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/