I have written previously about title commitments and policies and surveys and the importance of the review process. Perhaps I haven’t discussed the importance of knowing who you are working with and what their abilities are.  Taking that back to the fist step, as the buyer of real estate, how do you assure that you can work with top notch title professionals.  The basic rule is that the person paying for title insurance chooses the agent and underwriter.  Because this is a cost item, and in Florida, a significant one, sometimes buyers and brokers want to negotiate the cost over to the seller.  This is a bad idea as it gives the seller control of the title process.  The seller selects the agent and the underwriter and the buyer is stuck with whatever is presented and is at a disadvantage when it comes to resolving issues.

I can tell countless horror stories about having to work with the other guy’s title company, on large deals and on small deals, going back many years. Needless to say, when my client controls title, the process and result goes much smoother (note, in Florida, attorneys may act as title agent, meaning we issue the policy for the underwriter).  I select the underwriter I feel is appropriate for the deal.  I have long relationships with examiners and underwriters and I know that the commitment I receive will be thorough and if there is a problem, we will jointly work to solve it.  It won’t be thrown back at me without a solution.

More often than not, when the other guy is in control, the opposite occurs. We find problems that the title company missed.  We run down the solutions when the title company should.  We argue with underwriters.  Product and documents are not timely delivered. Because it is not my transaction, I can’t go around the agent even if I have a relationship with the examiner.  Deals stall or even die.

Recently, my buyer client signed a contract prior to contacting where he agreed to pay for title but use the seller’s title company. This was a double no no.  The title commitment appeared clean.  The seller provided an unsigned, unsealed survey dated just 10 months prior.  However, the seller never received the final survey.  Naturally, the title company was unwilling to delete the survey exception based on this survey.  We tried to contact the surveyor to get a signed copy and update the survey, but the surveyor had gone out of business.  We therefore obtained a new survey.  The new survey showed us that there was no access to the property from a public road.  Therefore, the title was not marketable.

Presumably, the title company had based its commitment on seller’s prior policy, issued less than 1 year ago. I asked numerous times for a copy of the prior policy and for an explanation as to what the title company would require in order to insure access.  I got neither.  The agent would not allow me to speak to the underwriter.  After 3 weeks, I was finally able to speak with the underwriter from the prior title company who explained to me that the prior policy had made exception for the access issue specifically.  Therefore, the title company either never received the prior policy or ignored it.  Either way, they kept silent.

We eventually received documentation from the county enabling the title company to insure access and allowing us to close. But, the point is that the other guy’s title company did a horrible job.  It missed the access problem initially, refused to explain the problem until I figured it out from the prior title company and then wouldn’t tell us how to resolve it for another week.  They delayed the closing by a month and a half.  All this happened because I did not have control of title because the contract gave it to the other guy.

In another on-going case, the other guy’s title company has taken over 6 months to issue the final title policy.  After months of pleading and finally, threats, we received the policy.  It was wrong.  It did not even match the marked up commitment issued at closing.  The delay in issuing the final policy has delayed our client in re-financing its property.  Our new title search for the new loan policy has uncovered potential title problems that should have been resolved when we bought the property and were never shown on the title commitment.  But other guy’s title company never raised these potential issues.  If/when we get the final policy, we might have to file a claim if the new underwriter is not satisfied that the potential issues have been resolved.  I really wish the client had not negotiated away the control of the title in this case.

Whenever possible, do not negotiate the right to control title away. The cost of title insurance is a cost well spent to insure that your deal will close the way you want it to close.

There comes a point in every purchase transaction, residential or commercial, when a buyer receives a title commitment or ta title report, setting forth the status of title to the property being purchased. This is the moment when we know whether there are unforeseen problems that have to be addressed before closing, or whether we have to delay closing or sometimes, terminate the contract.  Generally, buyers don’t see the commitment or leave it to their attorneys to sort through the issues.  Frankly, this isn’t the worst practice to take.  Buyer’s, developers and investors have plenty to focus on to get to the finish line, whether it is moving, financing, construction issues, leasing or a myriad of other issues and title is technical.  There is little that the buyer can do to solve the problems that might arise.  But, it isn’t a bad idea to know wat are some of the things to look for in reviewing a commitment.

In a previous post, I have given a complete overview of title insurance (see post HERE).  But that was more of a technical look at title insurance.  Practically speaking, the review of a title commitment is very simple.  A commitment comes in 3 parts.

  1. Schedule A – This is the cover page of the Commitment. It tells who will be insured (owner and lender), the amount of insurance, who currently owns the property and the estate or interest of the land to be insured. All of this should be checked for accuracy. The legal description of the property to be insured is also referenced and attached on an exhibit. The legal should be compared to prior deeds, policies and surveys.
  2.  Schedule B-1 – This is a “checklist” of items that need to be completed in order to issue the final policy. Most of the items on this schedule will have to be done by the Seller (ie: pay off the existing mortgage, pay outstanding taxes and liens, provide authorizing resolutions). But, some will have to be provided or performed by the Buyer (authorizing resolutions to execute the mortgage, satisfy judgments against the Buyer). Buyer’s attorneys check to see what their clients must provide and make certain that Sellers deliver what they are supposed to.
  3. Schedule B-2 – This is the meat of the Commitment. It contains all of the exceptions to Buyer’s (and Lender’s) title that will appear on the final policy. Each of the exceptions must be reviewed to determine whether any affect or restrict Buyer’s use, or intended use of the property, create any unforeseen obligations for the Buyer such as assessments or 3rd party lien rights, or create easements or other rights which impact Buyer’s use or enjoyment of the property. Copies of easements should be provided to Buyer’s surveyor to be located on the survey so Buyer can assure that the easements don’t unreasonably interfere. This review of Schedule B-2 can’t be accomplished without reviewing each of the documents referenced on B-2.

 

No one should simply accept a Title Commitment as presented.  Every Commitment should be carefully reviewed and considered. Even matters that seem inconsequential at the time of purchase could have a big impact down the road.  It is important to consider whether exceptions are proper for the particular property and whether they could have an adverse impact now or a later date.   Resolution of these matters before closing is cheaper, and perhaps at the Seller’s or title company’s cost.  Waiting until a problem arises after closing will assure that the cost is on the Buyer.

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        Title Insurance is an important part of every real estate transaction. The insuring of title to real property consists of two distinct steps:  1) the issuance of a preliminary report that describes title conditions, which will serve to limit the title insurance if issued (the “Commitment”); and 2) the final title insurance policy that may have all or some of the limitations to coverage spelled out in the preliminary title report.  The Commitment is really a contract to issue title insurance at a future date when the terms of the Commitment are complied with.

        The Commitment is an essential document in a real estate transaction.  Therefore, mastering the Commitment is an essential part of a successful real estate transaction.  Most real estate contracts specifically require one party to pay for and obtain a Commitment and an owner’s policy.  In the alternative, the real estate contract may call for the seller to provide the buyer either:  (1) evidence that the seller is the titleholder of record; or (2) evidence of the condition of title, along with a specific number of days for the seller to perfect title to the property.  The title evidence that is usually requested to meet this requirement in such a real estate contract is a Commitment.  In either case, failure to provide a Commitment could result in a default under the terms of the real estate contract.

        Schedule B-1 of the Commitment should be your checklist for closing. This Section lists all the requirements that must be satisfied before the policy will be issued.  The purpose of the requirements is to assure that title will properly vest, without exception, other than as set forth on Schedule B-2, in the proposed insured.  Everything is spelled out clearly in Schedule B-1.  All of the documents that you will need and the steps that you have to take to assure clear title are there for you in black in white.  You can simply make a copy of B-1 or add it to your over all checklist.  But until you have all of the items on B-1, you can’t close.

          Schedule B-2 contains the items that will not be covered by the final title policy to be issued.  It contains both the standard exceptions and the specific exceptions to title.  The specific exceptions are the matters that have been found after examination to affect the property and will not be covered when the policy is finally issued.  It is important to always carefully review the commitment and all of the exceptions.  Just because the commitment contains a list of exceptions does not mean that they all apply or are actually exceptions.  If you are representing a buyer or a lender, it is your job to make sure that title is accurate and beneficial to your client and that none of the proposed exceptions will interfere with your client’s proposed use of the property.  If any exception does not actually affect the property, request that the seller and underwriter delete it.  If the exception adversely affects the proposed use of the property, you need to figure out how to delete or revise the exception.  The art of title is negotiation.

         My favorite part of a real estate transaction is negotiating the title commitment. There are at least three people to negotiate a commitment with: the agent, the examiner and the underwriter. If you are the agent, obviously, you aren’t going to negotiate with yourself.  Your interest in negotiating the commitment is going to differ depending whether you represent the borrower or the lender.  But the seller, who has no insurable interest, often gets involved in negotiating commitments because when the title objection letter comes from the buyer, sometimes the best way for the seller to address an objection is to negotiate with the underwriter to change a requirement or delete an improper exception.

        When I receive a new commitment, I review the requirements and exceptions carefully. I review the underlying documents to understand why the examiner included them on the commitment.  I analyze what is going to need to be done to satisfy each of the requirements and make sure that the properties and people and entities set forth in the requirements are the same as those involved in my transaction or are properly related to my transaction.  If the connection is not obvious, I flag the requirement.  As to the exceptions, I read each one and make sure that none would adversely affect the property or the buyer’s intended use, or, if I represent the lender, would violate any term of the loan documents.  And, I make sure that the exceptions actually apply to the property and haven’t otherwise expired.

        After this review, I often have 2 lists, one is a list which I put in a title objection letter to the seller. But the other is a list which I discuss with my examiner, if I am the agent, or with the agent, if I am not.  This list will consist of issues that should be resolved by the title company as opposed to the seller, including satisfaction or deletion of inappropriate requirements and deletion of misplaced exceptions.  The caveat here is that the examiner is just a scrivener.  So if the issue is one where you can show that a document like a partial release was missed in examination, or a mis-spelled name appears, the issues can be quickly resolved.  But anything more complicated requires an underwriter’s attention.  As issues are resolved, Schedules B-1 and B-2 are revised and the Commitment updated.  And finally, at closing, documents are presented, executed, recorded, and the remaining requirements satisfied so that the final policies may be issued.

        The work that goes into insuring title to property prior to closing can be the easiest part of a closing or the most difficult part of a closing. Sometimes one issue can delay a closing for a many weeks.  It is important to take these issues seriously and to work with your attorney and underwriter to resolve all issues.

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How many times do clients, looking for ways to save money at closing, ask whether they really need a survey? Hopefully, not too often because a survey, and in particular, an ALTA survey, is required to satisfy the title insurance requirements to delete the survey exceptions and to issue a comprehensive endorsement (in Florida, a Form 9). In addition, surveys are necessary to identify and locate easements, reservations, rights of way, boundaries and encroachments which might affect the use of the property.

In some cases, the survey will be essential in identifying and resolving title problems that the parties, including the title company, didn’t know existed. I was recently involved in one such closing where 2 issues arose that, without the survey, problems might not have been identified. We were selling a 20 plus acre tract that was comprised of 10 parcels. The first issue arose when the lender requested a contiguity endorsement. This should have been easy because the parcels were obviously contiguous. However, the legal descriptions for 4 of the 10 parcels contained 30 foot reservations for a road way running north and south on the east portion of the overall property. The surveyor identified the road and listed is as “vacated per ordinance recorded at…” He executed a surveyor’s affidavit to enable the title company to issue the contiguity endorsement.

While the title company was aware of the ordinance vacating the reservations, the surveyor’s note and the survey itself also showed that the road extended into land to the south of the property to be conveyed. A search of the public records showed that the State of Florida owned that land and therefore, had an interest in the road. To properly vacate the road, everyone having an interest in the road would have to execute a deed. While the Seller could certainly do so, a second deed from the state would be required. Therefore, unless the State provided a deed, the contiguity endorsement could not be issued and exception would be taken for the reservation of the road.

The second issue was similar but even bigger. A second public road existed behind the property. At least, that is what the survey showed. The survey showed the property line to be at the road’s right of way line. The Buyer believed that it was to acquire the 60 foot road based on the same ordinance, which also vacated that road and created a replacement road for access (to I-75). The vacated road was adjacent to the right of way for I-75. The adjacent right of way is used only for dry retention. The surveyor re-drew the survey based on the ordinance and vacation. While that could solve the problem, the title documents did not match this solution because the ordinance alone did not re-convey the property to the Seller. No document of record did and, by statute, the road would go back to the condemning authority, the last owner of record, FDOT.

The survey caused a detailed search of ownership of the vacated road. The title company found a Stipulation between FDOT and the Seller pursuant to which FDOT agreed that if the City vacated the road, FDOT would deed title to Seller while retaining an easement over the road until Seller provided the replacement road. FDOT would confirm this in writing to City upon request. We found a copy of the letter FDOT wrote to the City supporting the vacation and acknowledging its easement interest, but, the deed must not have ever been executed and delivered.

These issues might not have been spotted without a survey and title insurance might have been improperly issued opening up significant exposure on the policy. However, the survey alone could not solve the problem. Surveys work in conjunction with good title examinations and strong lawyers. Don’t forget to survey.

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One of the most ridiculous TRID disclosure requirements is the method of showing the cost of title insurance. Because the CFPB only cares about the costs attributable to the loan closing, closing agents are required to set forth the cost of the loan policy on the Closing Estimate as if it were the only policy to be issued at the closing. This results in 1) showing a higher cost for the loan policy than the actual cost, and 2) showing less than the true cost for all title insurance being purchased because the owner’s policy is omitted. The CFPB’s rationale is that the loan policy is required for the loan and the owner’s policy is optional and unnecessary. Is CFPB telling buyers that the loan policy will protect them in the event of a title defect?

That seems to be the message CFPB is sending, even if is unintended. While I could give a technical explanation of the insuring provisions and the coverages by owner’s and lender’s policies, a simple reading of Schedule A of both policies provides the easy answer. Schedule A, Item 1, name of insured, tells the story. On the loan policy, the lender is the insured, not the buyer. Only the lender is covered by the loan policy. Therefore, if there is a defect in buyer’s title and the buyer has not obtained its own title policy, lender will be covered. Buyer will not.

The CFPB title premium disclosures are also legally inaccurate in Florida. The cost of the loan policy in Florida is to be issued at the simultaneous rate where an owner’s policy is issued at the same time and the owner’s policy is greater than the loan policy. Simultaneous rate is $25. The required CFPB allocation of any amount greater than $25 to the loan premium is wrong and legally, uncollectible. The Florida Bar’s Real Property and Probate Law Section has created a separate disclosure to be signed at closing which shows the premium allocation so that closing agents can comply with both the TRID requirements and Florida law.

Owner’s policies should be issued at every real estate closing in addition to loan policies (when applicable) in order to protect the buyer. CFPB’s efforts to protect the consumer are confusing and may have the unintended consequence of buyers attempting to opt out of necessary protections.

 

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