Bulletin: NY000242

The time has come to revisit the issue of what is commonly referred to as the "no consideration" deed. The concern is, of course, that when we encounter a deed in the chain of title to premises for which it does not appear that the grantee has paid for his interest, that there may be fraud or forgery involved in the transfer of title. Many times, the deed may appear to transfer title from one family member to another, husband and wife to wife alone or parent to child, to cite two examples. In other instances, there may be no apparent relationship between grantor and grantee. Whatever the circumstances, with almost every county clerk in New York requiring the use of some type of cover page for deeds to be recorded, the no consideration deed is easier than ever to spot. Most cover pages now clearly indicate the amount of state transfer tax paid (the tax being computed at an amount per thousand of sale price) or in some cases, recite the actual purchase price.

At this point, I would like to note that the situation being addressed here is one where the current owner(s) have acquired their title by way of one or more deeds where no consideration was paid. If there are no consideration deeds in the back chain of title, but the deed to your certified owner appears to have been an arms length sale between unrelated parties, consideration was paid and the transaction appears to have been

insured by another title insurance company or its agent, the procedure discussed within need not be followed.[1] However, an earlier mortgage made by your certified owner, even if it appears to have been insured by another title company, will not exempt your proposed transaction from the following analysis, if the owner acquired his interest by way of a no consideration deed. Current standards for underwriting “mortgage only” type transactions do not allow for this situation to be treated in the same manner.

The last time this matter was the subject of a STIC Underwriting Bulletin (NY000136) the Company policy was stated as follows:

"…where there is a "no consideration" deed in the chain of title, or where such a deed, executed prior to the closing, is delivered at closing (without all parties to the deed being present, with photo identification, and willing to execute a confirmation deed), no title insurance may be issued without obtaining the prior approval of Company Counsel."

That policy was established in the third of a series of three prior company bulletins on the subject.

I realize that strict adherence to that policy is not practical at this point. However, it is worth revisiting some of the criteria mentioned in that earlier Bulletin that may obviate the need to call counsel each time this situation is encountered, which is relatively often.

But before we get to that, a discussion of the proper exception to be raised is in order.  The fact of the matter is, no one gives away real estate without good reason. So, anytime the title reader finds that the current owner has acquired his title to the premises to be insured by way of a deed for which there was no consideration, the reader must ask himself, WHY? That question then appears in the title report in the form of an exception which reads as follows:

The deed in _________________, recorded __/__/__, appears to have been given for no consideration. The circumstances regarding the conveyance must be disclosed to the company, and additional exceptions may be raised. If the proofs are not satisfactory to the Company, policy will except any loss or damage sustained by the insured which would not have been suffered had the grantee been a bona fide purchaser for value.

DO NOT incorporate any potential explanations for the situation in your exceptions and certainly do not state or even imply that an affidavit of any sort from the grantor will cure the problem. Just “ask the question” and let the explanation come to you. If it should turn out the deed was forged, your affidavit will just as likely be forged as well.

Now that the exception has been raised, how shall it be cleared? Some suggestions which have served us well over the years include:

1.   request the grantor(s) in the suspect deed(s) to appear at your closing to either execute a confirmation deed, join in the execution of the deed to your proposed insured or, at the very least, to present valid photographic identification and confirm their willful and knowing execution of no consideration deed. If said grantor is unable to attend your closing and has a valid or at least a credible excuse as to why he cannot attend, or, if he's dead…

2. inquire if perhaps there was an attorney involved in the preparation of the deed. If so, inquire as to the possibility of obtaining an affirmation or a statement from said attorney which gives the details surrounding the execution and delivery of the deed. Perhaps the attorney helped to implement a family estate plan, or represented an ex spouse/grantee in a matrimonial matter. Such a letter may give us a level of comfort such that we are able to omit our exception. If neither of these options gets us where we want to be, then it may be time to

3.  call company counsel and we can discuss the matter. Together we can analyze your specific situation and try to fashion a solution that makes sense for all involved.

In terms of the current company policy, it is of the utmost importance that each instance of your certified owner(s) having acquired title through a deed (or deeds) for no consideration be carefully scrutinized and considered individually. This is true whether you are being asked to issue a fee policy or a mortgage policy. The foregoing exception and suggested methods of clearance are as close as we can come to fashioning a course of action that will be suitable in any situation. The basic story behind these chains of title is usually very familiar, but there are always variations of the fact patterns that will be new to you. We may not always get exactly what we want in terms of confirmation of the authenticity of these deeds, but it is imperative that we at least achieve a level of comfort with the material presented to us in each instance that will allow us to go forward with any particular transaction as confidently as possible. To the extent that you have any questions at all regarding these situations, in any transaction you have been asked to insure, do not hesitate to call counsel for guidance.