5.10 Objections, Exceptions, and Defects in Title

• Library: Real Estate Transactions in Virginia (Virginia CLE) (2019 Ed.)

5.10 OBJECTIONS, EXCEPTIONS, AND DEFECTS IN TITLE

5.1001 Deeds of Trust and Vendor's Liens. Probably the most frequently encountered encumbrances are unreleased deeds of trust. All of these not barred by the statute of limitations should be reported in detail by the title examiner. In most transactions, the parties know of the existence of unreleased deeds of trust, which will either be satisfied and released or assumed. Sometimes, older deeds of trust have been overlooked and not properly released. Obviously, these must be released to remove the lien.

Deeds of trust and mortgages should be read carefully. They frequently contain provisions for accelerating the indebtedness if the real estate is sold or transferred. These provisions should be examined carefully and complied with whenever an assumption is involved.

Vendor's liens also constitute encumbrances and should be fully reported by the title examiner. These are liens for the benefit of the seller reserved in his or her deed to the purchaser. Most seller-financed transactions are now accomplished by a separate deed of trust securing the seller rather than a traditional vendor's lien being created in the deed.

Before 2000, if the lien of a deed of trust or a vendor's lien had not been enforced within 20 years from the final maturity date of the indebtedness thereby secured, or from the date of the document creating the lien if no final maturity date had been fixed by the instrument, the right to enforce the lien was barred. ⁵⁶ Amendments in 2008 and 2009 reduced the limitations period to 10 years from the maturity date for liens maturing before 2000. A credit line deed of trust, as defined in section 55.1-318 (formerly 55-58.2), can be enforced for a period of 40 years if no maturity date was stated in the instrument. ⁵⁷ These limitation periods may be extended under certain circumstances. ⁵⁸

Sections 55.1-339 through 55.1-345 (formerly 55-66.3 through 55-66.6) of the Virginia Code delineate the requirements for releasing mortgages, deeds of trust, and vendor's liens either in whole or in part. In addition to deeds of release or partial release, the marginal release was authorized by statute until 1975, when the statute was changed to provide for release by

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filing a certificate of satisfaction or a certificate of partial satisfaction only. Forms of these certificates are set forth in section 55.1-342 (formerly 55-66.4:1).

5.1002 Judgment Liens. Unsatisfied judgment liens that have not been barred by the statute of limitations as described in paragraph 5.902(A) of this chapter also constitute encumbrances to be reported by the title examiner. Occasionally, an unsatisfied judgment may have been paid but satisfaction was not entered on the records. In any case, the lien can be removed only by the satisfaction duly noted on the judgment lien docket or by filing a praecipe in the court case where the judgment was entered, referencing any judgment number or book and page number assigned by the clerk when the judgment was originally docketed. The judgment can be either released in full or released only as to the subject property.

5.1003 Federal Tax Liens. Virginia has adopted the Uniform Federal Lien Registration Act, ⁵⁹ which requires that notices of federal tax liens be docketed in the judgment lien docket book and indexed in the judgment lien index of the circuit court clerk's office for the jurisdiction where the land is located. A federal lien is not valid as against any purchaser, holder of a security interest, mechanics' lienor, or judgment lien creditor until notice of the lien has been filed in the judgment lien docket. ⁶⁰

Federal tax liens are enforceable for 10 years and 30 days from the assessment date of the tax, or longer if the lien is refiled during the last year of enforceability of the original lien. ⁶¹ The subject of federal tax liens is complex, and the examiner may wish to consult other resources for additional information about these liens.

For a case in which the federal tax lien law supersedes state law, see United States v. Craft, ⁶² which is discussed in paragraph 5.902(B) of this chapter.

5.1004 Property Owners' Association Liens. The Property Owners' Association Act ⁶³ provides that every lot in a dedicated subdivision is

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subject to a lien for unpaid assessments. The lien is perfected by filing a memorandum of lien in the land records where the property is located. The memorandum must be filed within 12 months from the due date of the assessment. Once perfected, this lien has priority over other liens and encumbrances as set forth in the statute. ⁶⁴

5.1005 Financing Statements. Financing statements that have not been terminated may constitute encumbrances on fixtures. ⁶⁵

5.1006 Delinquent Real Estate Taxes and Special Assessments.⁶⁶ Delinquent real estate taxes constitute encumbrances that must be satisfied with payment noted of record. Taxes for the current tax year also constitute a lien, but these are usually prorated where a sale of residential property is involved. The proration should clearly specify whose obligation it is to make actual payment to the treasurer or other collecting officer. If new construction is being conveyed, the examiner should contemplate supplemental assessments for the value of the improvement, resulting in an additional tax bill for a portion of the current tax year. Often, these supplemental assessments and taxes are not ascertainable at settlement, but appropriate provisions must be made at settlement for adjustments between the seller and the purchaser for their later proration.

There may also be unpaid special assessments for local improvements. These may be listed in the judgment lien book, in special books maintained therefor, or embodied in an improvement contract specifically granting a lien. These constitute encumbrances to be reported by the title examiner.

Property may be sold for delinquent real estate taxes at different times, depending on the classification of the property. Sales can occur as early as the first year of delinquency. ⁶⁷

5.1007 Restrictions and Covenants. All restrictive covenants and conditions that have not expired should be fully reported even though there may be full compliance with their terms. Violations of restrictions may be disclosed by a survey or by information obtained from other sources. The examiner should show whether they are coupled with a reversionary or

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forfeiture clause. Most lending institutions will make loans on property that is subject to restrictive covenants if the covenants have not been violated or, if violated, the restrictive covenants are not coupled with a reversionary or forfeiture clause.

If there is a reversionary clause, most lenders require that the restriction be released or subordinated. All parties in whom the right of reversion exists, including heirs and successors, are necessary parties to the instrument releasing or subordinating the right of reversion.

Some violations are so minor as to be de minimis. For example, there may be a very minor encroachment over an established building setback line. In such cases, the encroachment should be reported, but a title insurance company may be willing to provide some limited form of coverage for this type of violation. For example, the title insurance company may insure against a court-ordered forced removal of the existing improvement located on the property at the policy date due to the encroachment.

Restrictions may also arise by implication. Where a common grantor develops a tract of land for sale in lots and pursues a course of conduct indicating an intention to inaugurate a general scheme or plan of improvement for the benefit of the grantor and the purchasers of the various lots, and by numerous conveyances inserts in the deeds substantially uniform restrictions and conveyances against the use of the property, the grantees generally acquire by implication an equitable right, sometimes referred to as an implied reciprocal negative easement or an equitable servitude. This right authorizes them to enforce similar restrictions against the part of the property that the grantor has retained or that the grantor has subsequently sold without the restrictions or to a purchaser with actual or constructive notice of the restrictions. ⁶⁸

Certain restrictions based on race, creed, color, or national origin are void and unenforceable and should be so noted by the title examiner. ⁶⁹

5.1008 Condominiums.⁷⁰ If the subject property is a condominium, the condominium declaration or master deed and other related instruments must be examined. Particular care should be taken if it is a new unit being sold by the developer.

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The title examiner should determine that the declaration or master deed conforms to the appropriate statutes, that the descriptions of the individual units and common areas are legally sufficient, and that provisions for maintaining the common areas and unit owners' association are adequate. The examiner should note the means of assessing condominium or maintenance fees, how such fees are enforced, and how the unit owners' association is controlled and provide this information to the purchaser.

5.1009 Easements. All easements or rights of way that could possibly affect the subject property should be reported together with, insofar as possible, their location and extent. Easements most frequently encountered are for electric and telephone lines and other public utilities. These may include both surface and underground cables and generally include rights of ingress and egress and the right to cut and trim trees and underbrush that may interfere with the lines.

Unfortunately, a great many utility easements were granted in general terms only and cannot be precisely located. When a general easement such as this is encountered, the utility company may be willing to give a quitclaim deed insofar as the easement may affect the particular...