LAND COURT VS. REGULAR SYSTEM

Today I’m going to talk about the two different systems for recording ownership of real property (land and buildings) in the State of Hawaii. The “Regular System” of recording land ownership comes from the traditional English Common Law and is a “race-notice” recording system which doesn’t determine ownership—it just identifies who recorded documents first. The Land Court System, established in 1903 in Hawaii, is a “Torrens Title” system of land registration where the State guarantees the title and ownership to those who are registered as an owner of real property. At first blush, it might seem like the Land Court System would be a better and safer way to own your property. In this article, I will explain why I believe it is less advantageous to own property in the Land Court System and why you might want to deregister your land court property if you own any.

Regular System “Race-Notice”.  All law school students across the country learn basic property law and the differences between “Race”, “Notice”, and “Race-Notice” jurisdictions. Hawaii has a “Race-Notice” statute which means that any person who acquires an interest in real property may record their deed, mortgage, or other document describing their interest in the property in the Regular System of the Bureau of Conveyances of the State of Hawaii. As long as she didn’t have notice of any other person’s rights to the same property that haven’t yet been recorded, then recording her deed or document will give her a priority if her claims to legal ownership or rights to the property are ever challenged or contested. This system does not declare legal ownership—it merely records documents in the order that they are received. So even though you don’t have to record your deed for your ownership to be valid, it’s a really good idea to do so, because if the person who signed over the deed to you subsequently goes and sells or gives a deed to someone else, then that other person can record their deed before you and as long as they didn’t know you had purchased the property before them, their recording of their deed before you will give them priority in settling the legal ownership of title to the property. This created some problems in the old Wild West when someone might do something fraudulent like sell title to the same parcel of property to two different people—or in some actual cases to 7 different people—before skipping out of town. In today’s world with escrow companies handling most real estate transactions, and with title companies selling you title insurance which guarantees your purchase of real property, there are rarely—almost never—any problems of this nature anymore.

Land Court System “Race”.  The main difference with Land Court is that the Land Court will issue a Certificate of Title, which identifies who the owner of the property is and all of the encumbrances (like a mortgage or a mechanic’s lien) attached to the property. The State guarantees ownership to the named owner on the Certificate of Title. If a document is not recorded on the Certificate of Title, it doesn’t affect the property. Also, the Land Court System is a “Pure Race” system so even if you have notice of someone else’s prior encumbrance or claim, if you record your encumbrance or claim in the Land Court System before them, you have priority over their claim—as long as there isn’t any fraud. Another difference is that adverse possession or squatter’s rights don’t apply to Land Court property. So isn’t this all good for the property owner? Not really.

Because the State guarantees the title to the property, they meticulously review every document presented for recording and many documents are unreasonably rejected by the Land Court when presented for recording. All name changes, marriages, and divorces have to be filed with a petition for a change to the Certificate of Title. With the Land Court the requested change is not considered valid until the document undergoes final review and approval which currently takes approximately 4 to 5 years. With the Regular System, the effect of recording the document is immediate. So you don’t know for sure whether your deed, mortgage, lien, or other encumbrance is valid with the Land Court until about 5 years after you’ve recorded the document. This can bog things down when you want to do transfers to a family member, a trust, or other transactions for estate planning or Medicaid planning purposes. It is significantly more time consuming and costly to deal with Land Court Property and in some cases family members have had to pay tens of thousands of dollars in legal fees to get title to their Land Court property because of problems that were not resolved by prior family member owners who are now deceased.

Thankfully, the State finally provided a way out of this mess a few years ago. As of 2011 owners of Land Court property may “deregister” their property from the Land Court System returning it to the Regular System of recording with the Bureau of Conveyances. That law also requires that all timeshare properties that were recorded in the Land Court must be deregistered to the regular system the next time there is a transfer of that timeshare property.  If your property is registered in land court or if you’re not sure whether or not it is, schedule a free consultation with Okura & Associates to determine whether you should deregister your property.

 

OKURA & ASSOCIATES, 2016

Honolulu Office  (808) 593-8885

Hilo Office          (808) 935-3344

 

Ethan R. Okura received his Doctor of Jurisprudence Degree from Columbia University in 2002. He specializes in Estate Planning to protect assets from nursing home costs, probate, estate taxes, and creditors.

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This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.

 

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