Operation of Law and Real Estate: Things to Know

What Is Operation of Law?

Operation of law generally means the happening of an event which brings about a result without any act on the part of even the person who is at the time in possession of the right. The effect of an operation of law is to vest in some person some right or liability which, if the law had not intervened, would not have vested in him. It applies as well to the case where a right which has vested in some person by operation of law is defeated by the act of some person (as distinguished from the law). For example, A and B were in possession of land as tenants in common and each owned an undivided moiety. If A died before B, B, by the death of A, undoubtedly acquired a right by operation of law to an exclusive possession of the whole land. By operation of the law of survivorship, A’s interest by operation of law passed to B.
The term used has a much wider sense at common law, including succession by devise, descent and escheat, forfeiture of estates for wastage, breach of the condition subsequent, accretion, estoppel, tenancy in common in joint tenancy or other form of co-tenancy created at law, accruer, dower and curtesy, merger, escheat, rights of way, support, alluvion, zonation . The following are some examples of operation of law: The general rule is that a condition subsequent is not subject to a restraining equitable rule of forbearance and will exercise its effect upon the happening of the event—Hurdman v. De Keyser, [1891] 3 Ch. 559; In re Wehdale Colliery Company, 6 Ch. D. 776; Main Colliery Co., Ld. v. London and North Western Railway Company, [1892] 2 Q.B. 165; Rawson v. Jackson, 8 Q.B.D. 23; Tarrant v. Mudd, 4 A.C. 359; In re Broderip and Davenport, L.R. 6 Ch. 149; M’Culloch v. M’Gillivray, 12 App. C.S. 104; RJ v. CH, [1916] 1 Ch. 71.
Restitution of a mortgaged property to mortgagor in discharge of mortgage—In re Gillett, 27 Beav. 369; In re Mallaig and Achleek Fishery Company, [1905] 1 Ch. 121.
Operation of law in divorce suit allows court to grant decree to third person—Woods v. Wood, 24 Bea. 314.
Resumption of land by lord after judgment for mesne profits—Mudd v. Lowndes, 2 Ch.D. 461.
Dower (see also Dower).

Operation of Law and Real Property Ownership

The concept of "operation of law" plays a pivotal role in the transfer of ownership in real estate, often initiating changes in who holds title to property without an owner’s knowledge or intention. In legal terms, "operation of law" refers to the automatic transfer or grant of legal right or duty, resulting from a certain action or process.
A common reason for the change of ownership due to operation of law occurs in the case of a transfer after death via a will or as part of a probate asset distribution, wherein the interest in the subject property vest in a new party, often the decedent’s heir or beneficiary, without the need to execute a formal deed. This is particularly clear when property is passed through a revocable or irrevocable trust designed under the terms of the instrument itself to pass the subject property to the designated beneficiary upon the grantor’s death. The title to the property passes directly from the grantor to the designated beneficiary, without the need to transfer the real property interest by deed.
When property is transferred to owners, spouses, children or parents who are not the subject’s spouse, then the transfer may affect the specific ownership of the requisite interest in the subject property. However, if a couple who owns property in one name, such as their joint name, ends up divorcing, the property may still remain in their joint name even after degree of divorce has been issued. Some parties think that the divorce order itself changes the ownership of the property, but it does not. A divorce order does not transfer ownership of a property or otherwise affect the rights and interests in a title to, or an estate in, the subject real property. As a result, a deed may be necessary to be prepared, executed and notarized to complete the transfer. Another way to determine the ownership of the subject property would be to obtain a Certificate of Title from the land records office, which would confirm the names of the owners of record.
Certain divorce and family laws, such as New Jersey’s statutory prohibition against individuals transferring their assets to avoid or minimize spousal support, will also affect the ownership of real property between parties when they divorce. To illustrate: assuming that the subject property was held in joint names and the one party anticipates that the divorce transfer will occur and decides to sell the subject property to a third party prior to the transfer of the title in the marital decree, the sale pursuant to this particular statute would be invalid. Thus forcing the individual spouse to transfer his or her share of the property to the other co-owner in order to properly effectuate the transfer of interest that is otherwise prohibited by the statute. Such a situation would require the co-owner spouse to use his or her best efforts to compel the non-cooperating spouse to either return and re-execute the deed, or at a minimum, sign another deed of sale to the third party purchaser. An undoing of the deed so completed may be accomplished by an Order of Court.
In the event that the deceased, as a joint tenant with right of survivorship, in order to show his control over the property, executes a deed so that the subject property is transferred in his name, and, then, upon learning of his death, the co-tenant/owner survives the deceased by less than 120 hours, the joint interest will be severed from the deceased and shall, by operation of law, go to his heirs or devisees, as a result of the relevant statute. Where such a survivorship tenancy does not exist, the decedent’s interest in the property will instead go to the decedent’s estate, as the underlying statute provides.

Real Property Changes by Operation of Law

There are a few other more rare circumstances in which real estate may change by operation of law rather than by deed or other traditional means.
Foreclosure – For example, if someone has a mortgage on a property and defaults on the loan payments (or property taxes), the lender can seek foreclosure in court and sell the property at a foreclosure sale. Payment of a note that is the subject of a foreclosure is a prerequisite to a deficiency judgment in North Carolina. Therefore, if a foreclosed property sells for an amount less than the outstanding balance on the loan, the bank cannot sue the borrower for the difference. Also, the owner of foreclosed real property gets an automatic right of redemption: under North Carolina law, the owner has a right to redeem the property from the creditor within ten days of the sale. If the owner does not do so, then fifteen days after the sale, the new owner obtains title to the property.
Eminent Domain – Similarly, the government can take private property via eminent domain – another way that real property may change by operation of law. When the government takes private property for public use, the property still belongs to the original owner – but the government gets a partial interest and a right-of-way.
Adverse Possession – The common law power of adverse possession is what happens when someone who is not technically the owner of a piece of property uses it openly, continuously, and in a way that conflicts with the true owner’s interest, and the true owner does nothing to assert his or her claim to the property for 20 years or longer. At the end of that period, the person who has been using the property for that long automatically becomes the true owner of the property, and the true owner’s rights to it are extinguished.

Transfer by Operation of Law

Among the most important things to understand about the concept of transfer by operation of law is that it’s rarely as simple as it sounds. By its very definition, transfer by operation of law describes a property being sold, gifted or otherwise transferred without the necessity of an actual transaction between buyer and seller. This applies to cases in which a court says that an action must take place — such as in a divorce settlement — or when property is transferred by inheritance under a will or through estate probate. The problem is that while the term "transfer by operation of law" might imply that the action can be immediately executed, this is not the case — because there are certain legal requirements that depend on the type of transaction in question. A partial transfer, for example, such as the portion of real estate being awarded to a spouse in a divorce, may involve a long process that requires the involvement of legal counsel and careful documentation to prevent future disputes . It very much depends on the situation, and whether you’re transferring an undivided interest or the entire property with the approval of the other owners, whether the county has already agreed to the transfer, whether there’s a prenuptial agreement in place and more. Additionally, any uncodified rights must be contained in a declaration of transfer or right of first refusal agreement, and the parties to the agreement must be notified of the transaction before the transfer is made. Other legal requirements must be met even if a divorce action is undertaken to transfer property as stated above. Again, the most important thing to understand about property transfer by operation of law is that each situation is unique and requires its own handling. Disputes may arise later, and parties may have to go to court to determine whether the transfer was valid. Simply put, while the idea of transfer by operation of law may sound clear-cut, it seldom is the case, and care must be taken on both sides to ensure that everything is done legally and above board. That’s why the involvement of legal counsel is almost always required — and may be mandated in any event depending on the nature of the transfer.

Protection in Real Property by Operation of Law

To safeguard against the unintended consequences of operation of law, there are several key strategies to consider. First and foremost, you should conduct a property evaluation every few years to determine whether your property will be impacted by change of law. If so, consider how the change of law might affect your property rights. For example, you should specifically address whether new landscape plans comply with the pre-commencement development approvals and/or set-back or height restrictions imposed by easements or covenants. By regularly assessing your property, you can identify any issues before they have a negative impact on your property rights.
Another means of protecting your property rights is to understand what regulation may trigger operation of law. For example, laws that allow a governing body of a local government to revoke, suspend, or amend a property development approval usually cannot operate unless there is a significant change to the law applicable to the relevant development approval. Accordingly, it is important to carefully review all laws that could potentially apply to your property rights to determine which laws could be used to affect your property rights. If a proposed plan or project would be affected by a potential operation of law, it is important to consider whether the plan or project can be modified to avoid the adverse effect.
Additionally, if you are developing a plan or project that has already commenced formal approval, you should carefully review the timeline of the plan or project to determine if operation of law has occurred or is likely to occur. For example, when assessing whether a change of law affects a project, you should pay close attention to the date of change of law in relation to the commencement or finalization date of the original development approval. You should conduct a thorough search of all applicable laws to determine whether such laws were newly enacted, amended, or adopted prior to the commencement date of the applicable project approval. If there is any doubt, you should seek legal advice to further explore the timeline of the project. This will ensure that you are not impacted by an unforeseen operation of law that on its face would not apply to your property.
Ultimately, to protect your property rights from the unexpected operation of law, you should be proactive in assessing your property and its uses. Although the future is unpredictable, it is important to stay ahead of the curve by regularly monitoring applicable laws, as they are relevant to your property rights. Taking these precautionary steps will help ensure that the operation of law does not disrupt your property rights.

Disputes from Transfers by Operation of Law

Conflicts and disputes undoubtedly arise from transactions that occur by operation of law, whether it be foreclosure, partition or condemnation, to name a few. For example, in foreclosure proceedings, chapter 45 of the Florida Statutes sets forth the method by which a mortgagee can bring a cause of action against a borrower/mortgagor and obtain the sale of the mortgaged property by the Court. As further provided in chapter 45, the property is to be sold to the highest and best bidder at public auction. Fla. Stat. § 45.031(1) (2014). Florida law provides that the purchaser of the property at a foreclosure auction is entitled to obtain the certificate of title to the property after the sale is concluded and confirmed. Id. § 45.032(1). The statute further provides that the purchaser is permitted to immediately take possession of the mortgaged property once the Court issues the certificate of title and the purchaser’s rights succeed to that of the mortgagor (the person from whom the property was foreclosed). Id. § 45.032(2).
However, despite knowing that possession is permitted at the foreclosure auction, assuming bidders were present at the auction itself, it is not uncommon for the prior property owner, property owner’s tenants and/or residential occupants, to refuse to give up possession of the property. This non-compliance with the purchaser’s right to possession results in significant additional costs to the winning bidder, who has the legal right to take possession and use the property for the purposes for which it was acquired, without interference. See Huie v. Gen. Elec. Co., 143 So. 2d 471, 474 (Fla. 3d DCA 1962) (holding that the purchaser at a foreclosure sale "acquired rights commensurate with all the rights of the mortgagor in the property, including exclusive possession thereof.").
The law further provides that once a certificate of title is issued to the successful bidder, the purchaser can resort to self-help, such as using the existing locks, if legally permitted, and change the locks to the property to keep any prior owner or occupants from entering the property.
If a former owner, tenant or occupant does not vacate the premises and the purchaser wants to secure possession, then the purchaser must sue the person or entity holding possession of the property . The lawsuit is called an ejectment action and the procedure for bringing the action against any person holding over or in possession of property after a right to possession has accrued to another is set forth in Florida Rule of Civil Procedure 1.820. In summary, a party holding over may be evicted only by a process called edictum fuigiendi (order for him who flies); which must not issue until after the right to possession has accrued. See Fla. Stat. § 82.03(2) (2014). It is important to note that the ejectment proceeding need not involve actual physical force on the part of the party seeking to eject a party in possession. McCarthy v. Lorenson, 172 So. 2d 654, 658 (Fla. 2d DCA 1965).
It is also important to note that the ejectment action does not overrule the right to redemption, which may result in further delay in obtaining possession of the property. In Sumter Holding Co. v. Taylor, 60 So. 3d 1114 (Fla. 4th DCA 2011), the court discussed the right to redeem after a foreclosure sale. Therein, the owner of property encumbered by a mortgage sought to exercise its right under the mortgage to cure the default in payments. The owner made the payments required to cure the default under the terms of the mortgage, but the foreclosure sale proceeded. Several bids were submitted at the foreclosure sale, and the mortgagee bid one dollar more than the highest bid. Prior to the auction, the property owner delivered a check to the clerk’s office for the amount required to cure the default.
After the foreclosure sale, but before the sale was confirmed by the court, the owner tendered a check to the mortgagee for the full amount owed under the mortgage. The mortgagee returned the check, and the owner filed an action seeking hundreds of millions of dollars in damages, fees and costs. While this case did not involve ejectment for possession of real property, it demonstrates the idea that litigation often ensues when parties do not resolve a matter prior to the time for redemption passing, and it shows some of the disputes that arise from law-driven real property transactions.
Should a dispute arise after someone’s property is disposed of by operation of law, the property owner should consider ensuring that the property is no longer listed in his/her name and performing a diligent title search to discover whether a foreclosure certificate of title was issued and whether a lien was recorded in favor of the property purchaser.