ULC

Simplification of Land Transfers Summary

In 1968, the NCCUSL began a project to unify land financing with land transactions law. It was meant to accomplish for aspects of land law what the Uniform Commercial Code had done for sales of goods and secured transactions. The project expanded to include conveyancing, recordation, liens, and condominiums. In 1975, the entire product was brought before the NCCUSL at its Annual Meeting for approval. At that Annual Meeting, the entire project was split, some of it to be completed then, and some to be continued. In 1975, the subjects of the land contract and land financing were completed as the Uniform Land Transactions Act. Now, in 1976, the subjects of conveyancing, recordation, and liens have been completed as the Uniform Simplification of Land Transfers Act (USLTA).

 

For conveyancing, simplification is the key quality. The basic nature of the conveyance is unchanged basically from the common law. The requisites of a proper conveyance are a proper writing and delivery. The principal goal in USLTA is the elimi­nation of unnecessary symbols. Thus, the conveyance need only reasonably identify the grantor, grantee, and the realty: show the intent; and be in writing and signed by the grantor. Elimi­nated are acknowledgments, seals, and extraneous formal require­ments. Delivery is the effective act, and is "an act manifesting an intent to make a present transfer of real estate." These provisions do not vary existing .law in most jurisdictions, but simplify the concepts in existing law. Indeed, in many juris­dictions, such simplification has been well under way for some time.

 

There are two interesting innovations with respect to con­veyancing. Under USLTA, a grantor may grant directly to himself in a grant in joint tenancy. Some jurisdictions have utilized a fiction to accomplish this purpose. USLTA simply erases any existing prohibitions, which relieves the need for a strawman in the chain of title. A clear simplification results.

 

Real estate in which there is a future interest is also a problem. USLTA adopts the position of the Model Act Providing for the Sale of Real Estate Affected with a Future Interest, drafted by Professors Lewis M. Simes and Clarence S. Taylor. The provision allows the holder of a future interest to petition for appointment of a trustee to carry out the desired transaction. The trustee then conducts the transaction. These innovations in conveyancing would be relatively new in many jurisdictions, but the principal gain in adopting these provisions would be the simplification and consistency they would encourage in all such transactions.

           

Recordation provides, in USLTA, a greater mode of innovation. USLTA encourages geographic indexing rather than indexing by the names of grantors and grantees. Recordation basically provides notice of interests in land. Grantor-grantee lists are notorious encouragement to error when one seeks chain of title. As the num­ber of transactions grows historically, the more cumbersome the system becomes. A geographic indexing system restricts error and simplifies the records. Title searches become easier and trans­actions cheaper. There can also be substantial savings in the recording offices, themselves.

 

Recordation affects priority of interests, and it affects evidence of the interests involved. For the latter, a series of presumptions are provided which are raised by recording the title document. Some jurisdictions already honor certain of these pre­sumptions, but their summation is derived from the Model Act Concerning Evidentiary Effect of the Record, prepared by Professors Simes and Taylor. They are not presumptions which are unusual in any way. They include presumptions such as the validity of the document, and that consideration was given. USLTA raises little that is new here, but it completes a pattern of presumptions logically arising from the fact of recordation.

 

There are some other provisions which are of interest. USLTA permits recordation of a memorandum of lease. This has the effect of recording the lease without recording its entire body. The memorandum is a shorter document, very like the filing statement used to record secured transactions under the Uniform Commercial Code.

 

Setting up a geographic index requires some enabling legis­lation for the appropriate officials. USLTA creates a recording officer at local government and state levels. The recording of­ficer at the local level maintains the basic records and organizes the index for his jurisdiction. The State Recording Officer may appoint advisory boards to assist in "maintaining and improving" the recording system utilized in the state. The basic function of this office is to coordinate the local indexing systems and to set recording fees. The state has limited powers with respect to the entire recordation system.

 

Recordation precedes priority of interests in land and de­termines them. A conveyance is effective as to the interests the grantor had. But in the event of a purchase for value which is recorded, there is a priority over and free from any subsisting adverse claim, unless there is a prior recording of that in­terest. There are some significant exceptions, including adverse possession, actual knowledge of the adverse interest, and certain other disabilities at law. Recordation creates a priority over the unrecorded interest, or the subsequently recorded interest, unless relation back can take effect. Relation back by subsequent recordation applies to certain kinds of liens. Thus, priority is achieved by actual notice of an interest, or first-in-time recordation, in general.

  

Historically, land title must always be somewhere in someone or something. In a transaction, its validity depends upon search­ing the record to find omissions or adverse claims, beginning with the immediate grantor, and working back, ad infinitum. There is a certain absurdity in ancient claims which remain unasserted for decades, and which may disturb or upset current transactions. A claim should be asserted within a given time, or be mooted. USLTA turns once again to the work of Professors Simes and Taylor and the Model Marketable Title Act. Under these provisions, a claim is extinguished if not asserted or recorded within 30 years from its origin. A title search need go back only 30 years. If adequate chain of title is found in that time period, that is sufficient. A claim may be preserved or reasserted by recording or re-recording, however, but it otherwise extinguishes after the requisite time. Such a system greatly facilitates title record searches, and improves the efficiency of the process. At the same time, there is more than adequate time for the assertion of a claim.

 

Perhaps the most controversial aspect of USLTA is Article 5, which concerns Construction Liens. Almost every jurisdiction favors certain contractors and suppliers of materials with liens on real property upon which work and materials have been expended. A lien is an encumbrance on real property, with possible priori­ties over certain other encumbrances though prior in time. Gen­erally, they run against the property itself, and may be fore­closed like a mortgage. Common names for these liens are Mechanic's Liens and Materialmen's Liens, as well as Construction Liens.

 

The lien operates in this fashion. The landowner contracts with a general contractor for a specific building project. During the term of the project, the general contractor buys supplies, on credit, for the project. The general contractor also subcontracts specific aspects of the work, such as cement work, plumbing, or stonework. The landowner is obligated on the contract with the general contractor, and vice versa. The general contractor is obligated on contracts with suppliers or materialmen and subcon­tractors. All parties have their contractual remedies in the event of a breach.

 

Liens operate as extra-contractual encumbrances, and are pro­vided by statute. The general contractor may have a lien, by statute, but it is not so important since the general contractor has normal contract remedies and cannot usually exercise a lien if he is in breach. The liens of materialmen and subcontractors are much more serious affairs. There is no contractual relation­ship with the landowner, yet the lien is enforced against the landowner in the event the general contractor breaches contract with subcontractors or materialmen. It is the landowner who is wholly vulnerable to these liens and who is dependent upon the solvency and good faith of the general contractor.

 

Obviously, such liens create problems for landowners. If the general contractor defaults on any payment to his material suppliers or subcontractors, the landowner will be liable even though he has paid the full price for which he contracted with the general contractor. In essence, notwithstanding his expectations on the price, he is by law potentially liable for double payment. That this is an unfair arrangement has long been a matter of comment in the law reviews and journals.

 

Materialmen and subcontractors argue that they are small businessmen, on the whole, and cannot afford to enforce their contracts against the larger general contractors upon a default. They argue that the burden of assuring the reliability of the general contractor should be the landowner's and that the burden of loss should be upon the property.

 

There are many puzzling interests to resolve with respect to liens. For example, all landowners are not the same. Commercial developers have different knowledge and sophistication than resi­dential homeowners. All subcontractors and materialmen are not small, vulnerable businessmen. Many are enterprises larger than the general contractors and have sophisticated credit systems. Then there are other security interests with which to contend. Prior mortgages may have been let on the property and money borrowed to cover the contract price of current work and improve­ments. The crossing of interests is quite complex.

 

There is a good deal of sentiment and opinion favoring the abolition of liens entirely. This body of opinion holds liens to be an infringement upon contract rights on the part of the state. They are an unwarranted intrusion into business affairs in which each party should be left to bargain for the best position he can obtain. Indeed, there is opinion (and new case law) which regards construction liens as unconstitutional. This body of opinion appeals to those most concerned with the preservation of free enterprise.

 

USLTA does not fully conform to the perfect, free enterprise model, but it does not either discard the interests of subcon­tractors and materialmen. It also proffers an opportunity to distinguish between commercial landowners and residential home­owners. USLTA recognizes that the contract price should be the single obligation of the landowner, if at all possible. However, subcontractors and materialmen should be able to acquire liens on that contract price for the value of their services before payment, as scheduled, to the general contractor. Subcontractors and materialmen have their extra-contractual remedy and a security interest, but are required to take more immediate action to pre­serve it than under current law.

 

There are alternate provisions. The preferred alternative allows a lien to attach for the value of services or materials expended, or the remainder of the unpaid contract price, whichever is the lesser. The second alternative, which is less preferred, but better than the current system, would simply require a filing of liens within 20 days of the time work or services are expended for commercial landowners, but would hold residential homeowners(protected parties) vulnerable only for the unpaid contract price, in the same fashion as the first alternative. Alternative sections are occasionally provided in Uniform Acts, and this is one of those occasions.

 

A lien attaches when it is recorded. The time of recording determines priorities between lien holders. Liens attaching at the same time have equal priority, and are enforced proportion­ately. Lien holders have priority on the basis of earliest to latest in time of attachment. Priority between lien claimants works fairly simply.

 

As against other claims, a lien holder is treated the same as a purchaser for value without knowledge. Upon recording, there would be a priority over all prior unrecorded security interests which were not actually known. All prior recorded interests would retain their priority according to time of recordation.

 

USLTA is a continuation upon the Uniform Land Transactions Act. Its topical concerns from conveyancing through liens comple­ment the provisions of ULTA. The principal object of these Acts is to stimulate the interstate flow of financing and to reduce the costs of land transactions. Anything which can improve and simplify aspects of the transaction assists the general goal. USLTA makes substantial gains in this regard from past law throughout all juris­dictions.