A buyer takes title to commercial property with an underground gas main running through the middle. Neither the buyer nor his mortgage company had any idea that the property was simply unbuildable. Both lost hundreds of thousands of dollars. How would something like this happen?
Your real estate contract calls for a title commitment to be issued relatively soon after signing the contract – usually 15 days. That commitment will show every recorded document that touches on the land to be transferred. When a title policy is issued it will insure against encroachments, like this gas main, but it will only do that if there is a survey. There is only one way to get an adequate survey for commercial property.
A title insurance commitment is an underwriter’s contract to insure a piece of property. By law it can only be issued after a title search. The commitment should be returned, as soon as it is prepared, to the closing agent who requests it. That commitment will be given immediately to the buyer (or buyer’s agent) with a copy of all documents that appear in the chain of title. When the closing agent gets the commitment, she must send it to the surveyor with a cover letter that says something like the following:
“I include with this memo commitment #____, and a copy of each recorded exception shown therein. These exceptions must be drawn on your survey.”
This is step one for an agent closing commercial property. When the agent gets the survey, several days before closing, she or he will compare the commitment she sent to the surveyor to the survey she received in return. The legal descriptions must match. The closing agent will highlight every encroachment shown on the survey and will highlight the access to the property. At closing, a careful closing agent will ask the buyer and lender to initial the survey everywhere highlighting appears.
Only by following these steps can a closing agent be sure the title insurance policy covers all easements and encroachments on the property.
Obviously, timing is important because these steps must occur in order.
During the period from late in the last century to the first ten or so years of this one, real estate had no rules. Loan to value ratios, financial qualifications for loans, and loan documentation were all ignored in order to close real estate faster. Appraisal rules were disregarded to qualify borrowers who never should have gotten loans.
The mistakes that happened in the closing described above occurred because everyone was in a hurry. A closing agent allowed herself to be rushed, and a survey was presented at the closing table that had never been seen before. That survey showed lines that were not explained on its face, but which turned out to be this underground gas main. Years after closing, the property still can’t be developed, the mortgage is in foreclosure, and the property created financial misery for everyone. There is no title insurance because the gas main was actually shown on the survey.
Real estate is a detail business. A careful closing agent must have the courage to serve as a traffic cop, sometimes to some very powerful people who refer lots of business. A professional closing agent will slow things down if they should be, even if every other voice in the room screams to hurry.
The answer to my rhetorical question is that there is no similarity between real estate closings and a game of poker. Real estate closing is like a good airline flight – there is no room for drama.
A great real estate closing agent may very well be your best friend, precisely because she will not gamble with any detail in your closing. It is okay to love your closing agent.
President, Old South Land Title, Inc.
President, Chesser & Barr, P.A.
Shalimar, Crestview, Niceville