Podcast Transcription: The Legal Side of Buying and Selling Property
Speakers:
Billy McOwen
Jim Gilreath
Billy McOwen
Hey everybody and welcome. This is episode number six of find your favorite place. My name is Billy McOwen and I'm your host. I am joined today by my good friend Mr. Jim Gilreath. Jim is our a corporate attorney. He does a tremendous amount of real estate work here on the Outer Banks of North Carolina where we live. He's been one of my good friends for a really, really long time. How're you doing, Jim?
Jim Gilreath
I'm great, Billy. Thanks for having me tonight.
Billy McOwen
Yeah, man. Thanks for coming. So I met Jim a long time ago when we first moved back here to Roanoke Island. I'll never forget, we were literally unpacking the moving truck. Down the road comes Miss Ashley, Jim's wife. He's got Reed in the little baby stroller and little James is running around back behind him. And she said, "Hi, how you guys doing? So you're, where you're from." Here comes Ryan, and Ryan and James have been like almost inseparable ever since then. It was so nice to be able to have another family with kids run around right in the neighborhood right down the street. Miss Ashley, just about raised Ryan, while Monica was working, going 100 miles an hour back in the day. So we've known each other a long time and have had a lot of good times together.
Jim Gilreath
We sure have we've hunted together, we coached together, and watched our boys grow up to be bigger than we are together. That's
Billy McOwen
That is in fact true. And so James is off to school, right? You sent him down to Davidson last week?
Jim Gilreath
Sent him down there to play football or what they're gonna call a football season. It might be the first and only spring season we ever see.
Billy McOwen
How about that.
Jim Gilreath
Give him a chance to get bigger, faster, stronger.
Billy McOwen
Yeah. So he's but he's also he got a scholarship with ROTC right?
Jim Gilreath
He did. He's gonna go serve our country after he gets out. He got a four year ROTC scholarship. We're proud of him. Certainly helped out on the home front. Maybe to go hunting a little bit more.
Billy McOwen
Yeah. Well, that's good man. Ryan, he leaves tomorrow. He's so far away. He needs a passport to get out to to Western Carolina, but he's taken off. He's been here since April. It's been April. This whole COVID thing, he leaves college and comes back here to stay for awhile and be virtual. I'm sure sad to see him go back to be truthful.
Jim Gilreath
We're certainly gonna miss him. But COVID style parenting with a 18 year old 19 year old teenager is quite a challenge.
Billy McOwen
Yeah, it has proven to be on occasion. But it's still, it's great having him around. How is the real estate market been for you Big Jim?
Jim Gilreath
So if you had asked me that back in March, I would have told you that I'd have been starting my own podcast and coming to you for some podcasting advice. Right now, but the real estate market, we have seen a unprecedented surge in our local real estate market because of the economy and COVID. And we've seen people wanting just to exit the cities they want to get here, we've had some articles written about how great the Outer Banks are during COVID. It's just that I really didn't see it coming. It's knocked us over. We're dealing with it. We're fortunate we're dealing with it.
Billy McOwen
So you and me. Before we got started, we were chatting a little bit about some statistics that I thought was really interesting. We're hearing 40, 50, 60 houses a weekend going under contract.
Jim Gilreath
My understanding is that the listings out here on the Outer Banks were running about 300 some odd units under contract and that was a strong market for us then it showed the comeback in March. And right now, 950 units under contract.
Billy McOwen
Unbelievable! So it's just not slowing down?
Jim Gilreath
It's not slowing down. We're seeing unprecedented low rates as you know. Great thing. So the intersection A low rates. The intersection of COVID been a good thing for the local real estate market. The Realtors, appraisers, the inspectors the surveyers, the bankers. It's also put a target on some of our backs because our staffs are working extra. We could work them two or three shifts right now and I've got to give a shout out to to everybody. We've seen a really good collegial group for the most part and dealing with what has been an unprecedented amount of work here lately.
Billy McOwen
You guys are the attorneys that we've hired to represent our corporation. You've done a tremendous amount of work for me and helping me form all my corporations and everything that we have and doing all the stuff like that. So it used to be Rose and Harrison, right. Then it became Rose, Harrison and Gilreath, you became a partner.
Jim Gilreath
Correct. And then we brought a younger lawyer, David Powers, who's been with us five or seven years now.
Billy McOwen
So you recently made him a partner? All right. So if somebody wanted some legal advice, or was going to close on something, how would they get ahold of the firm?
Jim Gilreath
they can look us up on the web at www.outerbankslaw.com or 252-480-1414.
Billy McOwen
So we've got some questions. If you have questions about the process of closing a real estate transaction, you do not want to miss this podcast, okay? So we're gonna try to cover all the stuff that we've been talking about the last couple of weeks. So I'm gonna dive right in. Jim, what is a title search? And why is it necessary?
Jim Gilreath
So Billy, you certainly wouldn't want to go down to the car lot and buy a car and then find out six months later that the seller of your car didn't own the car.
Billy McOwen
You've stolen it, I bought a stolen car with a bill of sale.
Jim Gilreath
Right. So a title search is a little bit very similar to the same thing, we're going to research the chain of your title, we're going to go back a number of years, usually anywhere from 30 to 60 years, and we're going to look at the chain of ownership to make sure that your seller owns what he says he owns, and can convey the title convey title without any problems.
Billy McOwen
I gotcha. And it's necessary, because you don't want to have what somebody coming and knocking on your door in a year and saying what are you doing on my land?
Jim Gilreath
You don't want somebody to say what are you doing on my land? And you certainly don't want the IRS man to show up and say, "Hey, we're going to take this back." So we want to make sure that land and title is marketable, that it's insurable, and that when you buy it, and you close on it that you know, it's going to be yours, and you're not going to have the neighbor show it up saying "hey, wait a minute."
Billy McOwen
There's a difference between North Carolina and Virginia. Right. Virginia has a title state. What's the difference between a title state and a non title state?
Jim Gilreath
We are an attorney state in North Carolina. So there's certain things that attorney has to do in the process for real estate closing that are considered the practice of law, for instance, a pining on title, drafting deeds, things like that.
Billy McOwen
In Virginia as a title state, you can have that done at a at a title settlement agency or title company. So that's the next thing. Why should a buyer consider obtaining title insurance?
Jim Gilreath
Against a claim against the title. So it's going to insure that claim against the neighbor showing up saying, hey, I want your property. It's going to insure the problem when the IRS man knocks on the door and says, "that seller oh, by the way, he had $100,000 tax lien and we're coming to levy on the property." It's gonna insure against a potentially a boundary line agree a problem.
Billy McOwen
Boundary line problem, like somebody's put the fence on the wrong side of the property line or something? What would that be is that considered something like a cloud on the title? So what are other examples of clouded titles?
Jim Gilreath
We've talked about like the tax lien. We've talked about potentially two people claiming ownership of the same property. It could be a divorce situation where maybe a wife had half a half of interest in the property and never conveyed it back to a husband in a divorce situation. It could be, just over time, two people were deeded the property on the ground. So you've got two deeds that describe the same dirt.
Billy McOwen
Unbelievable. Okay, so title insurance is going to ensure the fact that you paid this premium and you now own this property, and nobody can come and take it away from you.
Jim Gilreath
It's an insurance policy. It's a one time premium that's going to potentially protect you against somebody coming and laying claim to the property at some point in time in the future, you pay a one time premium for that.
Billy McOwen
Is there a standardized rate for that premium?
Jim Gilreath
There is in North Carolina, there's a standardized rate. We as lawyers don't get a cut of the rate, some states to title insurance lawyers get a cut. We have a standardized rate set by the Department of Insurance. We don't own the Title Agency. We don't get a kickback from them. They're straight insurance companies regulated by the state.
Billy McOwen
Good. What are some other examples of clouded titles?
Jim Gilreath
Well, for instance, there are some properties where you have a death in the chain of title and we don't know if cousin Joe may have been an heir to the property. And cousin Joe never signed the deed.
Billy McOwen
I gotcha. Well, we're gonna talk about heirs a little bit later in the podcast here, we're going to get to that because that's important. So another question I got was, is a conservation easement, a cloud on the title? Or is it just an encumbrance? It's a it's attached to the deed right?
Jim Gilreath
It's very similar to a deed restriction. So if you live in a neighborhood with restrictive covenants that say, you can only build a 2500 square foot house with a certain pitch roof and a certain color paint, a conservation easements much like that, it has rules. Now, unlike a restrictive covenant, the conservation easement may come with some advantages, restrictive covenants could could be considered advantage. It could also have significant tax advantages, yes. But it's going to tell you what you can and can't do with the property. And it's geared toward limiting development potentially, of a piece of property.
Billy McOwen
The conservation easements that we see are for a lot of watershed easements out this way to protect all these estuaries. People get paid pretty good amount of money, but one of the interesting things about it is, if you read one of those contracts, that is recorded at the courthouse when they close, you're able to go in and do things like comparable use plans. You've got to kind of read them a little bit. They're not as restrictive as a lot of people think but it's not really considered a cloud on a title. It attaches to a title or to a deed, in a manner where if it's a perpetual easement, it rides with the land, right?
Jim Gilreath
That's a good way. That's a good way to put a bill. So it runs with the land. They can be limited in term, and they can be limited in scope. But the classic conservation easement is somebody who may want to protect that land against development for future generations. Yes. Like a duck impoundment.
Billy McOwen
Yeah, and get paid a little bit of money for it.
Jim Gilreath
Then talk to your CPA about the tax benefits of it.
Billy McOwen
What is a lien on a property? Can you give us an example of a lien?
Jim Gilreath
I mean, a classic way to get on a property is a mortgage; is your loan. If you borrow money to buy property, you've got a lien on your property with the bank for the amount of the money you borrowed against to buy the land. Yeah, but there are other kinds of liens there tax liens.
Billy McOwen
As in if you don't pay your county tax? So they then attach only a lein.
Jim Gilreath
They attach a lien they file a lien at the courthouse.
Billy McOwen
So when you don't pay your income taxes, the IRS could come in and assign a lien on your real property. So when you go to close, you got to pay the IRS out of the process, correct?
Jim Gilreath
Yes and the IRS has got a process for that.
Billy McOwen
So what happens if it like you got a court fine.
Jim Gilreath
I've seen it, if you've got a court fine, or you have a judgment against you, you can have a criminal judgment against you for something like restitution. If you know, stole a car,
Billy McOwen
The one I bought a bill of sale, right?
Jim Gilreath
Or you could have just a civil judgment against you, which is also another kind of lien and you've got to pay those off when you sell the property. Certainly there are people out there who may or may or may not realize they have a lien, most people know about their leins but there are some.
Billy McOwen
Jim, this is no joke. Love this poor guy, but he had a judgment. And we sold his property. The attorney found this his judgment, and it was substantial. All the guy did was just end up selling the property and paying off the judgment. I think he got away with just a little bit. It was a surprise to me. It wasn't so much as a surprise to him come to find out later. But I just thought it was really interesting.
Jim Gilreath
And certainly that can a large judgment or a large lien can preclude the ability to sell the property, because if the judgment is larger than the price in the proceeds then.
Billy McOwen
You can't do a short sale on a judgment?
Jim Gilreath
You can try but you're gonna have to get that judgment creditor and that lender involved or the government involved, and you're gonna have to do some heavy duty negotiation. The lawyers win in that one, and the judgment creditor generally wins.
Billy McOwen
When is a survey necessary? And why?
Jim Gilreath
A survey is always necessary, but I realize that the single most common question we all get is "Do I really needs a survey?" or "Can you really give me a free pass this time and tell me I don't need a survey?" Well, I'm never going to give you that free pass, I'm going to tell you that we're going to say let's consider the cost and the benefit of this thing. So a survey is going to give you a lot of protection against a lot of problems, because the surveyor is going to go out to your land, he's going to find your boundaries, he's going to identify any boundary issues, he's gonna identify any encroachments. I mean, you could have the neighbor's house that could be on your property. It could have been there 45 years, that's gonna create a whole nother legal set of issues that could potentially get really expensive, it's a lot better to know that going in better than finding out after you've closed on the property.
Billy McOwen
When Monica and I bought our first house in Raleigh, we had a fence that a neighbor had built and encroached on our property. He was on the survey it was an exception, it was a boundary line dispute. We had to sign off on it, that we knew that it had happened. But let's get back to this cost benefit component of it here. So I'm getting ready to buy a $50,000 piece of property in the survey is gonna cost me $10,000. That's a big difference for me buying a $500,000 piece of property in the survey cost and $10,000. I mean, your advice is build it into the cost of doing business. It's just part of it, can you fold some of those costs into your loan?
Jim Gilreath
I mean, sometimes a survey is going to be necessary just because the property descriptions so old and vague.
Billy McOwen
We were talking about this earlier, the old metes and bounds property description. So, talk a little bit about that.
Jim Gilreath
Metes and bounds is how we actually describe your land and you know, if you live in a lot, it's really easy. You're going to see a description that says lot 11 of the Pine Lake subdivision is planted in a plat cabinet J slide 35 of the county that's easy. Metes and bounds is going to actually be a description that a surveyor can draw on the ground, and he's going to draw out your property boundary. So he's going to say, we're going to go north 24 degrees, 36 minutes, you know, 110 feet to a concrete monument. And then we're going to turn it that concrete monument, and we're going to go maybe, North 46 degrees, 28 minutes, another 500 feet to an iron rod. And it may it used to be that these descriptions were not feet, they were known as chains, which is a specialized old logging chain, an old specialized measurement technique. Now we've got lasers. We've got these surveyors, they can survey down to the inch. They can do it over a long distance. It's amazing what they can do now.
Billy McOwen
It's all GPS enabled equipment, very expensive.
Jim Gilreath
Whereas a survey description, metes and bounds description for 50 - 75 years ago, there's going to talk about fence posts. The white oak tree, the cow patty, etc.
Billy McOwen
Yeah, in the field, the rock.
Jim Gilreath
So I've seen some, my favorite is apparently a great survey marker from years past, is an old gun barrel. It's not going to rust as fast, it's going to be there for a while, it's easy to find you're going to see it, it's not some natural looking thing. It's a monument and there are some very prominent survey points in our counties in one of them I can think, its called gun barrel point because there may be eight or 10 boundaries that all come in are tied to that point. And the main thing we want to be able to do is we want to be able to put your land on the ground, we want a surveyor or a lawyer to tell you that we can put your land on the ground and show you where it is based on metes and bounds property description, if we can't put it on the ground. Then we got a problem.
Billy McOwen
Why is deeded access important?
Jim Gilreath
Well, it's important for a lot of different reasons. But everybody says, Well, I got access, I can do this. We've been going on there for years. But it's nice when we're down here in the flatland and you talk about deeded access, because it's easy to get somewhere when it's flat. Right, you might have deeded access to a road in North Carolina and that's all the laws gonna require. That's all it's required to give out. But what if there's a 25 foot cliff between the road. How much is that bridge gonna call? So access is a huge, huge issue. We want to know what our access is. Certainly a surveyor can help show you what the access looks like.
Billy McOwen
So you got different types of accesses, you've got cart path access, you've got just regular and I've seen them on surveys where there'll be 10 feet wide, 20 feet wide, 15 feet wide, 30 feet wide. To get utilities to a piece of property, don't you usually need about a 30 foot access road?
Jim Gilreath
I think you you ideally want that. I mean, sometimes you see something a lot smaller or you're gonna have to go potentially negotiate access for additional access, right? The law gives us ways to get access, but when we start talking about things like cart pass, what is the use of the property? I mean, not everybody gets a free cart path easement. You may in the in the land world you're dealing with in the timber world, you can usually find a way to get a car path easement. But if you're building a mall on that land, yeah, you're not going to Cart path easement.
Billy McOwen
This brings us to a really, really good topic. So cart path law. So you can't land lock a piece of property here in North Carolina. Right? So it goes back to the old cart path law. So talk about that a little bit, that dates back to King George, is that right?
Jim Gilreath
All our property law comes down from the English common law and the English property law. So you know, all our titles are either coming from the crown, and then coming forward but all of our easement law and access has been an evolution based on that. And then of course, North Carolina has given us some statutory guidance on how to create access sometimes when we, when we might not have it.
Billy McOwen
Let's say I want to buy a piece of property back here, it's five, lots back down a road. I don't have deeded access, it's not in the deed, and I want to be able to go and get it, how does that process work? How do I go through the legal means to get access to what otherwise would have been a landlocked piece of property?
Jim Gilreath
Well, cart way proceeding is one way to do it. But you've got to be using your property for some very specific reasons.
Billy McOwen
I just want to get back there and have a cabin, I want to get back there and hunt, what's the deal.
Jim Gilreath
You want to get back there and just hunt and have a cabin, you try the cart path that may not work, we're going to look at what the historical access is. What did the prior owner use it for?
Billy McOwen
He used to go down there and farm the fields and drive his tractor down or even back in the day, they'd bring their mule and their equipment down there and tend the back 40 acres.
Jim Gilreath
He may have given you a right away by necessity. If he owned the bigger piece, and he split it out to you. He's got to create some kind of access to your property.
Billy McOwen
You got to sue for that? How do you do that?
Jim Gilreath
Well, certainly the last place anybody needs to be in any kind of access fight is in court. Because why? Well, I mean, I want to be there, it means we're making some money, but we're gonna but the lawyers are gonna win.
Billy McOwen
I'm five lots back, and I've got to be able to get to my property. And let's say, I want to be able to go back there and build a cabin and I just want quiet enjoyment of my property. I find out after I buy it, it's landlocked, or whatever. What do I do?
Jim Gilreath
If we're gonna, if we're going to timber it, we can do the cartway route. But that's gonna involve going to court spending some money getting that court way established. Not a not a fun process.
Billy McOwen
I just want to have access back there, Jim to go back in hunt. I want to bring my camper back there, I want to park it. I might want to build a cabin back there. What do I got to do?
Jim Gilreath
And I mean, you're talking you may not have good access, and then you got a problem.
Billy McOwen
You can't have you can't be landlocked in North Carolina. So there are proceedings in which you can go to court, hire an attorney like yourself, go to court and obtain access right of away access to get to your property.
Jim Gilreath
We can certainly try, and we're gonna have to use it a couple of different methods depending on the specific facts of that.
Billy McOwen
Does cart path law not allow you to be able to gain access?
Jim Gilreath
Not for everything. It's limited to specific uses. Cultivation of land, cutting and removing standing timber, working on quarries, mines, or minerals, operating an industrial manufacturing plant, operating a public or private cemetery. It doesn't cover everything.
Billy McOwen
That is amazing. Alright, so if somebody has got a question about this, this is a great thing to come and go to an attorney.
Jim Gilreath
This is why you want a title search. This is why you don't want to buy the land from your neighbor, go grab a deed from the courthouse. And I'm off to the races. So you actually need professionals. This is why professionals help. It's why you ought to get a realtor, he's gonna look at that stuff. And he's gonna maybe identify some issues.
Billy McOwen
This is good stuff. You know, we don't ever talk about this stuff. But it's it's real. And it happens, doesn't it?
Jim Gilreath
It happens. And when it happens, it is very expensive. And if you don't have the title insurance policy we're talking about, you're gonna be paying that access fight on your own. If the lawyer told you you had access or insured that you had access, then at least your title insurance policies to jump in and maybe cover that.
Billy McOwen
Can a husband or a wife try to sell a property without having their spouse sign the listing agreement or the contract.
Jim Gilreath
So the old adage is it takes one to buy and to sell Yes. So you can go buy your hunting Honey Hole, but you ain't selling it without your honey getting on the deed.
Billy McOwen
So a husband or a wife here in North Carolina can purchase a property without the spouse's signature but you cannot sell the property without the spouse's signature correct.
Jim Gilreath
And there's many instances where you can buy and mortgage that property without your spouse's signature, because if you're doing what we call a purchase money deed of trust. But when you go to sell, or if you got to go borrow some more and get an equity loan or something, you're gonna have to tell your wife what you did. And you're certainly going to have to tell her when you sell.
Billy McOwen
What happens if it is in an LLC?
Jim Gilreath
If it's in an LLC, then we merely need a resolution, we've got to have an agreement between the members and the manager, the members, the LLC, the managers, depending on how it's managed to sell the property and have some concurrence.
Billy McOwen
So I'm William H. McOwen, an LLC, and I go and I buy a piece of hunting property, unbeknownst to my lovely Miss Monica, and I hunt it for three or four years. And then I go to sell it and it's owned by the LLC, do I have to get Monica?
Jim Gilreath
You do not. Okay, unless you've made Monica a member of this LLC, okay, then she very well may not have to sign the deed. But she may need to jump on a resolution Right? Or something like that.
Billy McOwen
I got you. But if I just buy it personally as William H McOwen Jr, then Miss Monica is going to have to sign off on that
Jim Gilreath
Miss Monica is going to have to sign off on that and the checks gonna be made out to Mr. McOwen and Mrs. McOwen as well.
Billy McOwen
If you intend to have the property pass along to family members, after you leave this world, how should somebody set that up Jim?
Jim Gilreath
Well, there's a number of ways and of course, you need to talk to your own lawyer about your individual circumstances.
Billy McOwen
Well, we're just gonna make a family agreement. Jim, I mean, we're all sitting around here. I'm on my deathbed, I'm going to say, "Alright, everybody I'm giving you 1/10th of the farm is 100 acres, each of you gets 10 acres. " And that's it.
Jim Gilreath
Nice try. That's not gonna, that's not gonna work. If we're not in the LLC, and we just own the property as William H. McOwen, we're going to have to either have a will, that talks about where that property is going, or the state of North Carolina is going to tell you where it's going after you die if you don't have a will. So if you do not have a will, the laws of intestacy, the statutes in North Carolina tell us who's going to get your property. It depends entirely on your family tree.
Billy McOwen
The classic air property. Okay. So I get some delightful old lady, they'll give me a call. She's a sweetheart. And she says, I want to sell my property. It's under William clanahan. at all, and I say "tell me a little bit about the ownership with this." Well, this was my grandfather's and he left it to my my parents, and they've left it to me. Oh, well, how many kids did grandfather have? Well, grandfather had six children, but they're all dead. Oh, okay. And my dad was the last one living and and he left it to me, and I've been paying taxes on it. Now. I know you've heard this before. I certainly have. We call it last man standing because here's this delightful soul. She's been paying taxes on this thing for years, and she really believes that she owns the property and doesn't understand that there's 44 Heirs that are engaged in this thing.
Jim Gilreath
When you tell your sweet old client that she's gonna have to go get 43 people to sign off on this deed, and they're all entitled to a cut of the proceeds, Then you're looking at many potential problems like - where are these people? who are these people? And you've got to do family trees, potentially for all of them. Because you're right, for each person that dies, it could potentially create another family tree that we've got to explore right and figure out.
Billy McOwen
Whats the most complicated one you've ever done.
Jim Gilreath
I have recently, within the past year, done one with 30 or 40 signatures for an uncle who died. He was never married, he didn't have a will. He had eight or nine brothers and sisters. They were all equally as old as he was. So they some have died, some hadn't. And by the time you split that tree out, there was 30 or 40 people that we had to sign the deed. Now to complicate that fact. All it takes is if one of those people was incompetent, or a child, then you've got to go get the court involved. Right for one of those people who may only be entitled to $400 of proceeds.
Billy McOwen
That $600, guardian ad litem for a $400.
Jim Gilreath
Correct. God, you've got to get the court involved. So the single easiest way to fix that problem is to have a will.
Billy McOwen
how difficult are those things to set up? A will for a piece of property?
Jim Gilreath
It's a lot easier than unwinding that problem. We're talking hundreds of dollars versus 1000s and 1000s of dollars.
Billy McOwen
So you've got a will, and you go through it. What do they call that? The probate process?
Jim Gilreath
If you own land in North Carolina, and you had a will, and you don't owe anybody a whole lot of money. You go through the probate process. In North Carolina, the easiest way maybe to think about it is a probated will. And that's when you take the will down to the courthouse and you start the probate process. And the clerk of court who's also our judge of probate, issues an order of probate, which means he's accepted the will. He's put it in the record, he's issued the order of probate, that will, in effect becomes the deed. And the estate, if the estate as debts is got to pay the estate has the power through a process to come take that property back in and sell it to pay to pay debtors and that kind of thing. We don't want to talk about that tonight. But that happens. That's a specific process. But if you inherited a piece of land, via will, and your grandfather, your father, whoever left you that property didn't have any debts, you get that free and clear, you're able to get it in the courthouse, the wills the deed, it's in the chain of title because we search not only the land records, but we searched the right the clerk's records as well. Right.
Transcribed by https://otter.ai
