the land records are part of the judicial system, the branch of government entrusted with the fair and impartial administration of justice.  The Clerk of the Circuit Court is such an integral position in Virginia government that, pursuant to the Constitution of Virginia, the office holder is independently elected. 

 

You may disagree with my opinion as to the importance of the land records system to our fundamental economic health, or with the importance of the role in modern America.  But there is one other reason why this delay smacks of malfeasance and abuse of the public trust.  Each instrument submitted for recordation provides revenue to the Commonwealth of Virginia.  The Clerk's Offices faced the same budget reduction axe as the most wasteful and non-income producing agencies within the government.  The net result is that in Virginia Beach, there are 40 to 60 days of "accounts receivables."

 

            Is this a serious problem you ask?  Are there any other recording offices facing the same problems and the same delays?  Yes and no.  Title examiners have a somewhat limited area of focus, and I have not been in every courthouse of every city and county in the Commonwealth in the last month.  All time frames reported here are hearsay (almost all title examiners can do while they wait for a computer terminal to open up is talk about how this wait compares to that in other offices).  In Southeast Virginia, I hear Chesapeake is also running about 45-60 days behind, but they don't have the volume of Virginia Beach yet.  Norfolk is running a couple of days behind.  Portsmouth is running about two to three weeks behind.  Compare that to Chesterfield County and Henrico County (a matter of hours, but usually the same day) and Fairfax County (several hours, but usually by the next day).

 

            If I didn't make this clear before, and I may not have, I am not talking about the time it takes to deliver the instrument, check it for compliance with the recording standards, check the amount of taxes and fees, stamp it in, have it assigned an instrument number, prepare a receipt, prepare the indices, make the file copy (photocopy, microfilm or digital image) to become part of the permanent land records, deposit the check, proofread all of the above, and return the document to the homeowner buying the land or the lender making the loan.  The delay for which I have mounted the soapbox of public discourse is the delay between the time the document is delivered to the Clerk's Office (usually the day of or day after the closing) and the time the Clerk's Office prepares the receipt, signifying acceptance for recording.

 

            It appears that Chesterfield has a population comparable with that of Chesapeake, and Fairfax has the greatest volume of any office in the Commonwealth.  Population alone is not the answer.  Volume of transactions alone is not the answer.  I am forced to conclude that the Clerk of the Circuit Court in Virginia Beach and Chesapeake just don't get it.

 

            I wonder if the voters (and landowners and lenders) will.  I wonder if business and industry seeking to relocate in Virginia Beach will.  I wonder if the Commonwealth's Attorney will.  Let's see, 900 unreported fees per day x $100 each x 20 working days x 2 months = $3,600,000 in potential penalties. (check my math!!)

 

            Let me suggest an implausible scenario.  John and Mary HomeBuyer purchase a Virginia Beach property from Snidely P. Whiplash, an entrepreneur skirting the edges of bankruptcy and ethical business practices.  They are ecstatic.  They do all the right things . . . written contract . . . attorney to represent them . . . prompt application for loan . . . prompt application for title insurance.  When the title insurance commitment is prepared, it reports title is clear as of a date certain, subject only to the anticipated existing financing, easements and restrictions . . . the usual stuff.  They anticipate an early closing date.

 

Snidely has friends in the lending business and just before signing the contract, he had approached one about getting a second lien on this property.  Rates are low, prices are appreciating, sure, no problem, let's put that on the "express" track and get you your money tomorrow.  The deal is done.  But when the title examination for John and Mary was prepared, the deed of trust was in one of those 40 boxes.  Or, to put poor Snidely in an even worse light, he could take out the financing after signing the contract, telling his lender it is "just a short term loan until I sell this property."

 

            Last month, one title insurance company was requiring its employees to sift through the boxes and boxes of deeds and deeds of trust.  Employees of this company would have found the loan and advised the closing agent and the buyers.  The debt would have been paid and released.  No harm, no foul.  Next month, no one will know until Snidely stops making payments on the second and foreclosure proceedings begin. 

 

What if Snidely really wanted the money so he could compromise a claim with one of his creditors?  What if he offered them 50% of the amount of their claim the day before trial (all the cash he just borrowed) and they refused?  Judgment for creditor, and they quickly go to the land records to docket that judgment.  If the docketing date was before the title examination was completed, it was found during the title examination.  Why, because judgments don't sit in the 40 boxes with the deeds and deeds of trust; they get entered into the land records at a different desk. 

 

Under either fact pattern above, the second lien lender still loses the "race to the courthouse."  But what if the trial date was ten days after the closing with John and Mary HomeBuyer?  The judgment got docketed while their deed and deed of trust were sitting in the 40 boxes.  Now they are doubly victimized by the inefficiency in the recording process.

 

This issue was partially addressed during the last session of the General Assembly by an amendment to the recording act, 55-96 of the Code of Virginia.  The amendment recognized delays might occur and sought to keep the "race to the courthouse" honest by providing a mechanism to prove the date of delivery to the Clerk.

 

55-96. Contracts, etc., void as to creditors and purchasers until recorded; priority of credit line deed of trust.

 

2. The clerk of each court in which any such instrument is by law required to be recorded shall keep a daily index of all such instruments admitted to record in his office, and, immediately upon admission of any such instrument to record, the clerk shall index the same either in the daily index or the appropriate general index of his office. All instruments indexed in the daily index shall be indexed by the clerk in the appropriate general index within ninety 90 days after admission to record. During the period permitted for transfer from the daily index to the general index, indexing in the daily index shall be a sufficient compliance with the requirements of this section as to indexing.

3. a. In any circuit court in which any such instrument required to be recorded is not recorded on the same day as delivered, the clerk shall install a time stamp machine. The time stamp machine shall affix the current date and time of each delivery of any instrument delivered to the clerk for recording that is not immediately recorded and entered into the general or daily index.

b. In the event there is no time stamp machine, or it is not functioning, the clerk shall designate an employee to affix the current date and time of each delivery of any instrument delivered to the clerk for recording.

c. In any circuit court in which instruments required to be recorded are not recorded on the same day as delivered, for purposes of subdivision 1 of this subsection, the term "from the time it is duly admitted to record" shall be presumed to be the date and time affixed upon the instrument by the time stamp machine or affixed by the clerk in accordance with subdivision 3 b of this subsection unless the clerk determines that the applicable requirements for recordation of the instrument have not been satisfied.

Again, it is only hearsay, but no Clerk of Court has been heard to say their office is not in compliance with the "daily index" requirement of the Code.  Thus, no stampede to purchase time stamp machines is expected.  The "race to the courthouse" is fixed. 

 

The practices in the Virginia Beach Circuit Court Clerk's Office deprive taxpaying landowners of the protection of the recording act, deprive the Commonwealth of needed revenues, and expose participants in real estate transactions (or their title insurers, if they purchased title insurance) to unnecessary and avoidable risk.  Someone should be ashamed, but the only quote I've heard (and this is paraphrased double hearsay) is "We're hurting down here, and until everyone else is hurting, it won't get fixed."  If that is public service, anarchy is starting to look good.

 

 

 

 

 

 

 

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