The Importance Of Ensuring A Real Estate Closing Is Properly Conducted
Written by: Alan Nochumson
Time and time again, I see a situation where a client is “penny wise, pound foolish” when it comes to properly documenting a real estate transaction.
A recent decision handed down by the Superior Court of Pennsylvania in Ford v. Oliver, 2017 Pa. Super. LEXIS 1040 (Dec. 14, 2017), only illustrates why a party to a real estate transaction should always have the benefit of legal counsel through closing.
In Ford, Evan and Margaret Ford received two parcels of land located in Allegheny County, Pennsylvania from their mother by way of a single deed. In the deed, the parcels of land are separately designated as “Parcel One” and “Parcel Two,” the opinion said.
According to the opinion, under the deed, Parcel One is approximately 50 acres of vacant land and “it contains an exception for certain coal and mineral rights,” while “Parcel Two” consists of ‘All oil, gas, coal or other minerals, together with all mining rights and other rights of any nature or kind whatsoever … owned by the grantor … within the limits of Allegheny County, Pennsylvania.’”
In 2001, the Fords entered into a written agreement of sale to sell Parcel One to John and Cynthia Oliver for $22,000, the opinion said.
The Olivers retained the services of Blane Puskaric as their attorney as well as his title insurance company, Landco USA, Inc. in connection with this attempted real estate acquisition, the opinion said.
At the closing, the closing agent for Landco presented the Fords with only the signature page of the deed, as they were advised that the deed had not yet been completed, the opinion said. The Fords then executed the signature page, the opinion said.
After the closing took place, the closing agent completed the deed and included legal descriptions of both Parcel One and Parcel Two in it, even though the agreement of sale only called for the transfer of Parcel One from the Fords to the Olivers, the opinion said.
Additionally, the deed recited that the consideration for the real estate transaction was $10,000, not the $22,000 set forth in the agreement of sale entered into by the parties, the opinion said.
The deed was notarized by Puskaric and then recorded in January of 2002, the opinion said.
According to the Fords, they never received a copy of the completed, let alone the recorded, deed.
In 2007, according to the Fords, upon the advice of their attorney at the time, they attempted to clarify title to Parcel Two by having it re-conveyed by their mother to them by way of deed, the opinion said.
At the time that deed was recorded, the Fords claimed that they did not know that Parcel Two had already been conveyed to the Olivers by way of the deed recorded in early 2002.
In early 2009, the Olivers amended their deed in order to add the wording “Parcel Two” in the legal description which was omitted from the original deed, the opinion said.
According to the Fords, they were not notified of this amendment to the deed.
After the recording of this deed, the Olivers entered into several agreements with third parties for the mineral rights associated with Parcel One, the opinion said.
In 2012, the Fords attempted to lease various oil and gas rights as to Parcel Two to a third party, but the two parties were unable to reach a final agreement.
The Olivers separately entered into an oil and gas lease with that same third party for the mineral rights to Parcel One and sold additional mineral rights as to Parcel Two as well as to that third party.
In the spring of 2015, the Fords contacted that same third party again to discuss a possible sale of part of Parcel Two, the opinion said.
According to the Fords, it was then that they discovered about the “error” contained in the deed and that the Olivers had already transferred some of these mineral rights to that third party and others.
Soon thereafter, the Fords filed a complaint in state court for, among other things, seeking recovery of Parcel Two.
After the complaint was amended, some of the defendants filed preliminary objections in response to the amended complaint.
In the preliminary objections, these defendants argued that the claims set forth by the Fords in the amended complaint should be barred by the statute of limitations.
Agreeing with these defendants, the trial court then issued a ruling sustaining the preliminary objections.
Afterwards, the Fords appealed the trial court’s ruling to the Superior Court.
On appeal, the Fords conceded that they did not file their complaint against the defendants within the applicable statute of limitation periods. Rather, they reiterated their argument that no statute of limitations applies to their claims or, in the alternative, that the discovery rule tolled the limitations periods.
The Fords contended that no statute of limitations applies to their claims because their deed to the Olivers was forged and, thus, was void ab initio, since they never intended to sell or agree to sell Parcel Two to them.
Agreeing with the trial court, the Superior Court stated that the deed should not be deemed void ab initio, and, at best, could have been declared voidable had the Fords acted diligently and reasonably to protect their property rights.
The Superior Court quoted the following passage of the opinion issued by the Supreme Court of Pennsylvania in Commonwealth v. Sankey, 22 Pa. (10 Harris) 390 (Pa. 1853): “Forgery is the fraudulent making or altering of a writing to the prejudice of another’s right … If every trick, or false pretense, or fraudulent act by which a person is induced to put his name to a paper which he would not otherwise have signed, is to be called a forgery, where shall we stop, and what shall be the rule? … Frauds perpetrated for the purpose of getting papers signed are not forgeries.”
Keeping with that line of legal reasoning, the Superior Court concluded that there was no forgery committed when the deed transferring Parcel One and Parcel Two from the Fords to the Olivers was recorded.
The Superior Court pointed out that the Fords admitted that their signatures on the signature page of the deed are theirs and, as the Supreme Court in Yohe v. Yohe, 353 A.2d 420 (Pa. 1976) emphasized “if a party, who can read, will not read a deed put before him for execution … he is guilty of supine negligence, which … is not the subject of protection, either in equity or at law.”
Citing to Yohe, the Superior Court bluntly concluded that “the Fords’ failure to read the deed and seek relief from its terms until 2015—nearly 14 years after they signed it—precludes them from now having the deed declared void.”
The Superior Court then addressed the Fords’ argument that, even if statutes of limitations applied, they were tolled until early 2015 by the discovery rule.
As part of their appeal, the Fords also contended that “whether the discovery applies should not have been decided on preliminary objections because that is a fact issue that must be submitted to a jury.”
The Superior Court quoted a passage of an opinion recently issued by another panel of the Superior Court in Mariner Chestnut Partners v. Lenfest, 152 A.3d 265 (Pa. Super. 2016), which discussed the scope and applicability of the discovery rule.
In Mariner Chestnut Partners, the Superior Court pointed out that, “to successfully invoke the discovery rule, a party must show the inability of the injured, despite the exercise of due diligence, to know of the injury or its cause” and “a party fails to exercise reasonable diligence when it fails to make an inquiry when the information regarding the injury becomes available.”
In other words, according to the Superior Court, “mistake, misunderstanding, or lack of knowledge in themselves do not toll the running of the statute.”
While acknowledging that “whether the statute of limitations has run on a claim is a question of law for the trial court to determine,” the Superior Court in Mariner Chestnut Partners, noted that a court may decide this issue if “reasonable minds would not differ in finding that a party knew or should have known in the exercise of reasonable diligence of his injury and its cause.”
Agreeing with the trial court, the Superior Court did not believe the Fords “exercised ‘reasonable diligence’ in discovering that the deed’s property description was erroneous.”
The Superior Court reasoned that the Fords “easily could have satisfied that obligation by, for example, obtaining a copy of the deed and reading it between September 2001 and the spring of 2015” and “their failure to find out what they had signed was unreasonable as a matter of law, and this question did not require factual assessment by a jury.”
The ruling handed down by the Superior Court in Ford illustrates the importance of ensuring that a real estate closing is properly conducted. No attorney in their right mind would have allowed a client to blindly execute a signature page of a deed or, at the very least, would have demanded that the executed signature page had to be held in escrow with the closing agent pending the attorney’s review and approval of the completed deed. If the sellers in Ford would have taken these precautionary matters, they would have likely quickly discovered the so-called error in the deed, and, according to the Superior Court, the deed would have been declared voidable and they would have been in a position to protect their property rights. By failing to do so, they lost a valuable asset forever.
Reprinted with permission from the January 5, 2018 edition of The Legal Intelligencer © 2018 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, email@example.com or visit www.almreprints.com.