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.

This year, hurricanes, with record rain, storm surges and winds, have resulted in severe damage to both commercial and residential buildings, mold contamination, and significant interruption to businesses in the impacted areas. Several Caribbean islands have been wiped away, Key West is unrecognizable, and Houston may have lost more than 150,000 homes. For most of us, luckily, the damage was less severe. My wife and I have leaks in our roof and elsewhere and lost a window (but gained an indoor tree). We lost power for about four and a half days. Friends in South Miami are still without power as of the writing of this post.

The legal implications of the hurricane aftermath extend well beyond mere rebuilding. Mold contamination and water intrusion must be addressed and properly remediated. Design and construction defects may be alleged to have exacerbated the extent of the damage from the hurricane. Employers may face workers’ compensation claims from employees and also may have vacation and lost wages concerns. Insurance coverage may be at issue. Construction costs may have escalated causing losses to builders or developers. Building permits and development approvals may expire due to delays caused by the hurricane. Condominium associations may not have sufficient reserves to act on emergency repairs. Construction licensing regulations may affect the ability to commence repairs and provide penalties for failure to engage properly certified contractors.

So what to do?

  • Make sure you and your family, employees and customers will be safe in your home or building.
    • Are there electrical system damage and risks?
    • Is the water safe to drink?
    • Is there a risk to the structural integrity of improvements?
    • Other Physical Hazards (don’t panic, but snakes and scorpions like piles of debris).
    • Contamination? Such as leaking petroleum tanks, chemical spills and the like.
  • Address potential health risks, whether mold or risky property conditions.
  • Secure your property and protect it from potential or further loss of property value.
  • Deal with Insurance.
  • Deal with Government Agencies such as FEMA
  • Deal with FP&L’s reimbursement programs.
  • Check with your mortgage lender. The lender may have the right to collect insurance proceeds and disburse the funds as repair and rebuilding proceed.
  • Only then commence to restore your property. Use only licensed and insured contractors. Where required by law, obtain all necessary permits and approvals. If you are part of a condominium or property owners’ association, make sure all Board approvals are obtained.
  • Get on with your life

Our lawyers have assisted clients in resolving insurance disputes, negotiating agreements in connection with assessment and remediation services, resolving design and construction defect claims,  implementing programs for addressing employee benefits, preparing hurricane and disaster response plans, and in finding their way through myriad environmental regulations.   In one recent example,  we resolved an insurer’s denial of coverage for water damage based on a theory that the building envelope was defectively designed or constructed and that the damage was not caused by a windstorm (as provided in the policy). By engaging the proper experts, a successful argument was made that the building envelope was properly designed and constructed and that it was indeed the hurricane-force winds that caused the water intrusion.

In another example, we assisted a client in requesting an extension of the expiration date for various development approvals that could not be met due to the direct delays of the hurricane, the difficulty in obtaining materials and the need to redesign to address increases in construction costs.

In addition to helping guide our clients in making proper recovery efforts, we are also focusing our clients’ attention on preventative measures to avoid future repeat damage and liability. We have found that many building and business owners have been hesitant to expend significant sums in prevention, in part to the belief that the recent hurricane landfalls in Florida were merely a fluke.  Whether global warming or a regular climatological cycle, it appears that the Atlantic hurricane season has been on an upswing that may continue for a decade or more. Proper preparation can lessen the business impacts and speed up recovery efforts.

 

In a prior post, I wrote about the need for surveys in real estate transactions (see post HERE). I can’t emphasize this need enough.  I started that post, however, with the premise that clients look for ways to save money, sometimes, and I emphasize sometimes, there is a way to save money on the cost of the survey by updating and recertifying the prior or an existing survey.  To do this, you need to first obtain a prior survey from the seller.  This is not always an easy task.  In residential transactions, for example, sellers aren’t usually very good about keeping their paper work together in one place.  Finding old commercial surveys is easier.

But just because you have a prior survey doesn’t mean you can have it updated or that an update will be cost efficient. If the prior survey is relatively new, the surveyor should be able to go back to the property to confirm the boundaries and that there are no new improvements.  The surveyor will review the new title work and re-certify the survey at a cost which is less than the cost of a new survey.  Keep in mind that this cost may be nominal for residential surveys as residential surveys aren’t terribly expensive.  But on larger, commercial surveys, the cost difference could be significant.

If the survey is several years old of if you know or suspect there have been new improvements to the property since the date of the prior survey, then a new survey will be required. The surveyor will have to do field work to confirm the boundaries and locate the improvements.  If a full ALTA survey is required, monuments and corners must be located and set so it is unlikely that an update will be possible.

Survey updates can also save time. This is important in those instances when you have to close on short notice.  But if a new survey is required, delaying closing to allow time to obtain the survey is the better course.

Survey updates are useful and great tools in the right circumstances. When you can use them, the cost saving is an added benefit.

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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        I love having a good commercial broker on my team. A good broker is much more knowledgeable about the economics of a potential deal than I will ever be and understands the market better than me. A broker who knows his or her stuff will have done the heavy lifting on putting the deal together, negotiating the essential terms and completing initial due diligence before I am brought into prepare the operative documents and close the transaction. When we get to sticky issues, the best brokers can play good cop to my bad cop or vice versa.

             But sometimes, you get agents, and I am purposefully switching to the term agent here, who get in over their head. These agents should not be handling commercial deals. I am talking specifically the agents who are residential agents who attempt to get involved in commercial deals. Either they see an opportunity for a bigger commission and believe that commercial deals are no different than the house closings they are used to closing or, they are working with a friend or relative “as a favor” (and the commission is an added bonus). When a residential agent is involved in a commercial transaction, I, as the attorney, have to take extra special care with my client because I know that the client has not been represented well before engaging me and is likely not sophisticated in the world of real estate.

             Just the other day, I got a call from an agent who was referred to me by a friend of a friend. She was representing a client who was going to open a new café in the Edgewater area of Miami and needed a lease reviewed. Of course, this was an “urgent” matter and the lease had to be signed by the end of the week. The agent wanted to know if I could review the lease by the end of the day. My alarms started ringing. I asked the agent why the rush. She told me that the landlord had a lot of interest in the space and the shopping center was very desirable. I told the agent that I could begin reviewing the lease that day, but there was no way that I could finish it by the end of the day. Without asking, I told her that I could surmise the length of the lease and that to give it a thorough review, I could not read it that quickly. But more importantly, I asked the agent if she had done any due diligence on the property. She was befuddled. What did I mean? I asked her if the space was zoned for a restaurant. She told me that it was previously used as a Papa Johns so zoning wasn’t an issue. When I told her that because Papa Johns generally had no seating and that because the client’s café likely would, zoning might be an issue. In addition, if any alcohol was going to be served, zoning and use issues could also be an issue, not to mention liquor licensing. Had she checked any of those questions? The agent said she had not. I asked her who was going to be paying for the TI and how long the TI would take. Did the client need the pizza oven? She had no answer.

             We chatted a little longer about other issues that might come up in the lease and I explained that these were just a few of the reasons why it might take me longer than the day to review the lease. She thought that these were very good reasons and that she would definitely give my name to the client for her to call me to discuss my fees. I never heard from the agent again, nor did I hear from the client. I can only wonder whether the agent ever related my concerns or whether she was too embarrassed to let the client know that if she signed the lease, she was setting herself up for big time failure.

             It is nice to be able to throw business to your friends and family. But it is more important to have the right people working for you. Your friends, if they are really friends, should refer you to someone with the proper experience to help you properly. In the case I just mentioned, the agent should have referred her client to an experienced commercial broker who specialized in restaurant leases. A good broker not only would have steered the client into a proper property and lease and at least done some preliminary due diligence, but he would have likely paid the agent a referral fee. Everyone wins in that situation.

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