Title Defect: Break In The Chain Of Title

Title Defect: Break In The Chain Of Title

by Alexia Constantaras, Montgomery & Andrews, P.A.

The examination of title to real property in a real estate transaction is crucial because a buyer or a lender needs to be assured that no one other than the seller or borrower has an interest in the real property.  Title examination includes a review of the chain of title to ensure that a purchaser has “good and merchantable title” and that a lender has a valid and paramount interest in the real property, prior and superior to that of the borrower, other creditors and lienholders. In the chain of title search, you want to make sure you have a “clean” chain of title from either the plat date for the real property or a 40 year chain, or in some cases back to the patent for Map and Tract or Sectionalized property.  A search with a “clean” chain of title is one with a trail of owners with no obvious breaks in the chain (skipping from one person taking title to another person conveying out) and being able to account for all previous owners by conveyance, records of death, foreclosures or divorces.

In Chavez v. Gomez, 77 N.M. 341, 345, 423 P.2d 31 (1967), the New Mexico Supreme Court explained that “[g]ood and merchantable title means a marketable title of record.”  The New Mexico courts have adopted the following definition of “marketable title”:

A ‘marketable title’ is a title not subject to such reasonable doubt as would create a just apprehension of its validity in the mind of a reasonable, prudent, and intelligent person; one that a person of reasonable prudence and intelligence, guided by competent legal advice, would be willing to take and pay the fair value of the land for.

Campbell v. Doherty, 53 N.M. 280, 286, 206 P.2d 1145, 1148 (1949). Marketable title is free from title defects.

A break in the chain of title constitutes a title defect and renders the title to real property unmarketable.

A.  Missing Documents.

In an incomplete chain of title, there is a document or more missing from the chain, without which the whole chain breaks down. A claim of title based on a title document alleged to have been lost or destroyed can only be established by clear, unequivocal and convincing evidence.  This heightened burden of proof has been imposed by the courts in order to avoid fraud.

In New Mexico, a failure to record an instrument, such as a deed, is not in and of itself, fatal to marketable title.  A failure to record an instrument may render title un-marketable if a subsequent bona fide purchaser or creditor takes an interest in the property without notice of the instrument, by virtue of New Mexico’s recording statutes which creates a “race-notice” regime.

Title is not marketable where the title depends upon a lost deed, which was not recorded prior to its being lost.  Often, an instrument has not been lost, but merely mis-indexed.  Although finding an instrument that was not properly indexed can be challenging, clues to the existence of the purportedly “missing” or “lost” document can be identified in other instruments in the direct chain of title from which an experienced title searcher can find it.  Other times, given the expense associated with recording instruments in the County Clerk’s office, a person will simply choose not to record.  If the instrument truly was never made and executed, a break in the chain of title may be cured by creating the instrument and recording it, nunc pro tunc.  In some cases, a court order may be required in order to record such an instrument.

The most common occurrence of a “missing” instrument arises when a landowner has died and there is a failure either to administer his estate or to have the records showing administration, together with a disposal of the land either by a decree of distribution or by the personal representative.  In this instance, the defect can be cured by obtaining an Affidavit of Heirship by the person having personal knowledge of the fact that a successive deed in the chain of title was by the surviving heirs of the deceased owner and that the land is free from any claim by possible creditors of the decedent. However, the lack of proof that the grantors in the deed are the heirs, and only heirs, of the deceased landowners, notwithstanding a recital in the deed by such heirs to that affect, renders title defective. Of course, if the owner died Testate, a deed from the fiduciary is sufficient.

Another document that often is “missing” from a chain of title is the power of attorney that permits one person to execute a deed for another.  Section 47-1-7 NMSA (1978) provides:

All powers of attorney or other writings containing authority to convey real estate, as agent or attorney of the owner of the same, or to execute, as agent for another, any conveyance of real estate, or by which real estate may be affected in law, or equity, shall be acknowledged, certified, filed and recorded, as other writings conveying or affecting real estate are required to be acknowledged. No such power of attorney, or other writing, filed and recorded in the manner prescribed in this section, shall be considered revoked by any act of the party executing the same, until the instrument of writing revoking the same, duly acknowledged and certified to, shall be filed for record and recorded in the office of the county clerk where said power of attorney or other writing is filed and recorded.

All conveyances of real estate subscribed and executed by the owner(s) thereof through his or her duly authorized agent under a duly executed and acknowledged power of attorney, have the same force and effect as though said conveyances had been actually subscribed by the owner(s) thereof. Section 47-1-7 NMSA (1978).

In one case, the power of attorney by which a son executed a deed as attorney-in-fact for his father was lost and never recorded.  The court permitted the party additional time to perfect its title by obtaining a deed duly executed by the father, thereby bypassing the power of attorney problem.  The existence of a power of attorney document can also be proved by subsequent acquiescence in or ratification of the conveyance by the person who gave the power of attorney to another.

B.  Name Variances of the Grantor/Grantee.

It is essential to a record title to land that the various instruments in the chain show a direct connection between the different owners.  Any substantial variation between the name of the grantee in one instrument and of the grantor in the following instrument will render the title unmarketable. If there is a variance between the name of the grantee in a deed to him/ her and the name of such person as grantor in a subsequent deed from him/her, title under the latter deed is unmarketable unless the two names can be identified as those of one and the same person.

Within any chain of title, there may be a minor title defect which is due probably to human error, such as a slight variance in the spelling of names.  Generally, the doctrine of idem sonans has been applied to uphold title.  Under this doctrine, strict or absolute accuracy in spelling names is not required in the instrument.  All that is required is that the name as spelled, though different from the correct spelling, conveys to the ear a sound practically identical with the sound of the correct name when pronounce.  For example, where there was a deed in the chain of title to “Electa Wilds’ and a deed from “Electa Wilder” and it was shown that both grantor and grantee were the same person, and that the variance in the name was due to a scrivener’s error, validity of the title was upheld. Hellreigel v. Manning, 97 N.Y. 56 (1884).  The omission of a middle initial of a grantee’s name from him, as grantor, is not a material 5 omission and will not affect marketability of title.  Similarly, the omission of “junior” is not fatal to the marketability of title.  The word “junior,” it has been held, forms no part of the name of the grantee, but is merely descriptive of the person.  Likewise, a variation in the prefix to a woman’s name as grantee and her name as grantor does not render the title defective, where her identity as a party in both instruments appears.  Usually, where the variation is ascribable to a mistake in the record of the instruments, such as a scrivenor’s error, the title is not affected if the mistake is clearly shown.  This may be proven by reference to the instruments and by extrinsic proof.

Where there are variations between the Christian name of the grantee in one instrument and the grantor in the following instrument, between the surnames of a grantee in one instrument and the grantor in the following instrument, or between the name of the mortgagee in a mortgage and his/her name in a subsequently executed release or satisfaction, affidavits or corrected deeds must be executed in order to cure the defect in title.  A mistake in the name of a party to the deed may be proven by an affidavit made at the time of changing the deed to correct the mistake.  Often affidavits or a corrected deed is all that is needed to cure the defect.  It has also been held that a defect due to use in different instruments of conveyance of different names for a party may be cured by parole evidence that such person had been known by different names, is the person referred to in the different instruments, and that he/she is one and the same person.  However, a recital in the subsequent deed of the identity of the grantor therein with the grantee in a prior deed has been held not to cure the defect of a variation in the name of this party in the two instruments.  But, where the original deed was corrected in this respect, and reexecuted, it was held to be sufficient.

C.  Inclusion of All Proper Parties on Documents.

All proper parties need to be named and included in instruments of conveyance.  A break in the chain of title occurs when all proper parties have not been included on the conveying instrument. Thus, there is a problem if title was vested in both A and B, but only B conveyed out.

Section 47-1-4 NMSA 1978 defines who may convey property in New Mexico:

Any person or persons, or body politic, holding, or who may hold, any right or title to real estate in this state, be it absolute or limited, in possession, remainder or reversion, may convey the same in the manner and subject to the restrictions prescribed in this chapter.

This section has to do only with conveyances inter vivos, and has no application to wills. All conveyances of real estate shall be subscribed by the person transferring his title or interest in said real estate, or by his legal agent or attorney.  NMSA 1978, Section 47-1-5.

1.  Conveyance by Natural Persons.

Adult citizens of the United States, and aliens, have the capacity to hold and convey title to real property in New Mexico. The age of majority under New Mexico law is 18 years old.  A deed to or from a minor is not void, but is voidable by the minor, within a reasonable time after the child reaches the age of majority.  Conveyances may be validly made by custodian of a minor and are governed by the Uniform Transfer to Minors Act, 46-7-11etseq. Incompetent and impaired persons typically must convey real property through a guardian.

2.  Trusts.

As a general rule, trusts involving natural persons under New Mexico law are not legal entities capable of holding title to real property in the name of the Trust.  Title is held in the name(s) of the trustee(s) acting on behalf of the Trust.  Trusts must be in writing and any real property to be vested in the trust must be conveyed by a deed to the trustee(s).  The trust documents must be reviewed in connection with the conveyance or 7 mortgaging of any trust property to determine the authority of the trustee(s) to convey or mortgage the real property.  Trust agreements may incorporate by reference the statutory powers created by Section 45-7-401 NMSA (1978).  If there is no written trust and property is vested in a trustee, an action must be filed in district court pursuant to Section 45-7-201 NMSA (1978) to determine the nature of the trust and any issues pertaining to the trust, as well as the authorities of the trustee.

Problems often arise in two areas.  First, there is a problem when it is unclear if a surviving spouse can act alone or if the signature of a Successor Trustee is required. Second, a problem arises when the Trust does not specifically give the Trustee power to sell and convey Trust property.

3.  Marital Issues.

In New Mexico, when a grantor is married, the grantor’s spouse must join in the conveyance.  Section 40-3-13 NMSA (1978) is New Mexico’s Joinder Statute and provides that both spouses must join in all transfers, conveyances, and mortgages, or contracts to do same, with respect to any interest in community real property and separate real property owned jointly or as tenants in common (except purchase money mortgages), otherwise such documents shall be deemed void, unless ratified in writing by the non-joining spouse.  Therefore, husband and wife must be included as parties on the instrument conveying any interest in community real property and separate real property owned jointly or as tenants in common.

New Mexico is a community property state. A married person may own real estate as separate property, community property, or in joint tenancy.  In New Mexico, the separate or community character of real property is determined at the time it is acquired.  Real property 8 purchased or acquired prior to marriage is presumed to be separate property.  If real property is acquired during marriage, there is a presumption that it is community property, unless it can be affirmatively shown that the real property is separate property as defined in Section 40-3-8 NMSA (1978).  The community property of a couple may be converted to the separate property of one of the spouses by a Sole and Separate Agreement.  A problem arises if one spouse tries to convey as John Doe in his sole and separate status without there being a record of a Sole and Separate Agreement and Conveyance.

If the spouses get a divorce, the title company should order copies of the divorce file and obtain a copy of the Final Decree or Marital Settlement Agreement.  The Court, as part of the dissolution of marriage, will order a division of the real property of the parties.  This can be done by an agreement of the parties, which is then incorporated into the final decree.  Unless the court decree specifically vests title in one spouse and specifically divests the title of the other spouse, the agreement is just an agreement to convey.  In these cases, title companies will require the joinder of, or a quitclaim deed from, the former spouse.  A court order will usually be recorded by the title company to create a chain of title in the absence of a quitclaim deed.  A certified copy of the property settlement agreement or deed from the former spouse must be recorded in order to protect against the rights of future creditors of the divested spouse, as well as any buyers to whom he or she might try to sell the property.  When a divorce is still pending, both parties should join in any conveyance of real property.

The designation of a grantor’s marital status in a conveyance document is significant.  If the grantor was married and the conveying instrument describes the grantor as “single” or “unmarried”, proof of death or marriage dissolution is required.

4.  Joint Tenancy/Tenants-in-Common Issues.

Lack of joint tenancy is usually seen on older deeds or when the property has been conveyed back and forth between entities such as individuals and their trusts.  In older deeds it is not uncommon for the deeds to lack reference to either Joint Tenants or Tenants in Common.  In that circumstance, the assumption is that the grantees have taken title as Tenants in Common.

Section 47-1-16 NMSA 1978 is the applicable state statute regarding Joint Tenancy and provides:

An instrument conveying or transferring title to real or personal property to two or more persons as joint tenants, to two or more persons and to the survivors of them and the heirs and assigns of the survivor, or to two or more persons with right of survivorship, shall be prima facie evidence that such property is held in a joint tenancy and shall be conclusive as to purchasers or encumbrancers for value.

A deed executed by a husband in 1908 conveying community real estate to his wife and their daughter, stating that it was the intention of the grantor that the state conveyed should be held by the grantees as joint tenants, created a joint tenancy, and not a tenancy in common in the entire premises. Brown v. Jackson, 35 N.M. 604, 4 P.2d 1081 (1931).  However, if the instrument conveying or transferring title does not clearly expressly state in that instrument that it shall be held by both parties, then the interest is deemed to be held in common. See, 47-1-15 NMSA 1978 (“All interest in any real estate, either granted or bequeathed to two or more persons other than executors or trustees, shall be held in common, unless it be clearly expressed in said grant or bequest that it shall be held by both parties.”)

In the case where “Tenants in Common” is specified on the instrument, upon the death of the first spouse a probate must be instituted.  The Deed would come from the surviving spouse along with the Personal Representative of the Estate of the decedent. In the event that 10 those individuals were one and the same person, the surviving spouse would sign both as an individual and as Personal Representative of the Estate.  When the owners were Tenants in common, one is deceased, and the period for filing a probate has elapsed, an “Affidavit of Heirship” filled out by a disinterested party is sometimes used.  The purpose of this Affidavit of Heirship for a title company is to determine all possible interests in the property and to obtain Quitclaim Deeds from persons having interests in the property.

D.  Curing Defects in the Chain of Title By Quiet Tile Suit.

If a break in the chain of title cannot be resolved by relying upon a statute, providing an affidavit, or by recording a corrective deed or explanatory document, the only remaining option may be an action to quiet title.

In New Mexico, quiet title is an equitable judicial action established by statute to substantively adjudicate and establish title of the property in the name of the claimant.  A quiet title action can be used affirmatively to establish title under a chain of title or through adverse possession or defensively to remove clouds on the title.  The statutory provisions for a “quiet title” action are set forth in Sections 42-6-1 to 42-6-17.  A copy of the statutory provisions and a sample checklist for quiet title actions are attached hereto for your review.

A quiet title action is enforceable only against those parties named in the lawsuit.  Parties with an interest in the real property who are not named as defendants in the quiet title action are not bound by the quiet title decree or judgment.  Therefore, a genealogy is helpful in identifying and naming the heirs and devisees of deceased persons with an interest in the property so that those descendants can be named in the quiet title action and be bound by the quiet title decree.  All parties with an interest in the property need to be named in a quiet title action.  These parties 11 include: all title claimants, lienholders, tenants, spouses, heirs and devisees of deceased persons; the State of New Mexico (see Section 42-6-12 NMSA 1978); land grant trustees and unknown heirs and other persons (see Section 42-6-2 NMSA 1978); and adjoining landowners on disputed boundary quiet title cases.

In order to obtain personal jurisdiction over the parties named in the lawsuit, those parties must be property served. Rule 1-004 of the New Mexico Rules of Civil Procedure establishes the procedural rules for service of process for quiet title actions.  Service must be obtained over the parties within the boundaries of the State of New Mexico.  Personal service can be made by mail, actual service on individuals, service of another person at the personal residence of the individual or by posting at the person residence of the individual.  Different rules apply for service of process on corporations, partnerships and the State of New Mexico, counties and municipalities.

If the parties cannot be located, service by publication is usually acceptable service for in rem personal jurisdiction.  Since a quiet title action does not seek monetary damages, service by publication is acceptable.  However, there is a strong preference towards personal service and service by publication should not be used to obtain personal jurisdiction over parties where personal service can be obtained on them.  Service by publication involves the publishing of a notice of pendency of the lawsuit weekly for four (4) times in a newspaper of general circulation in the county where the real property is located.  Minors and incompetent persons or persons with legal disabilities must be properly represented by guardians ad litem or conservators in order to obtain a binding quiet title decree against them.  Defendants in military service are entitled to the protection of the Soliders’ and Sailors’ Civil Relief Act of 1940.

A quiet title action is commenced by the filing of a complaint in district court by a person who claims a title interest in the real property, or holders of any mortgage interest in the property, against every person having or claiming an adverse interest in the property, including “unknown persons or heirs”, praying for the establishment of the plaintiff’s estate against such adverse claims, and that the defendants, and each of them, be barred and forever estopped from having or claiming any lien upon or any right or title to the property adverse to the claimant and that the plaintiff’s title be forever quieted and set at rest.  Sections 42-6-1 and 42-6-2 NMSA 1978. Venue is proper in the county where the disputed land, or any portion of it, is located. See, Section 42-6-1 NMSA 1978 (“action may be brought in any county in which part of said tract lies.”) Counterclaims in quiet title actions are allowed.

The claimant in a quiet title action is entitled to relief based upon the strength of the claimant’s title and not on the weakness of the title of the claimant’s adversary.  Perea v. Martinez, 95 N.M. 84, 619 P.2d 188 (1980).  Defendants may disclaim all right and title adverse to the claimant. Section 42-6-7 NMSA 1978.  A default may be taken against any defendant that fails to appear in the quiet title action. Id.

A quiet title decree establishes the interests of the parties and is self-operating, final and conclusive. Kaye v. Cooper Grocery Co., 63 N.M. 36, 312 P.2d 798 (1957).  Awarding costs of the action are within the discretion of the court. Section 42-6-7 NMSA (1978).  Damages are not recoverable in a suit to quiet title, Chavez v. Gomez, 77 N.M. 341, 423 P.2d 31 (1967).  After expiration of the appeal period, a certified copy of the quiet title decree should be filed for record in the county clerk’s office of the county in which the property is located in order to give constructive knowledge of its contents to the world.  A properly drafted quiet title decree should 13 contain language that bars the defendants or anyone in privity with the defendants from asserting any claim that was or could have been raised in the quiet title action.