There was a time when I attended some pretty good schools. I know now that
most of the “students” were there without any clear idea why.
Mom and Dad sometimes had no idea how uninterested those kids really were.
But three months after graduation I had the honor to sit in the best school
I’d ever seen, in classes filled with young men who had orders to
go to war. Most didn’t end up going. Some did. But I noticed in
those classes a whole different kind of student. These eyes were not turned
away when the subject had something to do with staying alive.
I took a life-long lesson from the 3-month difference in those students.
People learn, look, listen, when they know the subject is important.
The lesson today is title insurance. For Realtors, title insurance is
about as interesting as conjugating verbs to an 8th grader. But, title
insurance is about as critical to a real estate professionals as calling
in artillery fire was once important to me. Title Insurance is not written
actuarially; that is to say, it is not based only on the statistical probability
that some people who claim to own, maybe even think they do own the property,
really do not.
By law, title insurance generally must be issued for the value of the
property, and only after someone trained a very long time, has searched
and confirmed the quality of title. This is one of the many reasons I’ve
said countless times in these articles that a strong, well-trained closing
agent is the traffic cop in a closing. What he or she does is the only
thing between the market we know and a hungry scramble.
But be careful, the same light that shows you the way can guide you astray.
Schedule A in any policy will tell you what is insured – and by
omission – what isn’t. An accurate legal description, and
quite possibly a survey, will be disclosed on Schedule A. Read it carefully.
Assume nothing. And remember that no policy can insure against something
not revealed by searching public records, or against something you could
only know by visiting the property, like an undisclosed tenant.
The devil hides in Schedule B. In every policy, Schedule B is the place
where the details lurk. There are very few treasures here, only exceptions
to Schedule A. And if malpractice doesn’t get a Realtor in Schedule
A, it can in B. That’s because A, the cover sheet, tells you what’s
insured, Schedule B, tells you what isn’t.
Suppose you’re a Realtor whose been hired to find a property for
your client to build an office. You find a perfect spot, your client pays
big money for that spot, and everyone is happy. Then you learn that the
property has a restriction to residential use. And to make matters worse,
that restriction is right there on Schedule B. You had showed up late
for closing – or maybe you skipped it entirely – and you did
not closely examine the title policy before closing. If there’s
no attorney in the transaction team, who’s going to convince the
owner that this Realtor did not commit malpractice?
That will be a very difficult conversation.
If you think this example is too elementary to ever happen, I hope you’re
right. But there are unlimited screw-ups that could have been the example,
and most aren’t nearly so obvious.
Finally, a gratuitous squiggle. Commercial closings are far different.
The above example at first look probably was handled exactly like a residential
closing. But that example caused a great surprise and exposure to liability.
Most commercial closings involve the transfer of contract rights, equipment,
and years of business history. Any time a Realtor gives an opinion about
a title policy, he is likely practicing law. But if he or she is not looking
at the title policy, then the Realtor must clearly tell the owner that
review of the title policy is an attorney’s job, and that the owner
should not rely on the Realtor for that.
(As a completely gratuitous aside, as a matter of personality, there’s
one thing I’ll wager most successful people – and lawyers
and Realtors – have in common. We all want people to believe we
know what we’re doing. Even, sometimes, if we don’t. Don’t
let your client believe you’re watching out for something, or that
you’ve “got it under control”, if you aren’t watching
or don’t know the answer. When Schedule B of a title policy has
the word “easement”, or “judgment”, or “lien”,
chances are that’s a clue that neither the title agent nor the Realtor
has an insurance policy that will allow him – or her – to
provide the answer to the question, “how will this affect the property?”
Sometimes in real estate, as in life, the quiet time after hearing that
question should be filled by, “I don’t know,” or more
accurately, “don’t look at me. That ain’t my job.”
It probably ain’t).
There are at least a dozen endorsements to a title insurance policy that
can be written by a knowledgeable closing agent representing a commercial
buyer. Get an attorney involved – early – to shepherd this.
The best advice I’ve ever heard about a commercial deal, and I don’t
remember who to credit for the advice – it is not original –
is that it takes a hundred sets of eyes to represent a buyer. The seller
needs only one.
This article was published in the Coastal Homes publication of the Northwest
Florida Daily News on October 6, 2018: http://www.coastalhomesfla.com/Olive/ODN/NWFLDNCoastHomes/