Title Insurance and Survey Review: What You Need to Know

Title Insurance and Survey Review: What You Need to Know

The Title Commitment

1.1 Overview.
A Title Commitment is a promise to issue an insurance policy on a piece of property. It’s equivalent to a binder for other types of insurance, which commits, or binds, the insurance company to issue the policy as set forth in the commitment. It is not a title insurance policy.

The Title Commitment is organized into five main parts: the insured, the amount of insurance coverage, the property being insured, what is required to insure the title and what is not insured—those matters affecting the property which in some way limit the free use of the property, usually called “title exceptions.” Most title exceptions are customary and do not affect the marketability of the property. A title search by the title insurance company will typically result in additional exceptions to title particular to the property.

1.2 Schedule A Identification Page.
As soon as you receive your title commitment, carefully review the information on Schedule A to ensure that the information referring to the parties, the property, and the insurance is correct. Ensure also that the real estate contract governing the transaction is consistent with the title insurance commitment. If you find any discrepancies between Schedule A and the contract, advise the title officer at the insurance company via a letter of instructions immediately.

1.3 Schedule B-1 Requirements.
Review this schedule on the title commitment to satisfy the title insurance company’s requirements to issue the title insurance policy at closing. Pay particular attention to requirements for powers of attorney, organizing documents for entities involved in the transaction, financing liens, tax and judgment liens and death certificates to avoid last-minute delays.

1.4 Schedule B-2 Exceptions to Title.
Schedule B-2 describes the exceptions to title—items not being insured over by the title company—including standard exceptions (listed below), taxes, and other burdens that will affect the subject property after closing. These include items such as covenants, conditions, and restrictions (CC&Rs); easements (for example, utility or access); possessors in interest at the property; discrepancies disclosed by a survey; mechanic’s liens; taxes and assessments not yet due or payable and special assessments not yet certified defects and other encumbrances including mineral reservations. The purpose of the Standard Exceptions is to limit the liability of the title insurer for matters that are not disclosed in the public record, or matters that would be shown by a survey or inspection of the premises. Title companies group standard exceptions at the beginning and list exceptions to title specific to the property uncovered by a title examination, such as lender liens, afterwards.

Requests and Revisions to Consider

Title exceptions may be removed or revised by the title officer based upon further review and/or documentation supplied by or on behalf of the landowner. Many Standard Exceptions can be removed either by a Comprehensive Endorsement, or by an affidavit from the landowner. A properly certified survey will typically be required to remove numerous Standard Exceptions, but may result in additional Specific Exceptions shown on the policy in lieu of former Standard Exceptions. Affidavits and acceptable proof that liens listed as exceptions may suffice to remove them as well.

Survey Review: Why and What to Look For

A property survey is often extremely helpful in obtaining a clear understanding of the condition of title for the land subject to the real estate transaction. The survey will disclose matters such as zoning, setbacks, distances, north orientation, easements, boundaries, monuments and possible encroachments and environmental issues. The reviewing attorney should confirm that the legal description corresponds with both the boundaries shown on survey and with the legal description set forth in the real estate contract. The reviewing attorney should also confirm items disclosed on the survey such as right-of-way issues, access, contiguous properties, parking space count, floodplain matters and so forth. Finally, the survey certification should be examined and verified.

Beneficial and Burdensome Easements

An easement is the legal document, signed by the landowner, which provides a [typically permanent] right authorizing a use on or of the land or property of another for a particular purpose. Easements ordinarily involve at least two land parcels. Easements create benefits and burdens on parcels of land. One parcel acquires a benefit and another is subject to a burden and vice versa. A “benefit” is an appurtenance to a recordable or recorded interest in a parcel and “burden” is a restriction or limitation on the use and enjoyment of a parcel that attaches to a recordable or recorded interest in a parcel. The land gaining the benefit of the easement is also said to be the dominant estate (or dominant tenement), while the party granting the burden is the servient estate (or servient tenement).Unlike a license, the easement “runs with the land,” and is therefore part of the chain of title for the benefited and burdened parcels of land. A right-of-way is the actual land area acquired for a specific purpose, such as a transmission line, roadway or other infrastructure. An easement is a land right document, and a right-of-way is the physical land upon which the facilities (transmission line, roadway, etc.) are located. Easements are further classified into subsets based on use such as public and private easements, affirmative and negative easements, appurtenant and in gross easements, and floating easement, and can be created in multiple ways, whether by document, intention of the parties or by the courts.

Determining the Best Course of Action When Dealing with Title Defects and Encumbrances

Title defects and encumbrances are typical in real estate transactions, and the real estate attorney should thoroughly understand the condition of title before seeking to cure title defects and removing encumbrances. Due diligence including a thorough review of the title commitment and survey is incumbent at the outset. The prudent attorney will then need to decide whether a business or legal solution best serves the interests of his/her client[s] and then proceed. In some cases, the interests of the parties are aligned against those of the title company, and in other cases, the title company can be a valuable ally in resolving title defect and encumbrance problems.

The Title Policy and Endorsements

6.1 Overview.
A title insurance policy is a contract of indemnity that promises to pay for a loss [1] up to the face amount of the policy [2] if [i] the state of the title is different than is set out in the policy and [ii] if the insured suffers a loss as a result of the difference. A title insurance policy may cover both claims arising out of title problems that could have been discovered in the public records and ‘non-record’ defects that could not be discovered in the record even with the most complete search. A title insurance policy will protect the insured for as long as the insured [and typically certain types of successors] have an interest in the property. The title insurance provides monetary damages, but does not insure that the landowner will obtain the property back if there is a title defect.

6.2 Types of Title Policies.
There are different kinds of title policies. An Owner’s Policy assures a purchaser that the title to the property is vested in that purchaser and that it is free from all defects, liens and encumbrances except those listed as exceptions in the policy or are excluded from the scope of the policy’s coverage. It also covers losses and damages suffered if the title is unmarketable, and for loss if there is no right of access to the land. A Lender’s Policy is issued only to mortgage lenders, and ordinarily follows the assignment of the mortgage loan, meaning that the policy benefits the purchaser[s] of the loan if the loan is assigned, or sold. A Construction Loan Policy is also available in many states for construction loans. Title insurance for construction loans requires a Date Down endorsement that recognizes that the insured amount for the property has increased due to construction funds that have been vested into the property. In commercial real estate transactions, there are basically two types of title insurance– the California Land Title Association “Standard Coverage” (CLTA), and the American Land Title Association “Extended Coverage” (ALTA). The CLTA policy covers matters affecting title, that occurred in the past and that are not specifically excluded from the policy terms. Key coverage guarantees that the insured has a marketable interest in the real property, ownership of title, and so forth. An ALTA Policy covers what the CLTA Policy covers, plus matters that are not “of record,” and matters that are not shown on an ALTA Survey, such as unrecorded liens, encumbrances, taxes and assessments; encroachments; unrecorded easements, and items disclosed by a survey. An ALTA policy requires de minimis a physical inspection of the property and more typically a survey. Neither an ALTA nor a CLTA policy covers matters affecting title such as laws, ordinances, regulations, and policy powers; rights of eminent domain; matters controlled by the seller/insured; or creditor’s rights claims.

6.3 Title Policy Endorsements.
All title companies offer endorsements to correct or modify the exclusions of a title policy or to add additional coverage. The prudent real estate attorney will examine the condition of title and advise his/her client regarding endorsements title companies typically offer, or even one[s] needed in a unique situation. Some of the more commonly recognized Title Policy Endorsements are: Comprehensive, Access, Survey, Zoning, Assessments, Contiguity [if applicable], Environmental Protection, Creditor’s Rights, and Fairway. Since each real transaction is unique to its own facts and circumstances and thus justifying necessitating the involvement of a lawyer, however, a lawyer should bring to bear his/her unique experience and insights to protect the client with title policy endorsements tailored to the client’s specific needs.

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