Review of 1999 Real Property Decisions
Chris Burti, Vice President and Legal Counsel

1999 was not a year that produced landmark decisions concerning real property or ones that were particularly surprising. Most of the decisions will not have much effect on the way in which we examine titles and, therefore, have not generated much comment. We have summarized some of the more interesting cases and, where deemed appropriate, have made brief comments.

Conley v. Emerald Isle Realty, Inc., 513 S.E.2d 556, 350 N.C. 293

The court refused to impose an implied warrant of suitability for occupancy on landlords and their agents who lease a furnished residence for a short term. Landlords and their rental agents are not liable for injuries received by tenants and their guests when a deck collapsed at a beach cottage rented by the tenants for a two-week period. This case gave rise to the passage of legislation in this year’s session to overturn the effects of this holding.

Lewis v. Jones, 512 S.E.2d 87

Plaintiff waived his right to purchase property from defendants real property where plaintiff filed an action for specific performance of a purchase agreement. The parties entered into a consent judgment that provided for an appraisal procedure, following the appraisals, defense counsel sent a letter to plaintiff's counsel seeking an offer for the property. Plaintiff chose not to exercise his right to purchase and agreed for defendants to seek a driveway permit. Defendants then entered into a contract to sell the property to a third party and requested that plaintiff remove a notice of lis pendens, plaintiff refused. Upon defendants’ motion, the trial court concluded that plaintiff had waived his rights under the consent judgment and was equitably estopped from asserting his rights. The Court of Appeals affirmed.

D.G. Matthews & Son, Inc. v. State ex rel. McDevitt, 508 S.E.2d 331,131 N.C.App. 520, (1998)

The Court of Appeals ruled that under North Carolina Scrap Tire Disposal Act (the Act). N.C. G. S. §§ 130A-309.51-63 (1997). Department of Environment and Natural Resources (DENR) must determine the "person responsible" prior to issuing abatement orders or instituting any civil action to recover the cost of DENR's abatement. Once that determination is made, they must pursue the "person responsible" for the costs and expenses of abatement. Only when that avenue of collection has proven unsuccessful can DENR impose a lien for actual costs of abatement on the real property.

Beechridge Development Co., LLC v. Dahners, No. 101A99, Supreme Court of North Carolina, June 25, 1999.

A recorded plat of defendant's property showed an area designated "public easement". This designation included the use of the easement for a sanitary sewer line to serve plaintiff's adjacent property. "The term ‘public easement’ is neither ambiguous nor silent as to the scope of an easement. ‘[A] public easement is one the right to the enjoyment of which is vested in the public generally or in an entire community; such as an easement of passage on the public streets and highways or of navigation on a stream.’ Black's Law Dictionary 510 (6th ed. 1990). This encompasses a wide variety of public uses, including a sanitary sewer line. See 11A Eugene McQuillen, The Law of Municipal Corporations § 33.74, at 513 (3d ed. 1991). Accordingly, there is no need to resort to extrinsic evidence because this was a public easement, thus including a sanitary sewer line."

Station Associates, Inc. v. Dare County, 513 S.E.2d 789The Supreme Court ruled that an 1897 deed to the United States for a life- saving station conveyed a fee simple absolute rather than a fee simple determinable in this case. The deed contained no express and unambiguous language of reversion or of termination upon condition. The deed does not indicate that the interest of the United States in the property would automatically expire or revert upon the discontinued use of the property as a life-saving station. Language in the granting clause giving the United States the right to "use and occupy" the property for the stated purposes coupled with the word "term" in the warranty clause does not constitute a reverter or determinable estate.

Barnard v. Rowland, 512 S.E.2d 458

The Supreme Court ruled that a plaintiff suing for unlawful cutting or removal of timber may recover the difference in value of the property immediately before and after the cutting plus punitive damages, if appropriate under the facts, or the value of the timber itself doubled by operation of N.C.G.S. § 1-539.1(a), but not both.

Wheeler v. Queen, 510 S.E.2d 195

The Court of Appeals ruled that land described in a Trust Deed passed to petitioner, where trustor executed a Trust Deed in 1990 to insure that her material needs would be taken care of during her lifetime. She incorporated into the Trust Deed a 1986 will by reference. She executed a second will on 16 June 1992, which revoked all prior wills and codicils. The court concluded that the trust corpus passed under the earlier will. The Trust Deed was not transformed by the incorporation of the 1986 will into a testamentary document, subject to revocation by a later will.

Star Financial Corp. v. Howard Nance Co., 508 S.E.2d 534 , 131 N.C.App. 674, affirmed per curiam, 516 S.E.2d 381

Plaintiff buyer, having breached the real estate sales contract, was not entitled to recover the amounts paid prior to its breach. In this case, the buyer had paid $100,000 under the contract toward the purchase price. The contract was written on the North Carolina Bar Association/North Carolina Association of Realtors, Inc., form, but the parties modified it for this sale. Section 3 of the contract was stricken by the parties, except for the line setting out the purchase price of $535,275.00. No amount was specified as earnest money. The court stated that they were "aware that the common law rule has been criticized in some jurisdictions as being inequitable where the amount forfeited is more than the seller's actual damages resulting from the breach. See Walker, 23 N.C. App. at 656, 209 S.E.2d at 539. That may be the situation in the instant case. However, it is not for this Court to depart from a rule that our Supreme Court has described as ‘settled law.’"

Carriker v. Carriker, 511 S.E.2d 2, 350 N.C. 71

The Supreme Court construed language of the testator's will finding that it required a per stirpes distribution to testator's grandchildren rather than a per capita distribution. The will gave the testator's three daughters a life estate in his property, provided that upon the death of his three daughters the property should be equally divided among his "then surviving children". The will further provided that "if any child or children shall have died leaving legitimate child or children, then such child or children to take the share that their deceased parent would have taken had he or she been living". The testator also had five sons; none of which was living when testator's last daughter died. At the death of the last daughter, the living grandchildren of the testator were the two children of one son, two children of a second son, and the nine children of a third son. The Court pointed out that although "per capita distribution is generally favored over per stirpes, per capita will not be presumed to be the distributive plan if there is explicit per stirpes direction or intent. Dew v. Shockley, 36 N.C. App. 87, 89, 243 S.E.2d 177, 180, disc. rev. denied, 295 N.C. 465, 246 S.E.2d 9 (1978)." The Court reaffirms that "taking as a representative of an ancestor infers a per stirpes distribution. See Jamin v. Williamson, 94 N.C. App. 699, 701, 381 S.E.2d 345, 346 (1989)."

Karner v. Roy White Flowers, Inc., COA98-90

The parties are all property owners in a Charlotte residential subdivision developed around the turn of the century. Each of the conveyances of lots contained a restrictive covenant that encumbered the lots for use for residential purposes only.

In 1995, defendants began to clear four of their six lots. It was reported in a local newspaper that defendants intended to demolish three vacant houses on the property in question and construct a 5,300 square foot commercial building. Plaintiffs filed a complaint to enjoin defendants from erecting a commercial structure. Defendants answered and raised several affirmative defenses. The court dealt with the defense that the action was barred by N.C. Gen. Stat. § 1-50(a)(3), the six-year statute of limitations for injury to an incorporeal hereditament. Plaintiffs moved the trial court to require defendants to join all other landowners within the relevant area as third party defendants. In summary, The court determined that the other lot owner were proper parties but not necessary parties. This holding is helpful in streamlining covenant litigation but certainly would not appear in the chain of title of non-litigant lot owners. The court re-affirmed the application of the six-year statute of limitations but ruled that a period of non-violation would permit enforcement of the covenant to enjoin a subsequent violation. We expect that this opinion would be appealed.

Fire Baptized Holiness Church of God of The Americas, Inc. v. McSwain, COA98-694

This case contains a good discussion of nature of connectional and congregational churches with respect to real property matters. The court, relying on a 1991 Court of Appeals case (Looney v. Community Bible Holiness Church, 103 N.C. App. 469, 473, 405 S.E.2d 811, 813), upheld a trial court decision that ruled that a connectional church could be congregational with respect to property. This opinion seems to be more solidly grounded in the facts than in legal analysis. It is likely that most title insurers would be unwilling to rely on this case where a connectional church attempts to convey an interest in real property without the consent of the denomination in a current transaction.

G.E. Capital Mortgage Services, Inc. v. Neely, COA98-1343

This opinion deals with the issue of an attempted reinstatement of a note and deed of trust after both were erroneously canceled by the mortgagee. The court states that this issue is one of first impression in North Carolina. In a well-reasoned opinion, the court ruled that as between the parties the mortgagee was entitled to enforce the instruments where the debt remained unpaid. The court observed that "no third party has encumbered the property or otherwise relied on the mistakenly- recorded cancellation. Thus, we are dealing only with the effect of the mistake as between the mortgagor and mortgagee themselves." The mortgagors admitted they never paid off the underlying debt. Plaintiff realized its error and took steps to correct it in a timely fashion by recording a Reinstatement of Mortgage with the Register of Deeds only three weeks after it was mistakenly canceled.

In Re: The Foreclosure of a deed of trust of Espinosa, COA98-1491

The evidence in this case showed that none of the loan documents were signed or submitted to the Bank by the Espinosas. There was no evidence that the Espinosas received any of the proceeds, directly or indirectly, or that the banker ever talked with them at any time about the loans. There was no evidence that the Espinosas knew about the loan transactions at any time prior to the institution of the foreclosure action. The banker apparently had accepted the representations of his friend that the documents were properly signed and notarized. The court ruled that the loan documents were unenforceable against the landowners.

First Union Nat. Bank of North Carolina v. Lindley Laboratories, Inc., 510 S.E.2d 187The court ruled that a senior lienholder, which marked deed of trust satisfied upon conveyance of the property and issuance of new deed of trust by the new owners, did not have priority over junior lienholder's intervening deed of trust. The Court of Appeals affirmed that the junior lienholder's intervening deed of trust gained priority over all subsequently recorded deeds of trust, including the deed of trust given by the new owners, when the bank marked senior deed of trust satisfied. There is no equitable relief for a missed deed of trust in a title examination.

Hardy v. Moore County, 515 S.E.2d 84

Plaintiff, a resident and citizen of the United Kingdom, challenged the validity of a tax foreclosure sale conducted by the Moore County Tax Department. In 1987, plaintiff purchased a lot at the Pinehurst Resort and Country Club. A few years later, plaintiff moved back to England. Plaintiff furnished his address to the Tax Department and received tax notices at that address. He paid the property taxes assessed by Moore County in 1990 and 1991 as well as for the previous years. In 1993, plaintiff moved. He arranged for the Royal Mail to forward his mail to his new address; however, he did not notify the Tax Department of his change of address. The Tax Department mailed tax bills to plaintiff at the prior address in 1991, 1992, 1993, 1994, and 1995. The only bill returned to the Tax Department was the 1994 bill marked "gone away" by the Royal Mail. Plaintiff did not pay the 1992 or 1993 tax bills on the property. In 1994, the Tax Department filed a judgment for taxes and began foreclosure proceedings to collect the unpaid taxes on the real property. Notice of Sale of Land under Execution was filed by the sheriff of Moore County who also mailed a copy by Registered Mail to plaintiff's last known address in England. The notice was returned to the sheriff marked "return to sender--gone away." The sheriff then advertised the notice of sale in The Pilot, the local newspaper. Plaintiff learned that his property had been foreclosed and sold in 1996 and filed this action alleging failure to comply with N.C.G.S. § 105-375, violations of due process, and the unconstitutionality of N.C.G.S. § 105-375. Defendants moved for summary judgment, which the trial court granted for all defendants. Plaintiff argued that the issue of whether defendants complied with the statutory requirement of "due diligence" in seeking his address to afford him notice was a question of fact. Plaintiff cited Jenkins v. Richmond County, 99 N.C.App. 717, 394 S.E.2d 258 (1990) as the sole authority for his argument that the Tax Department should have been required to call the Pinehurst Resort and Country Club in an effort to obtain his current address. In Jenkins, Richmond County never obtained a current address for the owners and did not attempt to find one, instead relying on the physical location of the property. The court observes that in this case the Tax Department had an address for plaintiff, which he neglected to update.

The court concludes, that "requiring the Moore County Tax Department to place a telephone call to the Pinehurst Resort and Country Club to obtain plaintiff's address as contended by plaintiff would place an ‘intolerable burden’ on local taxing units and would render N.C. Gen.Stat. § 105-375 ‘impracticable.’ See Osteen, 292 N.C. 692, 235 S.E.2d 166. Having paid the property taxes since he purchased the property in 1987, plaintiff was aware of his responsibility to pay the taxes each year and to keep the Moore County Tax Department informed of any change of address." Judge Wynn dissented so this case may go up. It represents one of the few appellate opinions that uphold a tax sale when notice is the issue.