Congress passed USCS §§ 3001 et seq. entitled the Federal Debt Collection Procedures Act of 1990 (the "Act") effective May 29 1991. It can have a profound effect on the title to real property and from the many questions we respond to a general review appears to be in order. The Act applies to judgments in favor of the United States. Pursuant to the terms of the Act a judgment in favor of the United States is a judgment in favor of a federal corporation, agency, department, commission, board, instrumentality or other entity of the United States. Such a judgment is effective as a lien upon its docketing in the office of the Clerk of Superior Court in the county where the debtor owns an interest in real property. The lien is effective against all interests, present or future, vested or contingent, including property held in a spendthrift trust, 28 USCS § 3002(12).

The lien of the judgment is effective for twenty (20) years. The lien may be renewed for one additional twenty-year period upon approval of the court entering judgment. The United States must file the notice of renewal prior to the expiration of the original judgment. Unlike a state judgment, this operates as an extension and the lien relates back to the first docketing. The Act operates retroactively to judgments that had not expired on the effective date of the Act. If a judgment was entered on May 30, 1981, and docketed, it is effective as a lien until May 30, 2001 and may be extended by renewal until May 30, 2021.

The Act states that a " lien created under [the Act] shall have priority over any other lien or encumbrance which is perfected later in time." 28 USCS § 3201(b). It also provides in 28 USCS § 3003(d) that the Act shall preempt state law "to the extent that such law is inconsistent with a provision of this chapter." Some commentators take the position that this would seem to supercede the common law doctrine of instantaneous seizin. This doctrine allows a purchase-money security interest perfected later in time to have priority over an existing judgment lien. The doctrine is clearly inconsistent with § 3201(b). The implication for title examiners in North Carolina is that a standard search may now require examination of judgment records for prospective purchasers regardless of the standard exception contained the North Carolina Bar form title opinion.

The act provides that property exempt under state law may be exempted from enforcement of the judgment under § 3014. This section requires an election in an action or proceeding under the act. Exemptions, therefor, are not automatic and require a court order to prevent enforcement of the judgment against eligible property. Property that is exempt under bankruptcy law, federal law, state law or held as tenancy by the entireties is eligible for exemption. At least one national title insurer has issued an underwriting bulletin requiring such orders be reviewed by underwriting personnel.

It should be noted that 28 USCS § 3010(a) limits enforcement of the remedies under the Act " against property which is co-owned by a debtor and any other person only to the extent allowed by the law of the state where the property is located." A federal judgment attached to a husbands survivorship interest in tenancy by the entireties property in a Michigan case. It was subject to enforcement upon termination of the entireties estate by prior death of wife, divorce or joint conveyance. Under Michigan law each spouse’s interest is distinct, cognizable and sufficient to support attachment of a creditor’s lien, Fischre v. United States, 852 F Supp 628, (1994, WD Mich). The case was a declaratory action seeking to remove the cloud on title created by the judgment. Impliedly if the lien had not attached to the individual entireties interest, under Michigan law, the debtor would have been entitled to the requested relief. Under North Carolina law a spouse’s interest is not separable and no lien attaches until a termination of the estate. It would seem that, arguably, the federal lien would also not attach in North Carolina and exemption rules would not apply.

The United States may file a Notice of Levy on real property before securing a judgment. This notice operates much in the same manner as a Lis Pendens. Any subsequent judgment will relate back to the filing of the notice, The Act also contains an extensive fraudulent transfer remedy section which should cause concern when an abstract of judgment is docketed shortly after a conveyance. If a prior deed of trust is foreclosed the United States may assert a right of redemption for a period of one year. The title examiner can not rely on mere priority in order to pass on title unless the redemption period has passed.

Federal judgments may "be released on the filing of a satisfaction of judgment or release in the same manner as the judgement is filed to obtain the lien" 28 USCS § 3201(d). Enforcement of the judgment may be by execution conducted under § 3203(g) or judicial sale conducted pursuant to §§ 2001, 2002 and 2004.

Most federal judgments tend to be very large and can give rise to a substantial claim. The following points summarize the important issues for the real property practitioner.

1. Judgments must be checked for twenty years (i.e. May 30, 1981).
2. Judgments should be checked for the prospective purchaser.
3. Instantaneous seizin doctrine does not apply.
4. Property exemptions are not automatic.
5. United States has a one year right of redemption.
6. All federal judgments should be reported to the Title Company.

The North Carolina Supreme Court has handed down an important decision that does not directly affect title to real property but should be of significance to real property practitioners. Nelson V. Freeland, 507 S.E.2d 882 (N.C. 1998), has changed the standard of care owed to a non-trespasser by a landowner. The Court has eliminated the distinction between licensees and invitees by requiring the party in control of the property to exercise a standard of reasonable care to all lawful visitors.

The Court presents a lengthy discussion of the history of the existing standard, the extent of its evolution in other jurisdictions and the arguments for, and against, the need for its abandonment in North Carolina. In determining a need for change the Court concludes that the "[a]doption of a true negligence standard eliminates the complex, confusing, and unpredictable state of premises-liability law and replaces it with a rule which focuses the jury’s attention upon the pertinent issue of whether the landowner acted as a reasonable person would under the circumstances." The Court, in an apparent attempt to assuage concern, goes on to proclaim that "we note that we do not hold that owners and occupiers of land are now insurers of their premises. Moreover, we do not intend for owners and occupiers of land to undergo unwarranted burdens in maintaining their premises. Rather, we impose upon them only the duty to exercise reasonable care in the maintenance of their premises for the protection of lawful visitors."

The Court does not change the standard of care due a trespasser and makes the new rule retrospective as well as prospective. Chief Justice Mitchell, joined by Justices Lake and Orr, voiced concern over the inadvisability of rendering "an opinion of the magnitude of that entered by the majority in this case when, as here, no party has suggested such a modification of the common law and this Court has not had the benefit of briefs and arguments on the issues decided by the majority." These three justices concurred only in the result.

Editors comment: One is inclined to look behind the decision and see a cultural bias to define responsibility for injury in unstated terms of who is most likely to be insured.

(This article is being reproduced with the permission of the ALTA and Ann vom Eigen, the author. We will continue to update North Carolina real property attorneys on changes in technology and legislation that ultimately will have an effect on the way business is conducted in our state).

One of the lesser –known but significant provisions of HR 10, last year’s failed attempt at "bank powers" legislation, dealt with privacy issues in electronic communication and so-called "digital signatures." The proposal defines these "electronic signatures" as a method of signing an electronic message that identifies and authenticates a particular person as the source of the electronic message, and indicates the person’s approval of the information contained in the electronic message. This method of document authentication and approval holds vast implications for the real estate settlement industry, and title insurance professionals particularly. While the concept appears relatively straightforward, competing technologies and regulatory complications have made progress in this area surprisingly slow.

In general, digital signatures procedures are required to be compatible with standards and technology for electronic signatures that are generally used in commerce and industry and by state governments, and should ensure that electronic signatures are as reliable as is appropriate for the purpose in question, keeping intact the information submitted. To answer this need in 1998, Congress passed and President Clinton signed legislation establishing an advisory commission on electronic commerce in HR 4328, the Omnibus Appropriations Bill (PL 105-277). However, separate legislation, which would have encouraged the development and acceptance of digital signatures, failed in the Senate. That legislation directed the Office of Management and Budget (OMB), the Federal management agency which coordinates all Federal agency actions, to develop procedures for the use and acceptance of electronic signatures by federal agencies (except the IRS) over the next year and a half. The IRS, which has accepted electronic filing of tax and information returns, has had procedures in place for several years.

Subsequent to the development of government-wide procedures, the federal government would have been mandated to ensure that federal agencies would provide, over the next five years, for the option of the electronic maintenance, submission, or disclosure of information when practicable as a substitute for paper, and for the use of electronic signatures when practicable. At the federal level, at least, it appears that progress may not occur as rapidly as one would hope, given the stated limitations of "practicality" that involve serious issues and limitations in terms of technology, bureaucratic inertia, and differences in state law.

In terms of lawmakers’ reactions to these procedural initiatives and issues, Senator Robert Bennet (R-UT) noted upon his introduction of the "Digital Signature and Electronic Authentication Law of 1998" (which covers the use by financial institutions of digital signature procedures) that while the concept is fairly simple, the legislative process of regulating even digital signatures has proven quite complex. He stated that he believed that the vast differences in state law and the complications resulting from the number of competing technologies available to provide authentication have actually slowed progress on this front. Senator Chris Dodd (D-CT) has also surfaced concerns about electronic issues related to electronic commerce and privacy, as ALTA staff learned at a fund-raiser held in September of 1998.

The prognosis for additional passage of digital signature legislation remains mixed. While hearings on legislation dealing with the particular issues affecting financial services industries (introduced by Senator Bennet and Representative Richard Baker) were held in both the House and Senate Banking Committees, it is expected that action may not occur until the end of the next Congress. Given that the legislation addresses not only the mandatory recognition of electronic signatures, but such matters as the oversight of transactions by federal and state banking agencies, an affirmative override of state law on these transactions, voluntary or mandatory participation, liability, technology neutrality, and licensing of certificate authorities, careful analysis seems appropriate. Like technological solutions, legislation on this issue would appear at first glance to simplify and expedite transactions, but may require significant review before implementation is undertaken.