Bar News - May 18, 2012
Real Property Law: Internet Doesn’t Provide Whole Picture of Deeds
By: Suzanne McKenna
Recent market data indicates that fully one-third of real estate closings in the past year have been cash transactions. At the same time, consumers now, more than ever, are seeking to trim what they perceive as any "unnecessary" closing costs, and seem to be relying more on information from the Internet than advice from counsel. Yet New Hampshire real estate law can sometimes seem as unique as the Granite State landscape. As the real estate market makes its climb to recovery the lack of lender participation may present an opportunity for attorneys to demonstrate the value they bring to the closing process, for sellers and buyers.
On the seller side, it is important to include attorney review before signing a Purchase and Sales Agreement. The standard REALTORS form is widely available, but can often be eNew Hampshireanced by customizing it to the particular transaction. As well, the standard contract does not discuss New Hampshire’s real estate transfer tax. For out-of-state consumers, those who shopped online, or those who are choosing to bypass a broker the $1.50 per hundred of value that will be due can come as a surprise. Sellers in particular can benefit from being made aware at the outset that in New Hampshire this cost is shared equally between buyer and seller unless they have negotiated a different arrangement.
The real estate transfer tax also has implications for purchasers, beyond the 50 percent due. Care should be taken at the outset to ensure that the property is conveyed to the proper entity. The New Hampshire requirement that the transfer of real estate to a limited liability company or other entity can trigger another full payment of the real estate transfer tax may not be intuitive. Thinking through the reason for the purchase and creating a limited liability company or other means of holding title at the outset can be money-saving counsel. In the litigation context, it can be important to remember that the New Hampshire Department of Revenue Administration considers the settlement of claims to be consideration even though no money is changing hands.
Both sides of the transaction can benefit from understanding the appropriate type of deed for the transaction, particularly if "Google" has been the sole source of information. In New Hampshire the statutory forms provide a shortcut in drafting, but still contain a unique meaning. The shorthand can be confusing because different state laws can mean different things. For instance some states distinguish general and "special" warranty deeds. A quick online search with dozens of "hits" for "quitclaim deed" can indicate that it is a form of conveyance with "no" warranties of title or is used when the owner dies or as part of a divorce settlement. (See qna.mortgagenewsdaily.com/questions/quit-claim-deeds-warranty-deeds-and-more). In New Hampshire, though, RSA 477:28 for quitclaim deeds includes the covenant against encumbrances and that the grantor "shall, warrant and defend the same ...against the lawful claims and demands of all persons claiming, by, through or under the grantor, but against none other." It is important for sellers to consider that when they hold property by virtue of a quitclaim deed and are asked to convey the property by completing "warranty deed" in the purchase and sales agreement, they are agreeing to warrant, on behalf of themselves and their heirs, to defend not only the title they hold but also that they are lawfully "seized" in title.
Likewise, the short form for New Hampshire fiduciary deeds may carry a different meaning than the expectation created from an Internet search. A short-form fiduciary deed per RSA 477:30 does not include the covenant of seisin but only that the grantor "was duly authorized to make the sale of the premises; that in all of the grantor’s proceedings in the sale thereof, the grantor has complied with the requirements of the statute . . . and that the grantor will warrant and defend against claims in this capacity." It may be significant for an executor, for instance, to understand the liability he is assuming if the purchase and sales agreement is completed asking for a warranty deed. An executor agreeing to provide title by warranty deed is agreeing not only to pass the title as he held it during his time as a fiduciary, but is also agreeing to defend the title and back title, on behalf of herself and her heirs and assigns, even though the executor may have no personal knowledge or frame of reference as to any encumbrances or out-conveyances that affect the property.
Finally, legal advice as to the role of title insurance can potentially add significant value. While every lender will require title insurance to protect its collateral, consumers may not understand title insurance and consider it as just another needless expense. With long-owned family properties or when buying property from a friend we often hear, "That won’t be necessary" when asked about title insurance, as though the trust the buyer has in past owners will provide certainty title is marketable. The integrity of a great grandparent cannot ensure that every probate in the chain of title was properly put on record or that money was never borrowed and a discharge of mortgage unwittingly overlooked. Sometimes this is the very circumstance where the title search that accompanies the issuance of a policy can be very valuable. While title insurance cannot convert on e form of deed into another, the title search associated with title insurance can provide the purchaser with a needed assurance and financial protection to close a transaction. Title insurance is a one-time fee based on the value of property insured, and with the proper advice can be a small up-front expense to protect what is for many their most significant investment.
Suzanne McKenna grew up and attended law school in Virginia. After practicing for three years she came to New Hampshire with family, currently practices at Martin, Lord & Osman and enjoys every season in the Lakes Region (especially this year’s early start on the"baseball season").