Publisher's Notes
In our inaugural issue of this newsletter (March 2000, Issue 00-1) we introduced our subscribers to one of our principal objectives—advising you of and explaining new legislation affecting mortgages and releases in particular and real estate documentation in general, and recording in each state. Of the 50 states and Puerto Rico, about half enacted legislation during 1999 that was important to document preparation and recording in general or to mortgage release preparation and recording in particular.
In this our second newsletter, we discuss in detail an issue that is basic to the preparation of real estate documents that are both recordable and valid. One of the key problems that you encounter when deciding what goes into the preparation of any given document is that each state has its own, homegrown version of what a good and proper document looks like.
You may today use what you think are quite nice, proper, accurate, legally binding documents for the deeds, mortgages, assignments and/or releases that you prepare. Additionally you may be confident that your procedures and practices regarding timely recording of mortgage releases are 100% in accordance with every state’s law. And you may be right—until one of the following happens in your favorite state: (1) the state’s statutes change, (2) the interpretations of the state’s statutes change, or (3) some recording office decides to change its document preparation or acceptance rules arbitrarily.
The National Release Guide and this newsletter are together designed to assist you to keep a handle on the first two of these problems. (The third one is an operational problem that our sister publication, The Real Estate Recording Guide, contains detailed information about for each recording office.) The information we provide in NRG is, however, just raw material. You need to use our materials properly in order to extract the maximum benefits (and minimum recording and legal hassles) from its use.
To further a deeper understanding of the complexity of even seemingly simple real estate recording issues, the following article delves into the mystery of what just one little real property term—convey, conveyance—means, illustrating the level of care and detail you need to apply to your review and interpretation of the real property law of each state.
In the next issue we will provide a midyear legislative report.
We welcome dialog with the subscribers to all our publications. We enjoy discussing issues, both legal and practical, that involve the preparation and recordation of deeds, mortgages, assignments, and releases.
Carl R. Ernst
Publisher and Editor (888-839-4032, )
What Is a Conveyance?
Introduction
Transactions related to real property need to be reduced to writing and then to be recorded in order to serve as public notice of the transaction. There are two basic requirements that determine how such a writing is to be prepared (we will use the term document in this article to include all the terms for writings, such as instrument, document and notice):
(1)Administrativerequirements—The document must agree with the requirements of both state statute and local rules about the format of the document (elements of the physical document, such as margins and legibility, and elements of the content that assist the recording or related processes such as return-to address), in order for the document to be accepted for recording by the recording office, and
(2)Legalcontentrequirements—The language within document must meet statutory requirements in order to be effective, irrespective of whether the document is accepted for recording.
Those who develop printed or computer forms for documents in each state need to be aware of these specific administrative and legal requirements as they design form templates for documents. If a mistake is made in the design, the document may either
(1)be ineligible for recording although it is legally sufficient, or
(2)be eligible for recording although it is not legally sufficient.
(The same may be said with regard to the review and revision of procedures and practices related to the release of mortgages, a major concern to our subscribers, although that issue is not the subject of this article.)
The practical concern of those who are responsible to submit documents to land recording offices is that the documents pass both tests, that is, they need to be in good enough form to pass muster with the recording office, and they need to contain all the proper legal content.
Conflicts in real estate recording law and practice arise from many factors, of course, not the least of which is the failure of some recording offices and preparers to understand the plain language of their state statutes. More common conflicts arise from poorly drafted legislation that contains one of two types of mistakes:
(1)Failure to define, or misuse in context of, a word or expression, and
(2)Logically flawed language, which leads to unintended consequences.
An example of the second mistake is the 1999 North Dakota legislation requiring a 1” margin on the top, bottom or side of each page. N.D. Cent. Code §11-18-05(1)(d). This provision means on its face that no margins are required on the sides other than the one you choose to have the 1" margin on.
Why Conveyances?
The following discussion investigates in depth the meaning of the term conveyance. It may make difficult, slow reading. Therefore, it a reasonable to question our motives in offering this article. Our objective is not academic or theoretical, but rather quite practical. The real property laws of each state apply different administrative and legal content requirements to different types of instruments. Deeds may require the grantee’s address, mortgages may require stating the amount loaned, and releases may not require acknowledgment of signatures.
From our earlier experience in developing The Real Estate Recording Guide, we have been aware as a practical matter that certain basic document requirements vary widely from state to state. For example, the legal description or parcel identification number may be required only on deeds, on deeds and mortgages, or on all documents, depending on the state. In that publication we do not question the legal underpinnings of these differences; we just report them. Then, during the latter part of 1999 as we were preparing the initial update to the National Release Guide, we noticed variations in the definitions of terms in the statutes of various states, and began to match the practices we were aware of to the law in each state.
During that review, we ran across what we shall call “The Iowa Problem” and “The Nevada Problem.” We will discuss these problems in detail below. For now, we can summarize both by stating that in both cases an amendment to the real property statutes failed to consider the definition of conveyance contained in prior statutes. As a result, confusion with respect to the legal content of mortgages and other documents could have caused a substantial, ongoing increase in document reject rates by recording offices in those states.
Once we examined these problems, we saw that it was really just one instance of a nationwide problem centering on differing definitions of terms such as conveyance, and differing levels of specificity in the definition of these terms in the statutes of many the states.
This article is a form of warning that preparing release and other documents—as well as developing lender/servicer procedures and practices dealing with mortgages—that accord with the statutes of each state requires careful consideration of all the statutes related to real property transactions in that state. (Giving you that kind of detail about the statutes of each state is the mission of the National Release Guide, of course.)
The Book Definitions
Here are definitions of conveyance, as the term refers to real property law, given in Black’s Law Dictionary:
(1)“In the strict legal sense, a transfer of legal title to land.”
(2)“In the popular sense, as generally used by lawyers, it denotes a transfer of title, legal or equitable.”
(3)“An instrument in writing under seal…by which some estate or interest in lands is transferred from one person to another; such as a deed, mortgage, etc.”
(4)“Conveyance includes every instrument in writing by which an estate or interest in real estate is created, aliened, mortgaged, or assigned, or by which the title to any real estate may be affected in law or equity…”
The first and second definitions are essentially identical for the purposes of this article, that is, they limit the definition to transfers of actual title, which connotes that the definition encompasses only deed-type conveyances.
The third and fourth definitions expand significantly on the first two because they introduce the general term interest in place of the term title. Mortgages and assignments are specifically mentioned as document types within the definition. By inference, a modification or release of a mortgage would also meet this definition.
Based on these definitions, we can categorize conveyance—for the purpose of this article—as having two distinct categories of meaning, as follows:
(1)“Title” Definition—The more restrictive definition, applying only to documents* that pass title to real property.
(2)“Interest” Definition—The more expansive definition, applying to all documents* that create, transfer or release any interest in real property.
(* We are limiting our discussion in this article to the four basic types of written instruments that affect real estate—deeds, mortgages, assignments and releases. We are not going to discuss in this article related issues regarding involuntary liens, rights of way, and other transactions that affect real estate, whether or not represented by a document.)
Applying the Definitions
Let’s apply these definitions to the basic types of real property instruments.
Regular Deeds
It is obvious that either definition of conveyance encompasses the usual forms of actual conveyance of title to property, such as warranty, grant, or quitclaim deeds,
Mortgages
A mortgage (as opposed to a deed of trust) is certainly not a conveyance under the “title” definition, but is a conveyance under the “interest” definition since it “conveys” a security interest, although it does not convey title perse.
The authoritative Restatement of Law Third, Property, Mortgages (ALI, 1997), which we refer to in this article as the Restatement, states unequivocally in Chapter 1.2, comment a, that “A mortgage is a conveyance…,” but goes on to note that “a mortgage is merely security…” Clearly the Restatement is referring to the more expansive “interest” definition of conveyance.
Assignments and Releases of Mortgages
An assignment of a mortgage transfers part of all of the security interest to another party. The release of a mortgage is a special category of notice document, further discussed below, that when recorded provides notice that the security interest represented by the recorded mortgage no longer exists. Therefore, it seems eminently logical that these instruments are also conveyances under the “interest” definition as represented in both Black’s and the Restatement.
Trust Deeds and Reconveyances
It may seem obvious that a deed of trust and the reconveyance thereof are conveyances. After all, these terms even include the words “deed” and “conveyance.” However, remembering that logic and law do not always coincide, the obvious is not always so clear.
Chapter 4 in the Restatement contains a discussion of the lien theory vs. the title theory of mortgage law, defining the two theories as follows:
“Under the title theory, legal “title” to the mortgaged real estate remains in the mortgagee until the mortgage is satisfied or foreclosed; in lien theory jurisdictions, the mortgagee is regarded as owning a security interest only and both legal and equitable title remain in the mortgagor until foreclosure.”
This dichotomy between title and lien theory parallels the distinction between “title” and “interest” in the definitions of conveyance summarized above.
The Restatement summarizes the fine points of case law in each state with respect to these theories. For the purpose of this article, however, we need only point out that a state in which the deed of trust is the form of mortgage may be a lien theory state; in such a state, a deed of trust does not convey title. In California, for example, where the trust deed is the commonly used form of mortgage, the Restatement asserts that “the lien theory seems to be preferred” under case law. Therefore, a deed of trust in that state would confer only a security interest, not title, and the reconveyance would then only represent a notice of release of the security interest. On the other hand, an odd example of a title theory state is Connecticut, where the instrument called a “mortgage deed” is considered to pass title. (We have not had enough doggedness to research the question of whether there is a state where a mortgage is considered a transfer of title, although we suspect that Connecticut comes the closest to that screwy idea.)
Therefore, it is by no means certain as a matter of general logic whether a deed of trust or its reconveyance is a conveyance according to the “title” definitionjust because deeds of trust are allowed in the state. Rather, it is necessary to determine whether the state is a lien or title theory state in order to determine whether the deed of trust or reconveyance is a “title” or “interest” conveyance in that state.
Statutory Definitions of Conveyance
So far, we have discussed real property documents only in terms of the book definitions of conveyance. We have found that mortgages, assignments of mortgages and releases of mortgages may or may not be conveyances, according to which book definition is used, and, even more telling that there is a dilemma here, we have found that it is impossible to make a general determination about which definition applies to a deed of trust and reconveyance.
In other words, the book definition of conveyance is no help in determining the practical application of statutes to real estate document requirements in any given state. Therefore, we can only resolve this dilemma on a state-by-state basis.
The definition of conveyance in a particular state may be
(1)either of the two general definitions given above, or
(2)some other definition specific to that state, either
(a) explicitly defined by statute,
(b) implicitly defined by statute, or
(c) undefined by statute.
(3)(a) defined by case law, or
(b) defined by tradition or usage.
It is necessary, therefore, to review the real property statutes and related case law in each state for guidance concerning which of the many possible definitions should be applied in that state.
Some Examples
(1) In some states, the statute contains an actual definition that agrees with one of the book definitions, as in Nevada:
“Nev. Rev. Stat. Ann. 111.010. Definitions
As used in this chapter:
1. "Conveyance" shall be construed to embrace every instrument in writing, except a last will and testament, whatever may be its form, and by whatever name it may be known in law, by which any estate or interest in lands is created, aliened, assigned or surrendered.”
At least on its face, this definition appears to agree with the “interest” definition. It is seemingly unproblematic to include “assignment” and release (“surrender”) of a mortgage within this definition. See, however, discussion of “The Nevada Problem” below.
(2)(a) In other states, the definition is more restrictive than either of the book definitions, as in Wisconsin:
“Wis. Stat. Ann. § 77.21. Definitions.
In this subchapter:
(1) “Conveyance” includes deeds and other instruments for the passage of ownership interests in real estate, including contracts and assignments of a vendee’s interest therein and including leases for at least 99 years but excluding leases for less than 99 years, easements and wills.”
In this instance, the term is limited only to “passage of ownership” rather than to Nevada’s broad “any…interest…created…assigned or surrendered.”
(Of course it is not necessary for the statutes within a state to be consistent. Wis.State. Ann. § 840.01 redefines “conveyance” in a different and more expansive way for the purposes of legal proceedings to include “security interests and liens on land.” This section also contains the following provision in subsection (2): “Interest in real property does or include interests held only as a member of the public…” In other words, the definition of the term “interest” needs to be restricted in meaning to actual contractual matters, not to the more interest that neighbors may have in a particular property.)
(2)(b) In yet other states, the term is not explicitly defined. In Iowa, for example, the closest reference we can find to a definition is in the following section of the real property code, which reads in part:
“Iowa Code § 558.19. Forms of conveyance.
The following or other equivalent forms of conveyance, varied to suit circumstances, are sufficient for the purposes herein contemplated:
- FOR A QUITCLAIM DEED…
- FOR A DEED IN FEE SIMPLE WITHOUT WARRANTY…
- FOR A DEED IN FEE WITH WARRANTY…
- FOR A MORTGAGE…”
Item 4 appears to indicatethat a mortgage is a form of conveyance, in which case it is logical to further assume that an assignment or release of a mortgage would also count as a conveyance.
The Iowa Problem
On page 8 at the end of this article is an appendix that quotes in full the 1999 amended Iowa Code Ann. § 331.602. The key phrase in the amended version for the purpose of this article is item (1)(d), which reads,
“d. An instrument conveying an interest in real property shall contain the statement: “Address tax statement:” which shall be filled out with a name and complete mailing address. Each instrument conveying an interest in real property shall contain this statement unless otherwise authorized by the county recorder.”
At issue is the meaning of the phrase “conveying an interest.” From the previous section of this article, where we infer the definition of conveyance in Iowa law, it seems clear that this “address tax statement” is required on all four of the basic real property documents. However, to require this statement on a mortgage release is illogical because whoever releases a mortgage may have no idea who should get tax statements. Therefore, it is literally impossible for anyone preparing a mortgage release in Iowa to comply with the amendment as enacted. How then are we to interpret the amendment? What documents is it intended to apply to?