COA Addresses Variant Name Spelling, Indexing and Idem Sonans
Chris Burti, Vice President and Legal Counsel

The opinion issued in the Court of Appeals decision in Hinnant v. Philips, (06-1308) is already sparking significant concern within the real property Bar. The court concluded that a judgment docketed in the name of Philips and indexed as such provided adequate constructive notice to serve as a lien encumbering property owned by Phillips and sold to a purchaser for value without actual notice. It may be argued that the Court came to the wrong conclusion and that Judge Steelman’s concurring opinion might be considered the better reading.

The defendant-intervenors were successors in interest of the defendants, Richard and Sheila Phillips, and they appealed an order issuing an execution on a judgment of the plaintiffs against the Phillips. The facts giving rise to this case began in 1982 when plaintiffs loaned money to the defendants. The defendants then failed to make the payments, and plaintiffs filed a complaint to collect the balance of the loan. Their complaint was captioned Hinnant v. Phillips, 87 CVD 1689.  The plaintiffs obtained a default judgment in March of 1988, which was docketed and indexed in the names of “Richard Barry Phillips and Sheila Ann Phillips” as defendants.

The defendants bought the property subject to this litigation a few months after the docketing of this judgment. Approximately ten years later the plaintiffs filed a complaint to renew their judgment against the defendants. This complaint was captioned with the defendants surnames misspelled “Philips”. The judgment the plaintiffs obtained was docketed by the Clerk of Court and indexed as “Philips.” In 2001 the defendants apparently refinanced and subsequently defaulted.

Subsequently, the property changed hands several times. In 2005 plaintiffs commenced execution on the judgment through sale of the subject property. However, by 2005 it had been conveyed to Espinosa, who executed a promissory note in favor of MERS and its trustee, John Matthews.  In May 2006 the trial court allowed the appellants to intervene to protect their interests and they argued that the judgment of the plaintiffs was not effective as a lien against the property in the hands of a bona fide purchaser because it did not appear in the chain of title in a search for “Phillips”.

Plaintiffs presented an expert who opined that the standard of care for a title search includes checking for common spelling variants of a name, and that the approved practice in a computerized index search is to enter part of a name in order to catch minor errors or spelling variations. The Court of Appeals (among others) quoted the following findings of fact of the trial court.

  “10.    Plaintiffs called as a witness Rhonda Moore, [who] . . . worked in law offices since 1982 and as title [Page] searcher paralegal since 1985[.] . . . The Court qualified her as an expert witness in matters of title examination in eastern North Carolina, without objection.”

    “11.    Ms. Moore . . . explained the protocol used in the AOC computers in the Office of the Clerk of the Superior Court of Johnston County, that only the name entered is pulled up for review on the screen. . . . [T]he exact letters typed in the screen on the computer are the letters in the index which appear. For example, inputting the letters, ‘P-H-I-L-I-P-S,’ into the judgment computer would not reveal to the searcher a judgment against a person having the name, ‘P-H-I-L-L-I-P-S.’ Ms. Moore's testimony was that she enters the letters ‘P-H-I-L’ when checking judgments for Phillips or Philips because of the prevalence of each spelling. She testified such is her usual and customary practice[.]. . . ”

    “12.    Ms. Moore offered an opinion . . . [that the] standard of care for a title examination in eastern North Carolina involving a judgment search for Phillips would be made by inputting ‘P-H-1-L’ in the Clerk of Court computer system. . . .”

    “13.    The printed computer index for ‘P-H-I-L-L-I-P-S’ is [18] pages [and has] . . . [2] entries for ‘Rick Phillips,’ [3] entries for “Richard Phillips” and [3] entries for ‘Richard Barry Phillips.’
 . . .”

    “16.    Plaintiffs' expert witness would have conducted her title examination of the judgment index by typing ‘P-H-I-L’ into the judgment index system in the office of the Clerk of the Superior Court.”

The trial court was lead from those findings to the following reported conclusions:

    “2.    The foreclosure proceeding and the other judgments indexed under the spelling “Phillips” should have attracted the attention of or stimulated further inquiry by a title searcher.”

    “3.    The foreclosure proceeding and the judgments indexed under the spelling ‘Phillips’ were sufficient notice to put a careful and prudent examiner upon inquiry; and by such inquiry the Judgment at Issue would have been found.”

    “6.    The Judgment at Issue was properly docketed and indexed.”

    “7.    [Appellants] could have discovered the Judgment at Issue with reasonable care and so had constructive notice of same.”
    “8.    The Judgment at Issue attached to and became a lien on the Land upon acquisition of that Land by Defendants.”

    “9.    Plaintiffs are entitled to levy execution on the Judgment at Issue and to the extent the same may involve the Land to . . . levy execution on the Land.”

With the issue framed as to whether the judgment docketed under the name “Philips” instead of “Phillips” provided sufficient notice, actual or constructive, to create a valid lien on the defendants’ property, the Court of Appeals concluded that the judgment was a lien on the property  under the facts of this case and affirmed the trial court’s decision.

In its analysis of the law applicable to the case the Court of Appeals looked to the North Carolina Supreme Court’s opinion in West v. Jackson, 198 N.C. 693, 153 S.E. 257 (1930). In West, the issue was whether a deed and deed of trust indexed under “Jesse Hinton and wife” created a valid lien. Key among the Court of Appeals’ citing of the case is the following quote: “ it is a universally accepted principle that ‘constructive notice from the possession of the means of knowledge will have the effect of notice, although the party was actually ignorant, merely because he would not investigate. It is well settled that if anything appears to a party calculated to attract attention or stimulate inquiry, the person is affected with knowledge of all the inquiry would have disclosed.’”  (quoting Wynn v. Grant, 166 N.C. 39, 81 S.E. 949 (1914)) (citation omitted).

 “Thus, ‘for a recordation to be effective as notice there must be a substantial compliance with the indexing statutes. The general rule to be applied in determining the sufficiency of an irregular indexing has been stated by this Court in these terms:
        “[T]he primary purpose of the law requiring the registration and indexing of conveyances is to give notice, and . . . an index will hold a subsequent purchaser or encumbrancer to notice if enough is disclosed by the index to put a careful and prudent examiner upon inquiry, and if upon such inquiry the instrument would be found.”” Cuthrell v. Camden County, 254 N.C. 181, 184, 118 S.E.2d 601, 603 (1961) (recordation of old age assistance lien on property) (quoting Dorman v. Goodman, 213 N.C. 406, 412, 196 S.E. 352, 355 (1938)).”

We take no real issue with the basic legal analysis of the Court. It should be emphasized, however, that these older opinions dealt with physical indices and that there are significant differences in the mechanics of a search of computer indices. As a result of these differences, there seems to be a major problem with the inadequacy of the facts to which the court’s analysis is applied.

The evidence reported in the case was that a search using “PHILLIPS” as a parameter came up with 18 pages of names in the index. There was no evidence cited in the case as to what using “PHIL” as a parameter would have produced. Nor was there any indication of how many variations of “PHILLIPS” are considered to be a minor misspelling or idem sonans. Nor is there any reported evidence as to how many instruments these various index lists would have produced for searching. Further, there is no reported testimony or discussion as to the process of determining appropriate search parameters. These seem to be important bits of information in evaluating whether or not ‘PHIL’ is a reasonable search parameter. If this parameter turned up 2000 hits in common variations due to idem sonans and misspellings, during the relatively short period in question the court should require additional evidence that it is reasonable to expect a searcher to verify that many entries without narrowing the search.

The absence of a discussion on the protocol for establishing appropriate search parameters and the acceptance of a conclusory “this is what I would have done and it would have turned up the entry” is not an acceptable expert opinion on computerized search parameters. Arguably, a librarian may have been a better qualified expert on the subject than a title searcher. To illustrate this point and to militate as to why the import of this opinion should arguably be limited to searching the iterations of “PHILLIPS” “in Eastern North Carolina”, my own surname “BURTI” may serve as a useful example.

Burtti, Burtee, Burtie, Burty, Burdy, Berti, Bertie, Berty, Berdy, Birdi, Birdie, Birdy, Birti, Birty, Birtie…are all very real and fairly common misspelling and idem sonans variations of my last name, I don’t recall seeing any others recently, but there may well be more. A computer index search using the first four letters of my last name (BURT) would produce only four out of the above fifteen variations in the following list names generated from a list of the most common surnames appearing in the U.S. Census:

BURT,  BURTCH, BURTCHELL, BURTEE, BURTELL, BURTENSHAW, BURTH, BURTI, BURTIE, BURTIN, BURTIS, BURTLE, BURTLESS, BURTMAN, BURTNER, BURTON, BURTS, BURTSCHI, BURTT, BURTTI, BURTTRAM, BURTTS, BURTY

Using the first three letters of my surname would produce only five out of fifteen common variations, but the list of possible names would increase to potentially include the unmanageable list of names in the table below.

BUR, BURAK, BURAKOWSKI, BURAN, BURANDT, BURAS, BURATTI, BURAU, BURA, BURBACH, BURBACKBUR, BAGEBURBANK, BURBANO, BURBIDGE, BURBINE, BURBRIDGE, BURBY, BURCE, BURCH, BURCHAM, BURCHARD, BURCHELL, BURCHESS, BURCHETT, BURCHETTE, BURCHFIEL, BURCHFIELD, BURCHILL, BURCHINAL, BURCIAGA, BURCIN, BURCK, BURCKHARD, BURCZY, BURD, BURDA, BURDE, BURDELL, BURDEN, BURDESHAW, BURDESS, BURDETT, BURDETTE, BURDEX, BURDG, BURDGE, BURDI, BURDICK, BURDIER, BURDIN, BURDINE, BURDIS, BURDITT, BURDMAN, BURDO, BURDOCK, BURDON, BURDSALL, BURDZEL, BURE, BUREAU, BUREL, BURELL, BUREN, BURES, BURESH, BURESS, BURETTA, BURFEIND, BURFIELD, BURFORD, BURG, BURGA, BURGAMY, BURGAN, BURGARD, BURGARDT, BURGAS, BURG, BACHER, BURGDORF, BURGDORFER, BURGE, BURGEES, BURGEN, BURGENER, BURGER, BURGERT, BURGES, BURGESON, BURGESS, BURGET, BURGETT, BURGETTE, BURGEY, BURGGRAF, BURGH, BURGHARD, BURGHARDT, BURGHART, BURGHER BURGIE, BURGIN, BURGIO, BURGLIN, BURGMAN, BURGNER, BURGO, BURGOA, BURGOON, BURGOS, BURGOYNE, BURGRAFF, BURGS, BURGUENO, BURGUN, BURGY, BURHAM, BURHANS, BURHANUDDIN, BURI, BURIAN, BURICH, BURICK, BURIGSAY, BURIN, BURINGTON, BURIS, BURK, BURKA, BURKARD, BURKART, BURKDOLL, BURKE, BURKEEN, BURKEL, BURKER, BURKERT, BURKES, BURKET, BURKETT, BURKETTE, BURKEY, BURKHALTER, BURKHAM, BURKHAMMER, BURKHARD, BURKHARDT, BURKHART, BURKHEAD, BURKHOLDER, BURKI, BURKIN, BURKINS, BURKITT, BURKLAND, BURKLE, BURKLEO, BURKLEY, BURKLOW, BURKLY, BURKMAN, BURKOWSKI, BURKS, BURKSTRAND, BURL, BURLAGE, BURLAND, BURLANDO, BURLAZA, BURLE, BURLEIGH, BURLESON, BURLETT, BURLETTE, BURLEW, BURLEY, BURLILE, BURLIN, BURLING, BURLINGAME, BURLINGHAM, BURLINGTON, BURLISON, BURLOCK, BURLSON, BURLY, BURM, BURMAN, BURMASTER, BURMEISTER, BURMESTER, BURMSIDE,  BURN, BURNAM, BURNAMAN, BURNAP, BURNARD, BURNASH, BURNAUGH, BURNEISEN, BURNELL, BURRIES, BURRIESCI, BURRIGHT, BURRILL, BURRINGTON, BURRIS, BURRISS, BURRITT, BURROLA, BURROSS, BURROUGH, BURROUGHS, BURROUS, BURROW, BURROWES, BURROWS, BURRS, BURRUEL, BURRUP, BURRUS, BURRUSS, BURRY, BURSCH, BURSE, BURSELL, BURSEY, BURSI, BURSIK, BURSLEY, BURSON, BURSTEIN, BURSTON, BURT, BURTCH, BURTCHELL, BURTELL, BURTENSHAW, BURTH, BURTI, BURNER, BURNES, BURNESS, BURNET, BURNETT, BURNETTE, BURNEY, BURNHAM, BURNIAS, BURNIE, BURNINGHAM, BURNISON, BURNLEY, BURNO, BURNS, BURNSED, BURNSIDE, BURNSTEIN, BURNSWORTH, BURNUM, BURNWORTH, BURO, BUROKER, BURON, BUROW, BUROWS, BURPEE, BURPO, BURR, BURRAGE, BURRALL, BURRAS, BURREL, BURRELL, BURRELLI, BURRER, BURRES, BURRESON, BURRESS, BURRI, BURRICHTER, BURRIDGE, BURRIER, BURTIN, BURTIS, BURTLE, BURTLESS, BURTMAN, BURTNER, BURTON, BURTS, BURTSCHI, BURTT, BURTTRAM, BURTTS, BURUM, BURVINE, BURWELL, BURWICK, BURZYNSKI, BURWOOD, BURY, BURZLAFF

To get all fifteen of the variations would require, either, several variant searches using “B” and each vowel successively or simply using “B”. Either protocol would likely produce a huge list of potential conveyances in any urbanized county. Note that including variants due to common typographical misspelling would further add to the list.

It is clear that one cannot state unequivocally that “PHIL” would have been a reasonable search parameter without some testimony as to how many hits that parameter would have produced in Johnston county requiring examination of the individual instrument. A simple online search of common U.S. surnames using the parameter “PHIL” produces about 50 names and among those names, the phollowing can be argued as coming within the purview of the search implicitly required by this opinion.

PHILIP,  PHILIPOSE,  PHILIPP,  PHILIPPE,  PHILIPPI,  PHILIPPON,  PHILIPPS,  PHILIPS,  PHILIPSON,  PHILLEY,  PHILLIANS,  PHILLIBER,  PHILLIES,  PHILLIP,  PHILLIPI,  PHILLIPPE,  PHILLIPPI,  PHILLIPPY,  PHILLIPS,  PHILLIPSON,  PHILLIS,  PHILLPS

To exacerbate the issue counties with a high volume of entries will, of necessity, require narrower parameters to keep the number of hits within a manageable limit than will a county with a low volume. Without some testimony as to the process or protocol by which the appropriate parameters are set, one can never say with accuracy that a given set represents the standard of care for any region, much less one as Diverse as eastern North Carolina.

Again this isn’t to say the Court of Appeals came to the wrong result. Upon remand it might come to pass that the evidence supports a finding that “PHIL” is a reasonable search parameter for a computer search in Johnston County. Our appellate courts have been consistently reluctant to invalidate deeds for minor misnomers such as exhibited in this judgment. The Court focused on a few judgment indexing cases that supported the opinion. A brief search would provide a dozen more deed registration cases supporting this proposition than the Court cited in the opinion. When a minor typo on a name is reported on a vesting deed, it is the rare attorney that wishes to take the time to correct record and title insurers are regularly asked to provide coverage over the typo based upon the liberal interpretations of court decisions concerning misnomer and misspelling. Rarely is the requesting attorney concerned with indexing issues.

If this Court had taken a hard line on this issue, it would have forced our industry to take a correspondingly hard line regarding minor misspellings in the chain of title as invalidating notice of deeds and mortgages under the Recording Acts.

As to the question of how far to inquire with respect to variations, the opinion really doesn’t give us much useful guidance because it is more conclusory than explanatory. It wouldn’t cause many to change what would have been done in the past nor would we suggest others change their practice without due consideration. In this instance, many attorneys would likely have typed PHIL and proceeded on if there weren’t too many pages. If an unreasonable number of results turned up, most would likely have revised the search parameters to “PHILL” in order to narrow the results. If this case had been remanded the parties would put on evidence of their contentions of what a reasonable search would have revealed in the event of a subsequent dispute and the trier of fact could make a reasonable determination.

Electronic research is more of an art than a science. There are no hard and fast rules as to how to enter parameters and common sense should prevail in determining what parameters a reasonable search entails. Since the objective of a search is to discover title problems, common sense would seem to dictate that we structure our search parameters to be as inclusive as possible within an economically feasible number of hits.

Careful consideration of this opinion may lead one to the conclusion that it is not nearly as bad as one would expect from the concern that it has already generated within the real property Bar. We are not provided enough facts in this opinion to properly determine if the search was reasonable or unreasonable so it is difficult to be certain whether the outcome is right or wrong. Whether the search was reasonable is the penultimate question that neither court fully addressed before concluding that the lien attached. It seems as if the Court of Appeals should have better considered remand for further findings in light of the discussion above. Absent a further appeal, Judge Steelman’s concurring opinion may be read as the better articulated opinion and, as he suggested, we are advised to read the opinion narrowly.

Judge Steelman says:
   “I concur in the result reached by the majority opinion.
    The only evidence presented to the trial court as to the appropriate standard of care for the examination of the judgment docket in Johnston County was the testimony of Rhonda Moore. Based upon this testimony the trial court found as a fact that “[t]he standard of care in eastern North Carolina, including Johnston County, for title searches in a case such as this one...requires a search of 'P-H-I-L' into the AOC computerized judgment index in the Office of the Clerk of the Superior Court.” On appeal, appellant did not assign error to any of the trial court's findings of fact. This finding is thus binding upon this Court and compels the result in this case.
    The trial court's findings of fact were carefully and narrowly drawn, and are limited to the specific evidence presented in this case. Our decision in this case should also be so limited.”

Dirt Tales From the Deed Vault - Episode 5
John Dillard, Vice President and Legal Counsel

This month’s edition of  Dirt Tales looks at an issue that commonly arises when a party has filed bankruptcy.  The facts in the cases presented in each series are true occurrences, except for the names of the parties involved.  

Attorney Able is hired by a client who is purchasing Blackacre.   Able conducts his title examination and discovers there are three judgments against the seller (“Seller”) of Blackacre.   Able advises Seller’s attorney of the judgments and requests they be paid from the proceeds of the sale.  Seller’s attorney produces an order from a bankruptcy court listing all three judgments and contends that the judgments were wiped out by his client’s bankruptcy in Chapter 7.  Because the judgments were listed on the bankruptcy order Able closes without them being paid off.  Some months later Able’s client is served with an order of execution from one of the judgment creditors and he is advised by Able to file a claim on his title policy, which insured the purchase free and clear of the judgments. The question becomes whether the judgment creditor execute on real property whose judgments were discharged in bankruptcy?  The answer to the question will depend upon the Chapter of bankruptcy that relief was sought, but for purposes of this article we will look only at Chapter 7 since that was the Chapter under which the seller filed.

A careful reading of the bankruptcy order held the answer to the question posed above.  The order stated “the personal obligations of the debtor are hereby discharged”.  What this means is that although the Seller’s personal obligation or responsibility for the debt had been discharged in bankruptcy the judgments attaching to the land had not been discharged.  The next question is whether or not it would have been possible to have had these judgments discharged also against the land.

Let’s look at the relevant portion of the Bankruptcy Code.  11 U.S.C. §522(f)(3) states a “debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled.”  In October 2005 the Bankruptcy Code was amended with changes being made to what kind of liens could be avoided.  Section 522(f) now prevents the avoidance of a judicial lien for domestic support obligations.  The debtor must now also indicate whether exemptions are being claimed under §522(b)(2) or §522(b)(3) and whether the debtor claims a homestead exemption that exceeds $125,000.00.

In order for a Chapter 7 bankruptcy order to avoid (defeat) a lender’s security interest(s) three requirements must be met:

            First, the security interest must be 1) non-possessory, and 2) non-purchase-money.  A possessory security interest is one in which the creditor is in possession of the collateral.  A purchase-money security interest is one that secures repayment of the very money used to purchase the collateral.

            Second, the collateral must fall within the specific list of property in §522(f)(1)(B).  The list includes personal, family, and household items (i.e., generally non-commercial items) as well as homestead rights. 

            Third, the collateral must be on the list of property exempt under state law, and the security interest must “impair” the debtor’s exemption; i.e., the security interest must prevent the debtor from enjoying the full benefits of the exemption statute, such as their homestead exemption in the property.  To determine the extent to which the security interest “impairs” the debtor’s exemption, §522(f)(2) says to add the amount of the secured loan to the amount of the debtor’s exemption and subtract from that total the value of the collateral.  Any positive number is an impairment of collateral and the amount which may be avoided.  

In the present case the Seller either did not qualify for an avoidance or he overlooked this provision in his filing.  Regardless, the judgments against him remained attached to the property and needed to be dealt with at the sale of the property.  Whenever you come across judgments or other liens that you are told have been discharged in a Chapter 7 bankruptcy always obtain a copy of the Order of Discharge and read it carefully.  Look at the language closely that deals with the lien or judgment to determine whether the Order grants a personal discharge or whether it removes the lien against the real property.