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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.

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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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