Bulletin: MD000014

Date:
July 29, 1996
To:
All Maryland and District of Columbia Policy Issuing Agents
RE:
1996 Legislation Affecting Underwriting and Escrow Operations in the State of Maryland

Dear Associates:

The following are summaries of those bills enacted or enrolled by the Maryland General Assembly during its 1996 legislative session which affect title to real property, escrow practices and the title industry in general in this state. This listing is by no means comprehensive as to bills dealing with real property and includes only those bills which, in the opinion of the undersigned, will have a significant impact on Stewart Agents. Bills are listed by topic and are not necessarily in numerical order. The effective date of each bill follows the summary. The undersigned acknowledges the contribution of the Code Revision Committee, Section of Real Property, Planning and Zoning, Maryland State Bar Association; The Legislative Committee, Maryland Land Title Association; and The Office of the Attorney General to the preparation of this Bulletin.

1.FORECLOSURE - NOTICE OF SALE TO HOLDERS OF CERTAIN SUBORDINATE INTERESTS:

SB 55 (Chapter 364) - Amends RP7-105(c) to define "holder of subordinate interest" entitled to notice of foreclosure sales to include a condominium council of unit owners and a homeowners association (as in a PUD) which has recorded a request for notice of sale by the holder of a superior interest. This change will require an expansion of your examination of title to condominium and PUD properties passing through foreclosure. This was a compromise bill which leaves unresolved the issue of whether parties who have recorded a notice of lien under the Maryland Contract Lien Law (RP14-201 et seq.) would be entitled to notice of a foreclosure sale by the holder of a prior Deed of Trust/Mortgage even if they fail to record the notice required by this new amendment to RP7-105(c). Stewart takes the position that a filing under either statute requires notice of sale.

EFFECTIVE: October 1, 1996

2.MECHANICS LIENS - EXPANSION OF RIGHT TO CLAIM LIEN:

HB 184 (Chapter 435) - Amends RP9-102(a) to change 25% to 15%. Thus, a claimant who has provided materials and/or services for construction, repairs or rebuilding of an existing structure which is being improved to the extent of at least 15% of its value is entitled to claim a mechanics lien.

EFFECTIVE: October 1, 1996

3.MECHANICS LIENS - NOTICE - TIME LIMITATIONS:

SB 197 (Chapter 377) - Amends RP9-104(a)(2) to increase from 90 to 120 days the period following completion of work within which a subcontractor must give notice of intent to claim a mechanics lien for materials and/or services provided for the construction of a single family residence.

EFFECTIVE: October 1, 1996

4.MECHANICS LIENS - LEASING OF EQUIPMENT:

HB 129 (Chapter 440) - Amends RP9-102(a) to add the leasing of equipment, with or without an operator, for use on the premises to the list of work and materials which may be the subject of a mechanics lien claim. This new statute overturns the decision in Giles & Ransome, Inc. v. First National Realty 238 Maryland 203 (1964).

EFFECTIVE: October 1, 1996

5.RECORDATION - HARFORD COUNTY:

SB 672 (Chapter 413) - Amends RP3-104(a) to permit the Clerk of the Circuit Court for Harford County to record Deeds and Assignments (of leasehold estates) among the Land Records prior to the transfer of the property in the records of the State Department of Assessments and Taxation for Harford County. This bill, introduced on behalf of MLTA, establishes a pilot program which will be tested in Harford County before expansion statewide. Its purpose is to expedite the recording process by eliminating one step on the trail around Bel Air. Its success, however, depends upon the accurate completion of the intake sheet and attachment of copies of the Deed/Assignment and location survey, where appropriate. You can expect the intake sheet to be carefully reviewed by the Clerk. Following recording, the Clerk will have to provide SDAT with copies of the intake sheet and attachments so it can complete the transfer on the tax rolls. This bill does not affect the requirement for certification by the county finance officer that all taxes and other public charges have been paid.

EFFECTIVE: October 1, 1996

6.REDEMPTION OF REVERSION - MOBILE HOME LOTS:

SB 798 (Chapter 558) - Amends RP8-110 to clarify that a tenant's right to redeem a reversion (ground rent) reserved in a lease for longer than 15 years (but less than 99 years) does not apply to leases of lots in a mobile home development or park.

EFFECTIVE: October 1, 1996

7.CONDOMINIUMS - CREATION WHERE LAND SUBJECT TO REVERSION OWNED BY WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY:

HB 692 (Chapter 483) - Amends RP11-102(a) to permit creation of residential condominium regimes upon leasehold property in which the reversionary (ground rent) estate is owned by Washington Metropolitan Area Transit Authority (WMATA) provided the lease provides for automatic renewals upon expiration of the initial term. This appears to be a local bill affecting Montgomery and Prince George's Counties.

EFFECTIVE: October 1, 1996

8.CONDOMINIUMS - CREATION OF LEASEHOLD ESTATES IN UNITS:

HB 1336 (Chapter 660) - Amends RP11-102(a) to provide that neither the developer nor any subsequent owner of a residential condominium unit shall be prohibited from creating a ground rent. This statute applies only to units created after its effective date and cannot be applied to correct prior defective conveyances. This non-retroactive provision is disturbing because creation of rents has been a common practice in some regimes in Ocean City for years. If asked to insure a leasehold unit you must contact the undersigned.

EFFECTIVE: July 1, 1996

9.UNIFORM COMMERCIAL CODE - NEGOTIABLE INSTRUMENTS:

SB 40 (Chapter 91) - Replaces CL3-101 through 3-805 inclusive, 4-109, 4-205 and 4-211 and reenacts as CL3-101 through 3-119. It also amends several other sections, particularly CL1-201, to increase the negotiability of certain drafts and notes. This bill is the first major revision to our UCC in years and was enacted to adapt the law to changes in the marketplace and emerging electronic transfer technologies. It contains expanded definitions for "holder", "money" and "unauthorized signature", specifies types of contracts to be considered negotiable instruments and revises provisions for liability, defenses in disputes over them and statutes of limitations.

EFFECTIVE: January 1, 1997


10.UNIFORM COMMERCIAL CODE - SECURED TRANSACTIONS, PERFECTION OF CERTAIN SECURITY INTERESTS:

HB 927 (Chapter 639) - Amends CL9-302(1)(d) to increase from $1,500.00 to $3,000.00 per item the purchase price of consumer goods for which a financing statement need not be recorded to perfect a purchase money security interest. It should be noted that if the item is a fixture you must still record to perfect.

EFFECTIVE: October 1, 1996

11.CORPORATIONS AND ASSOCIATIONS - LIMITED LIABILITY LIMITED PARTNERSHIPS:

SB 299 (Chapter 382) - Amends CA10-805 to permit the creation of limited liability limited partnerships (L.L.L.P. or LLLP). This bill is a logical follow-up to the 1995 law which permitted general partnerships to convert to limited liability partnerships (L.L.P. or LLP). It permits limited partnerships to register as an L.L.L.P./LLLP under CA9-801 by including in the certificate of limited partnership recorded pursuant to CA10-201 or any amendment thereto, certain information now required under CA9-801(a). The effect of this bill, of course, is to permit the general partners and limited partners who participate in the management of an existing limited partnership to further limit their liability.

EFFECTIVE: January 1, 1996

12.CORPORATIONS AND ASSOCIATIONS - LIMITED LIABILITY COMPANIES, NUMBER OF MEMBERS REQUIRED:

HB 1306 (Chapter 657) - Amends CA4A-101(1) to permit a limited liability company (L.L.C./LLC) to continue to carry on its business following an event triggering a dissolution as long as there is at lease one (1) remaining member who consents to continuation within 90 days after such event. This is a departure from current law which requires two (2) members to form an L.L.C./LLC and indicates that the death, disability or withdrawal of one of them will not trigger a forced dissolution and winding-up. Please note that this scheme is not being applied to partnerships or L.L.P./LLP's..

EFFECTIVE: October 1, 1996

13.PROPERTY TAXES - SEMIANNUAL PAYMENT:

SB 93 (Chapter 97) - Adds RP3-104(c)(5) and amends TP4-201, 4-202, 10-204.3, 10-402(a) and 14-801 to provide for public notice of the law and to adopt procedures for the calculation (including service charges) and collection of real property taxes on a semiannual basis for property owners who elect this option. Generally, the bill expands upon the so-called Closing Cost Reduction Act of 1995 and provides that a purchaser of owner-occupied residential real property who closes between July 1st and January 1st may elect at settlement to pay, on a semiannual payment schedule, those taxes which are due and not in arrears for the current fiscal year. In the event the purchaser elects a semiannual payment schedule under such circumstances, the first installment must be paid in order to record and the seller will be relieved of any liability for payment of the second installment to become due January 1st. The bill also provides that once an owner elects to pay taxes on a semiannual schedule, that election will remain in effect until changed, or until title is transferred. In March of each year, each county and Baltimore City is required to notify its property owners, through newspaper ads and direct mailing, of the semiannual payment option and to provide a tear-out or coupon to be used by owners desiring to make the election. In cases where there is no transfer of title, the statute requires escrow account servicers to make payments in accordance with the election made by borrower/owners provided they give the lender written direction to do so (possibly by use of a duplicate coupon) at least 60 days prior to the beginning of the next fiscal year (i.e. May 1st). The downside of making this election is that the tax bill for the installment due on January 1st will include a service charge roughly equal to 125% of the county's estimate of lost interest income. We predict that few property owners will make this election. Look for SDAT to publish a uniform option form for execution at settlement.

EFFECTIVE: April 30, 1996; - however, several provisions are not effective until July 1, 1998.

14.TAX SALES - LIMIT ON REIMBURSEMENT OF FORECLOSURE EXPENSES:

HB 370 (Chapter 617) - Amends TP14-843 to provide that in thirteen (13) counties and Baltimore City the holder of a tax sale certificate is not entitled to reimbursement for expenses incurred in connection with a foreclosure of owner's right of redemption (i.e. cost of title abstract, investigations, attorneys' fees, etc.) within the first four (4) months after the tax sale. This limitation does not apply in cases where the property sold is improved by structures requiring substantial repairs and the certificate holder may file a complaint at any time after 60 days under TP14-833(e).

EFFECTIVE: June 1, 1996

15.RECORDATION AND TRANSFER TAXES - TRANSFERS FROM PARTNERSHIPS TO LIMITED LIABILITY COMPANIES:

HB 979 (Chapter 690 - Supplements TP12-108(y) and amends TP13-207(a) and 13-405 to exempt from recordation and state and local transfer taxes transfers of title to real property made in connection with the conversion from a partnership to a limited liability company (L.L.C./LLC) if the members of the L.L.C./LLC are identical to the partners of the converting partnership and each member's allocation of profits and losses in the L.L.C./LLC is identical to their allocation under the partnership agreement.

EFFECTIVE: July 1, 1996

16.TITLE INSURANCE - LICENSING:

HB 291 (Chapter 206) - Amends sections 168 and 168A of Article 48A and corresponding provisions of the new Insurance Article to repeal the provisions of the 1995 law which required the licensing of the directors of corporations holding a certificate of qualification as a title insurance agent and exempting title insurers who are licensed under other provisions of the Insurance Code from obtaining a certificate of qualification. This bill also provides that a title insurance agent or broker must notify the Insurance Commissioner whenever a licensed individual leaves its employment or severs its association with the agency, and that the financial disclosure required by the present law may, as to licensed individual employees, be satisfied upon submission to the underwriter of a statement of financial condition for the agency. It further provides for the issuance of a special restricted certificate of qualification to attorneys.

EFFECTIVE: April 30, 1996; however insofar as it amends the new Insurance Article, it shall have an effective date of October 1, 1997.

17.TITLE INSURANCE - AGENTS OR BROKERS:

HB520 (Chapter 239) - Amends sections 168, 168A, 173A(c) and 175(b) of Article 48A and corresponding provisions of Title Ten of the new Insurance Article to authorize a limited liability company (L.L.C./LLC) to obtain a certificate of qualification to act as a title insurance agent or broker and to conduct business in the same manner as partnerships and corporations may now do. The manager and each member or employee who have direct control over fiscal management within the L.L.C./LLC are required to hold a certificate of qualification.

EFFECTIVE: October 1, 1996; however insofar as this statute amends the new Insurance Article it shall have an effective date of October 1, 1997.

18.NOTARIES PUBLIC

SB118 (Chapter 21) - Supplements sections 2(a) and 11, Article 68 and SG10-617(j) to permit Maryland notaries to witness the execution of documents in their official capacity even if the document does not contain a notarial certificate reflecting the taking of an oath or acknowledgment. A notary acting as an official witness is required to obtain satisfactory proof of the identity of the signer, to observe the execution, to date, sign and seal the document and to record the act in his/her register. CAVEAT: this procedure is not an acceptable substitute for completion of an acknowledgment on any document to be recorded in the Land Records.

EFFECTIVE: October 1, 1996


Please disseminate a copy of this Bulletin to every member of your staff with a need to know and take action to implement such changes as may be required to comply with these new laws.

All questions and requests for clarification should be directed to the undersigned at (410) 547-9100 ext. 106.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.