Sale of Real Property by Personal Representative
Chris Burti, Vice President and Legal Counsel

After many years of diligent work, it appears that the Legislature may be able to consider a redraft of the provisions of N.C.G.S. Chapter 28A in the upcoming short session. If adopted, it codifies the power of a Personal Representative to sell real property of the decedent. Many consider this legislation to be, arguably, a codification and clarification of the law as it presently exists. It would certainly be fair to say that it is a codification of the law as most practitioners considered it to exist prior to the highly literal interpretation of the statute adopted by the Montgomery v. Hinton Court.

The Bill is be entitled "AN ACT TO AMEND THE LAW REGARDING THE AUTHORITY OF A PERSONAL REPRESENTATIVE TO SELL OR TAKE OTHER ACTION WITH RESPECT TO REAL PROPERTY OF A DECEDENT". The proposed amendments, if adopted, will go a long way toward resolving the uncertainties that the case, and its progeny, have engendered. Due to space limitations we will not be able to include the black-lined bill in its entirety. Many changes are grammatical or reflect more modern elements of style. We intend on limiting our discussion to the more important provisions relevant to real property title issues. The new operating provision would be 28A-13-3.1, but earlier provisions are affected by it and should be discussed as well.

Section 2 would amend Article 13 of Chapter 28A of the General Statutes by adding a new section that would read:

"§ 28A-13-3.1. Power to take or dispose of real property without court order.

(a) Except as provided in this section, a personal representative may, without a court order, take possession, custody, or control of the decedent’s real property or sell, exchange, give options upon, partition, lease, mortgage, or otherwise dispose of the property to the extent the decedent’s will gives these powers to the personal representative, either by incorporation by reference to G.S. 32-27.1 or otherwise. Unless the will specifically provides to the contrary, these powers do not apply to real property that was specifically devised or to the entire tract of land on which, at the time of the decedent’s death, the principal residence of the decedent’s surviving spouse or minor children was located. The party dealing with the personal representative is not under a duty to follow the proceeds or other consideration received by the personal representative. A general or residuary devise of real property is not a specific devise for purposes of this section.

(b) This section does not restrict the powers of a personal representative to whom title to real property is conveyed in a will."

The first substantive changes that would be required by adding Section 28A-13-3.1 are included in Section 1 of the proposed Act and begin with N.C.G.S. Section 28A-13-3(1). This subsection and subsection (1a) empower the Personal Representative to "take possession, custody or control of the personal property of the decedent. If in the opinion of the personal representative his possession, custody or control of such property is not necessary for purposes of administration, such property may be left with or surrendered to the heir or devisee presumptively entitled thereto. The personal representative may leave with or surrender to the heir or devisee presumptively entitled thereto any personal property that, in the opinion of the personal representative, is not necessary for purposes of administration of the estate. He has the power to take possession, custody or control of the real property of the decedent if he determines such possession, custody or control is in the best interest of the administration of the estate. Prior to exercising such power over real property the procedure as set out in subsection G.S. 28A-13-3(c) shall be followed. If the personal representative determines that such possession, custody or control is not in the best interest of the administration of the estate such property may be left with or surrendered to the heir or devisee presumptively entitled thereto."

"(1a) To take possession, custody or control of the real property of the decedent, either under subsection (c) of this section or under G.S. 28A-13-3.1."

A proposed modification to Subsection 28A-13-3.1 (12) clarifies that the Personal Representative is not required to obtain an order under G.S. 28A-17-11 before borrowing money secured by the real property of the decedent when provided in the will as referenced by the following language; "the authority to mortgage, pledge, or otherwise encumber real property of the decedent to secure loans is granted to the personal representative under G.S. 28A-13-3.1."

(27) To sell or lease real property of the estate in the manner prescribed by the provisions of Article 17 of this Chapter. decedent, either under Article 17 of this Chapter or under G.S. 28A-13-3.1.

The changes to subsection 28A-13-3.1(c) merely correct grammar or add conforming language to the procedure for the Personal Representative’s taking control by order of the Clerk.

Section 3 of the proposed Bill would amend Chapter 28A by adding a new Section 28A-13-3.2. This section would add a requirement for a "notice of taking or disposition of real property" when the Personal Representative proposes to do so without court order. The Personal Representative must serve notice on each devisee or heir of the real property in accordance with Rule 4 of the Rules of Procedure. Where service by publication would be permitted, service may be accomplished by posting the real property. When posting, the Personal Representative must file an affidavit with the Clerk of Superior Court showing the facts warranting the use of service by posting and describing the due diligence efforts made to attempt actual service. The text follows:

"§ 28A-13-3.2. Notice of taking or disposition of real property without court order.

(a) If a personal representative intends to take possession, custody, or control of or to sell, exchange, give options upon, partition, lease, mortgage, or otherwise dispose of real property of the decedent under G.S. 28A-13-3.1, the personal representative shall serve notice of the intent on each devisee or heir of the real property in accordance with G.S. 1A-1, Rule 4. The notice shall be served not less than 30 days before the earliest of the date of:

(1) Taking possession, custody or control of the real property.

(2) Recordation of the deed executed to accomplish the sale, exchange or partition.

(3) Recordation of the lease or other instrument as applicable or the execution of the lease or other applicable instrument.

(b) In those instances in which service by publication would be authorized, service may be made by posting the notice in a conspicuous place and manner upon the real property. Service by posting may run concurrently with any other effort to effect service. If service is obtained by posting, the personal representative shall file an affidavit with the clerk of superior court showing the circumstances warranting the use of service by posting and describing efforts made to effect service under G.S. 1A-1, Rule 4.

 

Section 4 deals with the liability of the Personal Representative and primarily incorporates grammatical changes. Section 6 would make substantive changes to 28A-15-2 that should clarify lien priority with respect to judgments against devisees. If adopted judgment liens of heirs or devisees would attach at the death of the decedent. In the event of a sale by the Personal Representative, title would vest in the Personal Representative and relate back to the date of death. The property would pass free of the liens and they would attach to the devisee’s interest in the proceeds pursuant to amended N.C.G.S. Section 28A-22-1. The relevant portion of the text follows:

(b) Real Property. Property: Title. – The title to real property of a decedent is vested in his heirs as of the time of his death; but the title to real property of the decedent devised under a valid probated will becomes vested in the devisees and shall relate back to the decedent’s death, subject to the provisions of G.S. 31-39. vests as follows:

(1) Subject to subdivisions (2) and (3) of this subsection, title to real property of a decedent is vested in the decedent’s heirs as of the time of the decedent’s death.

(2) Subject to subdivision (3) of this subsection and the provisions of G.S. 28A-17-12 and G.S. 31-39, title to real property of a decedent devised under a valid probated will becomes vested in the devisees and relates back to the decedent’s death.

(3) Subject to the provisions of G.S. 28A-13-3.1, if a decedent’s will grants the personal representative a power to sell, exchange, or partition decedent’s real property, the exercise of that power divests the devisees or heirs of title to the real property and vests title in the personal representative. The devisees’ or heirs’ title is divested, and the title becomes vested in the personal representative, immediately prior to the recordation of a valid deed executed by the personal representative. A claim for reimbursement under G.S. 28A-19-19 does not affect passage of title.

(c) Real Property: Leases or Mortgages. – A lease or mortgage of the decedent’s real property by the personal representative under Article 17 of this Chapter or, subject to G.S. 28A-13-3.2, under G.S. 28A-13-3.1 encumbers the devisee’s or heir’s title upon the recordation of the lease or other instrument as applicable or upon the execution of the lease or other applicable instrument that is not required to be recorded by G.S. 47-18 and is not recorded.

(d) Real Property: Docketed Judgments Against Heir or Devisee. The interest of any heir or devisee and any person claiming through or against any heir or devisee, including a person holding a docketed judgment against an heir or devisee, is subject to the personal representative’s right to sell, exchange, give options upon, partition, lease, mortgage, or otherwise dispose of the real property of the decedent, either under Article 17 of this Chapter or under G.S. 28A-13-3.1."

Section 7 would add a new section to Article 19 of Chapter 28A of the General Statutes. This amendment would read:

"§ 28A-19-19. Expenses related to decedent’s real property; equitable reimbursement.

(a) If the personal representative takes possession, custody, or control of the decedent’s real property or sells, exchanges, gives options upon, partitions, leases, or mortgages the property, any reasonable costs and expenses associated with the preservation, maintenance, operation, betterment, or improvement of the property incurred after the personal representative files a notice of taking or disposition of real property under G.S. 28A-13-3.2 are deemed to be costs and expenses of administration.

(b) If the personal representative sells or exchanges the decedent’s real property under G.S. 28A-13-3.1, any reasonable costs and expenses associated with the preservation, maintenance, operation, betterment or improvement of the real property paid or incurred by any devisee or heir of the real property before the personal representative files a notice of taking or disposition of real property under G.S. 28A-13-3.2, net of all income derived from the property and received by the devisee or heir, are presumed reimbursable.

Any devisee or heir claiming reimbursement under this subsection shall present a claim to the personal representative in writing not later than 30 days after the recordation of a valid deed executed pursuant to the sale or exchange. If the personal representative determines that the claim is reasonable under all of the circumstances, including occupancy, the claim shall be paid from the proceeds of the sale or exchange to the extent there are sufficient proceeds after first making allowance for payment of the costs of the sale or exchange and any claims secured by or constituting a lien against the property, or from the general assets of the estate if the remaining proceeds are insufficient or if there are no proceeds. If the personal representative rejects the claim, G.S. 28A-19-15 and G.S. 28A-19-16 applies."

Section 8 would amend G.S. 28A-22-1 as noted above.

"After the payment of costs of administration, taxes and other valid claims against the decedent’s estate, the personal representative shall distribute the remaining assets of the estate in accordance with the terms of decedent’s valid probated will or the provisions of Chapter 29 of the General Statutes or as otherwise lawfully authorized. Assets remaining from the sale of real property under G.S. 28A-13-3.1 retain the character of real property."

Section 9 would modify the calculation of commissions. Section 10 would modify G.S. 32-27(2), the section providing for the incorporation of fiduciary powers in an instrument. The change would codify Montgomery v. Hinton by substituting "conveyed or devised to the fiduciary" for "which the fiduciary may hold" with reference to property.

"§ 32-27. Powers which may be incorporated by reference in trust instrument.

The following powers may be incorporated by reference as provided in G.S. 32-26:

. . . .

(2) Sell and Exchange Property Conveyed or Devised to Fiduciary. – To sell, exchange, give options upon, partition or otherwise dispose of any property or interest therein which the fiduciary may hold conveyed or devised to the fiduciary from time to time, with or without order of court, at public or private sale or otherwise, upon such the terms and conditions, including credit, and for such the consideration as the fiduciary shall deem deems advisable, and to transfer and convey the property or interest therein which is at the disposal of the fiduciary, in fee simple absolute or otherwise, free of all trust; and the party dealing with the fiduciary shall not be is not under a duty to follow the proceeds or other consideration received by the fiduciary from such sale or exchange.

. . . ."

Section 11 would further modify Article 3 of Chapter 32 of the General Statutes by adding a new section 32-27.1. This provision closely parallels the proposed Section 28A-13-3.1 and would empower a Personal Representative to dispose of property that is not devised to the personal representative by express reference to the new section in language incorporating the statutory powers. A strict reading of the statute would clearly not permit its application to any wills executed prior to its adoption that do not contain an express reference to N.C.G.S. Section 32-27.1. The exact text follows.

"By reference to this section, a power may be incorporated in a will to take possession, custody, or control of the decedent’s real property or to sell, exchange, give options upon, partition, lease, mortgage, otherwise dispose of any real property or interest in real property, or manage real property as provided in G.S. 32-27(8), with or without order of court, at public or private sale or otherwise, upon the terms and conditions, including credit, and for the consideration the personal representative deems advisable, and to transfer and convey the property or interest therein in fee simple absolute or otherwise, free of all trust. The party dealing with the personal representative is not under a duty to follow the proceeds or other consideration received by the personal representative. A power granted by reference to this section does not apply to real property that was specifically devised or to the entire tract of land on which, at the time of the decedent’s death, the principal residence of the decedent’s surviving spouse or minor children was located. A general or residuary devise of real property is not a specific devise for purposes of this section."

Section 14 would provide that the amendments would be effective October 1, 2004, and apply to actions by Personal Representatives on or after that date. Passage of this legislation would greatly enhance the ability of attorneys to certify title to property in transactions where the interest is subject to an open estate. More often than not, such transactions are approved by all whose interest is affected but circumstances may make it difficult or impossible for the heirs to join in the conveyance. The will may be unequivocal about the testamentary intention to bestow authority upon the Personal Representative but the language employed may be less than that which is most desirable. Liens, domestic disputes or unanticipated lack of capacity may be present. Our courts have been unwilling to construe authority by the Personal Representative to sell real estate unless the language used is unarguably unequivocal. This is rarely the intention of the decedent or the drafter of the Will. The Personal Representative is usually chosen as the person most likely to look out for the best interests of the family, not merely the Estate. When the decedent desires to restrict the Personal Representative’s authority to sell land, it is more common to see that restriction clearly articulated in the instrument. This legislation if adopted, should go a long way in promoting the common expectations of our populace and greatly enhance the ability to transfer land with greater certainty and without undue expense and delay.