Acquisitions, sales, or leases of the real property by governmental bodies or quasi-governmental bodies (e.g., airport authorities, port authorities, correctional facilities, water districts) must be carefully examined in order to ascertain that the entity is acting within the scope of its statutory or delegated authority.
In no case should it be assumed that the entity has any implied power, authority, or capacity. The authority of a nonchartered governmental entity must be found in a legislative enactment. In the case of a chartered agency, authority must be found in the provisions of its charter.
It is common for conveyances and leases executed by governmental bodies or quasi-governmental bodies to be attacked on the grounds that the entity executing the instrument does not possess the necessary legal capacity to execute the documents; or that the instrument is not executed by the proper officials; or that it fails to contain the prescribed recitals (e.g., recital that mayor and clerk are signing pursuant to Ordinance No. 12).
Title Insurance Considerations Regarding Governmental Authority And Real Estate Transactions
In an acquisition, sale, or lease of real property by a governmental body or quasi-governmental body the following matters must be ascertained and satisfied:
- Has the governmental entity the legal power or capacity to hold title to real property in its proper name?
- Is there any statutory or charter requirement to be complied with in connection with the acquisition, sale, or lease of real property?
- How does the state statute or local charter regulate the sale or lease of real property?
- Is the real property impressed with any kind of public property qualification or condition? If so, include it in Schedule B of the policy.
- Does the charter require that sale or lease be advertised at a public auction? To the highest bidder?
- Who is the officer legally authorized to execute the instrument?
- Is any special instrument necessary; such as special warranty deed or warranty deed?
- Is any special recital required in the transaction documents in order to be in compliance with statutes and/or charter?
- Is any special acknowledgment necessary?
- Does the consent or approval of any other governmental authority need to be obtained in connection with the transaction, such as the State Board of Education, the City Council, or County Board of Supervisors?
In a mortgage or encumbrance of real property by a governmental body or quasi-governmental body:
Governmental bodies or quasi-governmental bodies are not empowered to mortgage real property unless specifically authorized by federal law, state law, or charter.
Furthermore, even if sanctioned by a specific authority, the possibility of foreclosing against the governmental entity may present very serious and complex legal problems, i.e., marketability of the loan due to problems in foreclosing.
In this respect, approval of the National Legal Department must be obtained before issuing a commitment to any lender.