Saturday, May 14, 2011

Look a Gift Deed in the Mouth

Look a “Gift Deed” in the Mouth - Watch Your Language When Transferring Real Property as a Gift.

Posted by Stephen D. Richman, Esq.
1:28 PM
Deeds; Conveyance and Recording Issues, Purchase and Sale, Real Estate Law 101, Watch Your Language

Sunday, February 13, 2011

Most practitioners and others in the real estate business know what a quit claim deed, a limited warranty deed, a general warranty deed and a fiduciary deed are (See Ohio Revised Code §5302 et. seq. for the statutory language in Ohio required to create the same). While a “gift deed” has no required statutory form, failure to use “required magical language” has recently resulted in two disgruntled, former property owners who thought they had a gift that couldn’t be taken back.

In Dassel v. Hershberger, 2010 - Ohio - 6595 (OH CA 4), Jonathan and Mary Hershberger received a tract of land that they thought was a gift from elderly sisters Ruth and Rosemary Dassel. The Hershbergers were good friends of the Dassels and did odd jobs around their house for many years. In 2008, one of the Dassel sisters (Ruth) became terminally ill and was hospitalized. Five days after Ruth came home from the hospital, in need of full time care, the Hershbergers were given a deed conveying approximately 119 acres of property that was situated in-between the Hershbergers’ home and the Dassels’ home. No money had exchanged hands between the parties and while the Hershbergers testified that they promised to try and take care of the sisters for the rest of their lives, they denied making this promise in exchange for the property. Rather, they claimed the property constituted a gift for all of the past home improvements they made to the Dassel house. The Dassels, on the other hand argued that there was no intent to make a gift; they intended to transfer the property in exchange for the Hershbergers’ promise to take care of the Dassels until they died.

The Hershbergers did in fact move into the Dassel house, made improvements to the house, and initially cared for Ruth Dassel when she returned from the hospital. The stress of providing round the clock care, however, became too much for the Hershbergers, who moved out after a month. Shortly thereafter, the Dassels sued the Hershbergers for breach of contract and demanded rescission of the deed and return of the property.

The Fourth District Court of Appeals affirmed the trial court’s decision in favor of the Dassels. The court held that the deed transfer was not a gift, rather, it was a contract of care and maintenance that the Hershbergers breached, entitling the trial court to rescind the transfer as an equitable remedy for the breach. The Fourth District simply looked at the Deed on its face, which stated “for valuable consideration paid”, and following Ohio precedent held that when a deed contains such a recital, it should be construed as a deed of purchase, and no extrinsic evidence may be permitted to show, instead, it was intended as a gift. Actually, extrinsic evidence helped support the court’s holding that the transfer was not a gift, as the Statement of Reason for Exemption from Real Property Conveyance Fee indicated no conveyance fee was due because the transfer was “ to or from a person when no money…is paid…and the transaction is not a gift”. Perhaps the intent really was to transfer the property as a gift, but the Hershbergers wanted to avoid the conveyance fee (as the conveyance fee exemptions regarding gifts are only applicable to gifts to charities, and gifts between spouses, children, heirs or trust beneficiaries, trustees...). If so, one important lesson from this case is that avoiding the conveyance fee should not be the overriding factor in property transfers.

However, the overriding moral of this story? “When construing a deed, a court must examine the language contained within the deed, the question being not what the parties meant to say, but the meaning of what they did say, as courts cannot put words into an instrument which the parties themselves failed to do”. McCoy v. AFTI Properties, Inc., Franklin App. No. 07AP-713, 2008-Ohio-2304 at Par. 8. In other words, “Say what you mean, precisely, or a judge will tell you what you meant”.

If a transfer of real property by gift is truly intended, the words “Gift Deed” should be the heading. More important, the consideration should be “for love and affection”; not, “for valuable consideration”. Alternatively, if the consideration for the transfer is for support and maintenance of the Grantors for the rest of their lives, those terms should be spelled out in the deed (better yet, the specific provisions should be detailed in a contract).

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