The North Carolina Bar Association actively supports a number of legislative proposals each session. The purpose of his article is to provide a preview of certain of the proposals that will affect real property practitioners.

Personal Representative’s Power of Sale

One such proposal is Bill that would codify the law with respect to a Personal Representative’s authority to sell real property of a decedent. North Carolina law is clear that testators may expressly authorize their Personal Representatives to sell real property without court order even when not devised to the Personal Representative. The general rule in other jurisdictions is the same if the Personal Representative has an express power to do so in the will even if title is not devised to the Personal Representative. After the 1985 amendment of N.C.G.S. Section 28A- 1 5-1, some attorneys argue that a PR can divest title without court order only for the purpose of paying debts and expenses. Other attorneys take the position that even if authority is granted to the PR in the will, the PR has the authority to sell without a court order only if the PR has been devised the property, although there is no support for either of these positions in the case law of North Carolina.

The purpose of the Bill is to codify the law in this area so there will be a consistent application of the law with respect to the sale of real property by the Personal Representative without court order. This is important so that estate planning attorneys can advise their clients and draft wills to carry out their intentions, so that real estate attorneys can certify title with greater assurance, and personal representatives and the clerks of superior court will know with a greater degree of certainty when the expense and complication of a judicial sale is required.

A summary of the amendments made in each Section of the proposed Bill follows:

Section 1. N.C.G.S. Section 28A-l3-3 would be amended to provide that the Personal Representative has the power to take possession, custody and control, sell, lease or otherwise dispose of real property as provided in new N.C.G.S. Section 28A-13-3.l.

Section 2. N.C.G.S. Section 28A-l3-3.l is added codifying that a Personal Representative may without court order take possession, custody and control, sell, lease or otherwise dispose of real property to the extent that a will grants the power to do so either by incorporation by reference of N.C.G.S. Section 32-27 powers, by an express power in a will where title is conveyed to the Personal Representative, or by an express power in the will where title is not conveyed to the PR if the testator specifically indicates an intent in the will that the power applies to such real property. This provision changes the common law by requiring the clarification in the will and thus would be inapplicable to existing wills that typically do not make such provision. If the power granted to the Personal Representative is not exercised within two years of the death, all sales, lease and mortgages of the real property by the devisees are valid as against the Personal Representative and creditors.

Section 3. Adds new section N.C.G.S. Section 28A-13-3.2 requiring the Personal Representative to give written notice to the devisees of the PR’s intent to exercise a N.C.G.S. Section 28A-13-3.l power as to real property not devised to the Personal Representative.

Section 4. Adds new section N.C.G.S. Section 28A-3-13.3 requiring the Personal Representative to reimburse the devisees from the net sale proceeds for all defined “carrying costs” incurred by the devisees prior to the Personal Representative taking possession real property not devised to the Personal Representative.

Section 6. Makes conforming changes to N.C.G.S. Section 28A-l 5-1.

Section 7. Clarifies N.C.G.S. Section 28A-15-2 as to when the devisees’ title is divested and becomes vested in the Personal Representative or when a lease or mortgage pursuant to N.C.G.S. Section 28A-13-3.1 encumbers a devisee’s title.

Section 8. N.C.G.S. Section 28A-22- 1 is amended to provide that proceeds from the sale of real property under N.C.G.S. Section 28A-13-3.1 retain the character of the real property.

Section 9. N.C.G.S. Section 28A-23-3(b) is amended to provide that the proceeds of real property sold pursuant to N.C.G.S. Section 28A-13-3.1 other than to pay debts or legacies shall not be considered in computing the Personal Representative’s commissions.

Joint Tenancies

Another proposed Bill would amend N.C.G.S. Section 41-2 to clarify the ability of a grantor to convey disparate undivided interests as a joint tenancy with right of survivorship. Under the ancient common law, survivorship in joint tenants was presumed and they could only be created by complying with the four unities of time, title, possession and interest. The interests had to be equal, come from the same source at the same time and all had an equal right to possession.

Our Legislature did away with the presumption of survivorship in 1782, and our appellate courts did some serious damage to our ability to create a JTWROS over the next 200 years by assuming this meant that the legislature intended to do away with this form of ownership. Because landowners persevered in their desire to convey in this fashion, a fix for the artificial hurdles created by the appellate courts was necessary and between 1989 and 1991, the Legislature attempted to fix this problem by extensively amending N.C.G.S. Section 41-2. The amendments unequivocally eliminated the unities of time and title. Many consider the language “any interest” as used in the current statute as doing the same thing for the unity of interest leaving only the unity of possession. Others suggest that there is a question and that clearer language is required to settle the question.

Elder law practitioners have been implementing estate plans utilizing JTWROS deeds conveying disparate fractional interests for several years now. In the interest of avoiding the possibility of having an appellate court attempt to answer a question it may well not understand in a way that would have disastrous results for so many families, the statutory amendment is being proposed and it should settle the issue. Until there is a legislative or appellate resolution to the question, real property practitioners and title insurance counsel must make decisions on how to proceed on a case by case basis.

The amendment would modify the last portion of N.C.G.S. Section 41-2 as follows:

A conveyance of any interest in real property by a party to himself and one or more other parties, whether or not jointly with the grantor-party, as joint tenants with right of survivorship, creates in the parties that interest, if the instrument of conveyance expressly provides for a joint tenancy with right of survivorship. The interests of the grantees under any such conveyance may be held by them in equal or unequal shares. Any interest held by a husband and wife, not otherwise specifying, shall be deemed to be held as a single tenancy by the entirety interest in the percentage stated. If joint tenancy interests among three or more joint tenants are held in unequal shares, upon the death of one joint tenant, the share of the deceased joint tenant shall be divided among the respective pro rata interests and not equally, unless the creating instrument provides otherwise.

Effective date: All transactions before, on or after the effective date of enactment.

Appointment of Trustee

Deeds of trust are recorded with increasing frequency without the closing office or the lender generating the documents inserting the name of a trustee. At common law, a trust will not fail solely because of failure to name the trustee. However, the Uniform Trust Code specifically does not apply to deeds of trust, so this proposed legislation would insure that the deed of trust should not fail to be effective or have priority over subsequent matters solely because of the missing name of a trustee. It provides a procedure to do so by clearly authorizing a holder of the debt to include a trustee by executing and recording a “substitution” even if no trustee was originally named in any instrument in which the holder could otherwise substitute a trustee.

N.C.G.S. Section 45-10-1.1 would read as follows:

(1.1) If the name of a trustee is omitted from an instrument appearing on its face to be intended to be a deed of trust, the instrument shall be deemed to be a deed of trust, the owner or owners executing the deed of trust and granting an interest in the real property shall be deemed to be a constructive trustee or trustees of record for the secured party or parties named in the instrument, and a substitution of trustee may be undertaken under subsection (a).

Effective date: This act shall be effective for all instruments recorded before, on or after this act becomes law.

Good Funds Settlement Act Amendment

If a settlement agent embezzles funds out of a transaction, the settlement agent may be criminally prosecuted under N.C.G.S. Section 14-90. This is not possible, however, if the settlement agent embezzles funds generally from a trust account holding funds belonging to diverse parties and the embezzlement cannot be clearly attributed to a particular owner of the funds embezzled. Real Estate trust accounts typically contain funds for multiple parties, making it difficult or impossible to tie the embezzled funds to a specific owner.

This proposed Bill would enact a new N.C.G.S. Section 45A-8 that will allow prosecution of a settlement agent even if the funds cannot be tied to a particular owner.

N.C.G.S. Section 45A-8 would read:

45A-8. Embezzlement of Closing Funds by Settlement Agent.

All closing funds received by a settlement agent are trust or escrow funds received by the settlement agent in a fiduciary capacity; and the settlement agent, in the disbursement of closing funds, shall account for and pay the closing funds to the persons or entities identified for payment of the closing funds pursuant to the settlement statement approved by the parties to the transaction as defined under this Act. Any settlement agent who shall embezzle or fraudulently or knowingly and willfully misapply or convert to his own use, or shall take, make away with or secrete, with intent to embezzle or fraudulently or knowingly and willingly misapply or convert to his own use the closing funds or any portion of the closing funds, other than closing funds representing the settlement agents fee and expenses, shall be guilty of embezzlement under N.C.G.S. Section 14-90 regardless of whether the embezzled, misapplied or converted closing funds have been proved to belong to a specific party.

Business Trusts

Conveyances into and out of business trusts, such as Massachusetts business trusts are governed in North Carolina under Article 8 of Chapter 39 of the general Statutes.  Illinois land trusts, Delaware Statutory Trusts and real estate investment trusts (REITs) are implicitly provided for, but the statute could stand to be a bit more explicit. This act is also somewhat out of step with changes in the law regarding other entities such as corporations and LLC’s.  It also was not brought into accord when the requirement for a “seal” on conveyances was eliminated. This can create confusion because of the inexplicable difference in requirements among entities.

This legislative proposal is being made to bring the statutory business trust provisions more in line with those of other business entities. The provisions will afford protection of third parties reasonably relying upon authority documents in the public records as is provided in N.C.G.S. Section 47-18.3 in the case of corporate conveyances.

The definition of business trusts would be expanded to include Illinois land trusts and Delaware Statutory Trusts. The requirement for seals on conveyances would be eliminated, it will allow an authorized agent to sign on behalf of the business trust, provided that the appropriate resolution is filed with the document or recorded separately that gives appropriate authority to the authorized agent.

Section 1. G.S. § 39-44 will read as follows:

39-44. Definition,
The term “business trust” whenever used or referred to in this Article shall mean any
unincorporated association, including but not limited to an Illinois land trust, a Delaware
or a Massachusetts business trust, engaged in any business or trade under a written instrument or declaration of trust under which the beneficial interest therein is divided into shares represented by certificates or shares of beneficial interest.

G.S. § 39-46 will read as follows:

39-46. Title vested; conveyance; probate
(a) Where real estate has been or may be hereafter conveyed to a business trust in its trust name or in the names of its trustees in their capacity as trustees of such business trust, the said title shall vest in said business trust, and the said real estate and interests therein may be conveyed, encumbered or otherwise disposed of by said business trust in its trust name by an instrument signed by at least one of its trustees, its president, a vice-president or other duly authorized officer, the said conveyance to be proven and probated in the same manner as provided by law for conveyances by corporations. Any conveyance, encumbrance or other disposition thus made by any such business trust shall convey good and sufficient title to said real estate and interests therein in accordance with the provisions of said conveyance; provided, however that with respect to any such conveyance, encumbrance or other disposition effected after June 28, 1977, there must be recorded in the county where the land lies a memorandum of the written instrument or declaration of trust referred to in GS. 3944. As a minimum such memorandum shall set forth the name, date and place of filing, if any, of such written instrument or declaration of trust, and the place where the written instrument or declaration of trust, and all amendments thereto, is kept and may be examined upon reasonable notice, which place need not be a public office. Such memorandum may include designation of trustees and duly authorized officers, and the authority granted thereto, with regard to real estate matters, pursuant to subsection (b) hereafter.

(b) Any business trust may convey or encumber an interest in real property which is transferable by instrument which is duly executed by either an officer of said business trust other than one of its trustees, its president, a vice-president or other authorized agent identified in the recorded memorandum or declaration of trust described in (a) above, if conveyance has attached thereto a signed resolution adopted by the board of directors as certified by an officer authorized to make such certifications of said business trust authorizing the said officer to execute sign, seal, and deliver deeds, conveyances, or other instruments. This section shall be deemed to have been complied with if a resolution is recorded separately in the office of the resister of deeds in and lies, which said resolution shall be applicable to all instruments subsequently thereto and pursuant to its authority.

Notwithstanding the foregoing this section shall not require a signed resolution adopted by the board of directors as certified by an officer authorized to make such certifications trustees of the business trust to be attached to an instrument or separately recorded in the case of an instrument duly executed by the one of its trustees, its president, or a vice-president of the business trust. All deeds, conveyances, or other instruments which have been heretofore or shall be hereafter so executed shall, if otherwise sufficient, be valid and shall have the effect to pass the title to the real or personal property described therein. Notwithstanding anything to the contrary in the trust absent any other provision otherwise in the recorded memorandum or declaration of trust required under subsection (a) above, when it appears on the face of an instrument registered in the office of the register of deeds that the instrument was signed in the ordinary course of business on behalf of a business trust by at least one of its trustees, its president, a vice president or an assistant vice president, such an instrument shall be as valid with respect to the rights of innocent third parties for value without notice of a defect or breach of fiduciary duty as if pursuant to authorization from the board of trustees unless the instrument reveals on its face a potential breach of fiduciary obligation. The subsection shall not apply to parties who had actual knowledge of lack of authority or of a breach of fiduciary obligation.

(c) Nothing in this section shall be deemed to exclude the power of any representatives of a business trust to bind the corporation pursuant to express, implied, inherent or apparent authority, ratification, estoppel, or otherwise.

(d) Nothing in this section shall relieve trustees or officers of a business trust from liability to the business trust or from any other liability that they may have incurred from any violation of their actual authority.