By Matthew A. Quick The greatest concern for a buyer of real estate is whether title to the property is good and marketable. Good and marketable title generally means that, beyond a reasonable doubt, the title to property is free from encumbrances (but not necessarily free from the possibility or suspicion of encumbrances). If title to real estate is anything other than good and marketable, then there is a high probability that, in the future, the buyer will experience adversity regarding ownership of the property (the buyer is said to have "purchased a lawsuit").
The issue of receiving good and marketable title is especially important when dealing with a trustee, specifically, whether the buyer can receive good and marketable title from a trustee. There are certain rules of recording and conveyance that apply to real estate transactions involving trustees, which, if not followed, could certainly lead to a buyer purchasing a lawsuit. Foremost, in the event there are two or more trustees, then all trustees must execute the deed, unless the trust instrument provides otherwise. Michigan Land Title Standard 8.4. Failure to include the signatures of all trustees on the deed will result in the buyer receiving title that is not good and marketable.
In the event a trustee is deeded property and has no power or authority under the trust to manage it, or the trust that gives the trustee power and authority fails, the property immediately vests in the beneficiaries, and not in the named trustee. Michigan Land Title Standard 8.1. Thus, if a buyer attempts to purchase property from a trustee that has no power to sell, the buyer would receive nothing, because the trustee had nothing to convey--the beneficiaries would own and control the property outright.
When inspecting the deed to property, the buyer may find the word "Trustee" following the name of the seller, but if the deed contains no other reference to a trust or trust powers, then a purchaser can purchase the property outright without regard to possible limitations of any trust that may be in existence (so long as the buyer has no knowledge of the existence of a trust). Michigan Land Title Standard 8.2. However, if the seller turns out to be a trustee of an existing trust, and pursuant to the terms of the trust he or she did not have the power or authority to sell the property to the buyer, the buyer can expect some adversity from other trustees or the beneficiaries, if not a lawsuit, even though the buyer is considered to have purchased the property outright.
In the event the trust terms and existence are sufficiently expressed to constitute notice of the existence of a trust to a buyer, then good and marketable title is only passed to the buyer if the instrument containing the trust terms, or a certificate of trust existence and authority, is of public record, establishes a valid trust and contains a valid authority for the conveyance. Michigan Land Title Standard 8.3. Without challenging every provision of the trust or power of the trustee, Michigan law allows a buyer to assume the existence and proper exercise of trust powers if the buyer does not have actual notice that the trustee has exceeded his or her powers or has improperly exercised them. MCL 700.7404. Michigan law, however, does not shield a buyer from a lawsuit in the event the trustee is acting outside of his or her powers--the buyer may still expect some adversity from other trustees or the beneficiaries if the sale was not allowed by the terms of the trust.
To address the issues above, the buyer may easily require any trust instrument (in the event the buyer is notified of the possibility that a trust exists) and a deed executed by all of the trustees, in addition to a deed executed by all of the beneficiaries. Simply, if everyone who could possibly take issue with the transfer of property has joined in the conveyance, the probability of any subsequent adversity is greatly reduced.