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Source of Title Blog

Conflicting Claims Of Ownership
by Robert Franco | 2008/07/24 |

Sometimes even a thorough search does not reveal all of the title problems.  I recently became involved in a commercial real estate transaction that includes a thirty-foot strip with two competing claims to ownership.  Interestingly, the problem would not have even been detected in a 100-year search.  The county has even been taxing both claimants on the parcel for more than 20 years. They have not yet figured out how to resolve the problem, even with discussions involving the tax map office, the auditor's office, the treasurer's office, and the county prosecutor's office.

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The parcel we searched, which purports to include the thirty-foot strip, is about to be developed and is now worth more than $2 million.  It is about to be sold and it was only because of a "save and except" for a new highway project that it was even discovered.  Our chain of title is "unbroken" for more than 100 years; there is no indication of a competing claim to the strip of land.

Approximately 107 years ago, the thirty-foot strip of land was deeded to a corporation for an electric rail line.  That deed contained a reversionary clause that becomes effective if the land is no longer used for electric rail purposes "with no further act or deed" required.  At some point the corporation sold the land.  After being conveyed a few more times the reversionary clause was dropped and the treasurer's office eventually foreclosed on the railway parcel and it was purchased by the other "claimant" at auction in the mid-1980's.  He as been paying taxes on the land ever since.... so has our record owner.

It seems to be the consensus of our county offices that the land reverted back into our chain of title, but the prosecutor has yet to provide any official guidance.  The county offices would like to delete the other claimant's parcel and refund his purchase price and the taxes he has paid.  Even if they do, the claimant may not like that solution because this property has suddenly become very valuable with the new development in the area.

With the proper save and except added to the legal description, the county will allow our record owner to convey the property.  However, the competing claim makes litigation a very real risk.  Win or lose, the potential litigation expenses present a challenge with insuring the new owner. Fortunately, I am not the title agent on this transaction - we are only providing the title search.

Because the chain of title to the railway parcel somehow dropped the reversionary clause from the deeds long ago, both chains look fine until you get back into the very early 1900's. 

This scenario presents some fascinating title issues.  After reading the Ohio Marketable Title Act and an Ohio Supreme Court case that deals with similar competing chains of title to mineral rights, I still don't know how this issue should be resolved.

Logic would seem to indicate that the railway chain of title was subject to reversion on the occurrence of an event, which did occur, and because the grantor could not convey an interest he did not own, once the railway parcel ceased to be used for rail purposes it should have reverted back into our chain of title.  Thus, grantors of the railway parcel after that really had no interest to convey.

But, the Marketable Title Act makes that much more confusing.  Basically, the Act is a statute of limitations in that it requires stale demands to be asserted within a reasonable time after a cause of action has accrued.

O.R.C. 5301.48 provides:

Any person having the legal capacity to own land in this state, who has an unbroken chain of title of record to any interest in land for forty years or more, has a marketable record title to such interest ... subject to the matters stated in section 5301.49 of the Revised Code.

In relevant part, O.R.C. 5301.49 states:

Such record marketable title shall be subject to:

...

(D) Any interest arising out of a title transaction which has been recorded subsequent to the effective date of the root of title from which the unbroken chain of title or record is started; provided that such recording shall not revive or give validity to any interest which has been extinguished prior to the time of the recording ...

It appears that both claimants have an unbroken chain of title as defined by O.R.C. 5301.48.

A person has such an unbroken chain of title when the official public records disclose a conveyance or other title transaction, of record not less than forty years at the time the marketability is to be determined, which said conveyance or other title transaction purports to create such interest, either in:

   (A) The person claiming such interest; or

   (B) Some other person from whom, by one or more conveyances or other title transactions of record, such purported interest has become vested in the person claiming such interest; with nothing appearing of record, in either case, purporting to divest such claimant of such purported interest.

Neither chain of title contains any reference to the other claimant's interest after the root of each respective chain of title.  However, that doesn't seem to be relevant in light of Heifner v. Bradford, 4 Ohio St. 3d 49, 52 (Ohio 1983).

[W]e are convinced that the General Assembly ... intended that a title transaction under R.C. 5301.49(D) ... may be part of an entirely independent chain of title.

Thus, it would appear that neither claimant would be able to rely on the Marketable Title Act to extinguish the interest of the other because each chain of title discloses a title transaction which purports to preserve their respective interests.  After the Heifner decision, it doesn't matter that the title transactions appear in a completely independent chain of title, even though no examiner would find any indication of the other's claim within each respective chain (without searching back for more than 100 years - well beyond the root deed).

Of course, Heifner can be distinguished from the present issue because it dealt with a reservation of mineral rights, and our problem involves a reverter.  The Ohio Revised Code specifically addresses reverters in section 5301.48.

Such record marketable title shall be subject to:

   (A) All interests and defects which are inherent in the muniments of which such chain of record title is formed; provided that a general reference in such muniments, or any of them, to easements, use restrictions, or other interests created prior to the root of title shall not be sufficient to preserve them, unless specific identification be made therein of a recorded title transaction which creates such easement, use restriction, or other interest; and provided that possibilities of reverter, and rights of entry or powers of termination for breach of condition subsequent, which interests are inherent in the muniments of which such chain of record title is formed and which have existed for forty years or more, shall be preserved and kept effective only in the manner provided in section 5301.51 of the Revised Code...

 

Section 5301.51 requires the filing of an affidavit in the "Notice Index" to preserve certain types of interests.  However, the Heifner decision also states that "the recording of an instrument of conveyance subsequent to the effective date of the root of title has the same effect in preserving any interest conveyed as the filing of the notice..." 

But, perhaps the Heifner Court got it wrong.  This seem to be exactly why the legislature required the Notice Index.  The Notice Index is required to index notices geographically for just this purpose, so examiners can find stray documents that preserve interests that do not appear in a chain of title back to a root deed.

The notice shall be filed for record in the office of the recorder of the county or counties where the land described in it is situated. The recorder of each county shall accept all such notices presented to him which describe land situated in the county in which he serves, shall enter and record them in the deed records of that county, and shall index each notice in the grantee deed index under the names of the claimants appearing in that notice and in the grantor deed index under the names of the record owners appearing in that notice. Such notices also shall be indexed under the description of the real estate involved in a book set apart for that purpose to be known as the "Notice Index."

This would mean that the claimant of the parcel we searched may have lost title to the railway strip by failing to file an appropriate notice after the root deed in the railway chain of title.

From an examiners point of view, Heifner seems to be bad law.  How can a title transaction in a completely independent chain of title be sufficient to put prospective purchasers on notice of a competing claim?  The decision seems to create a huge trap for the unwary.  It could all be avoided by a proper filing in the Notice Index, but the Heifner Court didn't feel that was necessary.  By giving a title transaction in an independent chain of title the same effect as a notice, it has completely subverted the intent of the Notice Index.

I should note at this point, that we did not prepare a complete chain of title to the railway parcel.  That was our likely next step, however, our client lost the deal to another title company and our involvement has ceased.  I hope the new title company has done similar research and they are aware of the potential problems that exist in light of the Marketable Title Act and Heifner.

Because both claimants have colorable title, it would seem that the only way to resolve the issue is a quiet title action.  Both sides could present their claim and have a court interpret the Marketable Title Act and Heifner in light of the facts presented.  Logic would lead us to conclude that our claimant has the superior interest.  However, the other claimant could make a very persuasive argument that by failing to preserve the reversionary interest by filing an affidavit in the Notice Index, our claimant's interest has been extinguished by the Marketable Title Act.

Robert A. Franco
SOURCE OF TITLE




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Categories: Abstractors, Ohio Legislation, Title Problems

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Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

 

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