Thursday, February 7, 2019
The law sets forth particular requirements that a real estate deed must satisfy to be effective to convey title in the manner in which the parties to the transaction desire. Those requirements, for example, might concern particular deed language, recordation, or even the manner in which the deed is executed.
But, just how technical are those requirements? Is a failure to precisely follow all of the rules fatal to the conveyance of the property involved? Can a party to a real estate transaction use a minor “foot-fault” by the other party as a means of getting out of what is discovered to be a bad deal? What if the “defect” isn’t discovered until several years after the deed is executed and title conveyed? Does the passage of time matter?
That’s the topic of today’s post – the impact of the passage of time on deed defects.
All states have all curative statutes designed to address various types of errors associated with real estate deeds. The statutes vary greatly from state-to-state, and deal with various possible defects. However, they all have one purpose – to cure defects following the passage of a certain amount of time. The goal is to allow title examiners to rely upon recorded documents that may have some minor defect once an appropriate length of time has passed. If execution and recording of the deed is defective, that generally does not impact the validity of the conveyances between the parties to the conveyance. It only impacts whether constructive notice to the world was effective.
Recent Case. A recent decision by the U.S Court of Appeals for the Eleventh Circuit dealt with the Florida curative statute and how it applied to a alleged deed defect in a case involving an IRS attempt to foreclose on the real estate. In Saccullo v. United States, No. 17-14546, 2019 U.S. App. LEXIS 1056 (11th Cir. Jan. 11, 2019), a father executed a deed in 1988 that conveyed a tract of real estate to a trust for the benefit of his son. But, the deed was witnessed by only one person rather than two as Florida law required. The father died in 2005, and the IRS asserted that the estate owed $1.4 million in delinquent federal estate tax. In 2015, the IRS filed a tax lien against the property on the basis that it was property that was included in the decedent’s estate.
The son sued, claiming that the lien was inapplicable. He claimed that the property was not included in the father’s estate because it had been transferred to the trust before the father’s death. The IRS acknowledged that there had been an attempted transfer to the trust before death, but claimed that the properly had not actually been conveyed to the trust because the deed execution was not properly witnessed. As a result, the IRS claimed, the property was included in the father’s estate at death and was subject to the IRS lien for unpaid taxes. The IRS motioned for summary judgment and the trial court agreed, granting the motion.
On appeal, the appellate court reversed noting that Florida law (Fla. Stat.§95.231) specifies that an improperly executed deed is considered valid five years after recordation. While the IRS claimed that this “curative” statute required “some form of formal adjudication” before it cured a deed and that, even if it did apply automatically, the statute essentially constituted a statute of limitations. As a statute of limitations, the IRS claimed, it couldn’t apply in a manner that bound the United States. The IRS cited an old U.S. Supreme Court opinion for that proposition. See United States v. Summerlin, 310 U.S. 414 (1940).
The appellate court disagreed with the IRS. The appellate court noted that while the Florida Supreme Court had not squarely addressed this particular issue, the clear weight of Florida authority favored applying the curative statute automatically five years after a deed is recorded and did not require any adjudication. The appellate court also held that Summerlin did not apply because the deed had been cured before the father died (the deed was executed and recorded 17 years before the father died) and, at the time of curing, was deemed to be effectively conveyed to the trust. As a result, there was no statute of limitations issue because the IRS claim failed to accrue. The result was that, upon the father’s death, the real estate was not included in his estate and the IRS lien couldn’t attach to it.
The “take-home” from the case is that the Florida statute was drafted precisely enough to cure what is probably a commonly-overlooked defect in Florida. The statute also triggered the running of the five-year period from the date the deed was recorded. In other words, the act of recording the deed had to occur to start the five-year timeframe running. Five years was also a long-enough period of time to ensure that no bona fide purchasers would be impacted. The statute of limitations issue was also not problematic because the IRS lien for unpaid federal estate tax couldn’t arise until after the father had died. By that time, much more time than five years had passed since the deed had been executed and recorded.
Where a defect associated with a real estate deed prevents the conveyance from being effective, a curative statute would not help unless it clearly provides that something that was defective because of a statutory requirement is deemed effective with the passage of time. That’s a lesson for practitioners to keep in mind. Real estate deeds are often a big part of the business of agriculture. It’s also a lesson for legislator’s drafting curative statutes to remember to draft carefully. If drafted carefully, the passage of time will cure defects.