The number of residential property sales exploded over the past few years, but the hot real estate market may have driven at least one unexpected consequence when it comes to surveys. Amid the highly competitive market, some home buyers may have been told that it would take longer to close a transaction since surveyors were overwhelmed with numerous orders. Thus, some buyers elected to waive surveys. After purchasing the property, however, buyers may have discovered encroachment matters impacting their property or their neighbor’s property, or that a boundary line is in a different location than originally believed.
Every year the claims team receives several notices involving survey matters and boundary disputes. Here are a few scenarios that serve as a reminder about the importance of surveys, and what you can do when a transaction does, or does not, include a survey.
Scenario One: A new buyer does not obtain a survey at closing. She is visited by her neighbor a few days after purchasing the property. The new property owner believes it’s going to be a friendly visit but instead the neighbor says, “your driveway and garage are encroaching on my property, and we want it removed in 30 days or else you will be hearing from our attorney.”
Typically, such an encroachment would have been shown in a survey. Further, the title policy may not offer much relief to the beleaguered buyer in such a case.
A title policy will likely have reflected a standard survey exception in Schedule B which may read, “Any discrepancies, conflicts, or shortage in area or boundary lines, or any encroachments or protrusions, or any overlapping of improvements that would be disclosed by an inspection or an accurate and complete land survey of the Land.” Since a survey was not obtained in this scenario, this may result in the matter not being covered under the title policy.
Scenario Two: This next situation involves a seller who owns a large tract of land and decides to split the tract into three smaller lots. The seller only wants to sell and convey one of the smaller, unplatted lots. The legal description in the seller’s deed is for the entire larger tract. How will the parties determine which of the three tracks is to be sold and properly identify the location of the property and its legal description to include in the deed? The purchase agreement most likely is not clear and will require additional questions and written clarification between the agent and the parties as to what is intended to be conveyed in the transaction. Unfortunately, without clarification in such cases, the parties may eventually find themselves in an expensive lawsuit.
In either scenario, if a survey is not requested and purchased at the time of closing, it is a good practice to have the buyer sign a document that the party understands a new survey is being declined, and to keep the document in the closing file. On the other hand, if a survey is obtained ahead of closing the transaction, consider the following:
Review the survey for accuracy of the survey and the survey certification. Are the correct parties identified? Review the legal description. Do you have a signed and dated survey from the surveyor?
Carefully review the survey to locate any items beyond the boundary lines or encroaching onto the buyer’s property.
Add any specific survey matters which are reflected on the survey as exceptions in the title commitment.
Provide a copy of the survey to the buyer (and lender, if appropriate).
As a good practice, have the buyer acknowledge receipt of the survey by having the buyer sign and date either the survey or a separate document confirming receipt, and keep a copy in the closing file.
Also, in certain jurisdictions, Survey Coverage or Survey Endorsement may be available for purchase to add coverage to an Owner’s or Loan Policy. If permitted in your jurisdiction to rely on a prior survey and an affidavit, discuss such a situation and the requirements with the Alliant National underwriting team before the closing occurs.
We understand not every case requires a new survey, but a buyer may find that a survey provides an understanding of what was conveyed and some peace of mind regarding their investment.
If you have questions, please contact the Alliant National claims team.
The “R” word is one of the most feared words in the marketplace today: RECESSION. There’s a lot of debate around whether the United States is in recession, but whether you call it a recession, slowdown, correction, or a normalization, it’s clear the market is changing.
As a title professional, now may be a good time to consider taking action, particularly if you’re already seeing some slowing in your market. New situations like this present new dangers and requirements, but they also present opportunities.
Let’s start with the dangers. The most obvious threats are reduced sales or revenues, which could threaten profitability and put pressure on cashflow. Those are troubling possibilities, but good management techniques can help you navigate these potential headwinds. Here are some steps to consider:
Keep a close eye on your business metrics
Get accurate revenue numbers and watch them carefully.
Seek realistic sales projections. Know what’s in your pipeline, and in your customers’ pipelines.
Watch expenses closely.
Know your “cash-burn” rate (i.e., how long you can operate at a loss).
Hope for the best, but make a plan for the worst
No one likes layoffs, but you should have a plan. Make this as soft as possible. You may consider salary “freezes” and percentage salary reductions as an option should conditions warrant.
Work with landlords, vendors, suppliers, and banks for more favorable terms.
Build a “war chest” or “rainy day fund.” Having cash-at-hand is prudent.
Consider a line of credit. Seasonal slowdowns, roughly October through February, may make cash flow challenging. One alternative may be to obtain a reasonable line of credit from a trusted, local lender that can be used for short term coverage of payroll or extraordinary expenses “just in case” it is needed. The line of credit option creates flexibility for expense management.
Having discussed the dangers, here are some new responsibilities you may face in a contracting economy:
Get your game face on
Things are a lot more competitive. There is more competition for each revenue dollar. Prepare your team to compete more effectively.
Keep a close eye on your competitors. Know what they are doing and where they may be looking to take market share, your employees, etc.
Take special care of your best customers. Know where your revenue is coming from. “Show the love” to customers who may be at risk.
Find partners you can trust. Look for loyalty, financial strength, and assess the risk of being betrayed. Some underwriters may put increased pressure on you to make minimums, or they may cut staff or divert resources to support their direct and affiliate operations while neglecting your needs. Find the partners that are going to be highly responsive to your needs so you can get your difficult deals closed.
Watch out for “bad moods.” Your team members may worry about slowing market conditions or even about being laid-off. Fear and stress can make it difficult to compete. Company culture is important. Stay close to your team and engage them. Get their input. Share your action plans.
Make new commitments. Revise sales projections and requirements for the sales team. Now is the time to invest in your team’s selling skills and marketing efforts.
Find efficiencies. It’s time to streamline processes and improve your systems. Seek ways to do more with less.
If you cope with the threats, fulfill your obligations, and have adequate financial capital, you may have the chance to take advantage of opportunities in a slowdown. Some of these opportunities include:
Improving the quality of your team
Upskilling – consider education and training for your staff including CE, CLE, and sales training.
One consideration is to hire top performers from competitors. Of course, you want to remain vigilant for competitors looking to “poach” your employees.
Become a bigger and better company
Now may be the time to consider purchasing a competitor for a discount to expand into new markets and to obtain new capabilities.
You may wish to rethink your customer experience and employee experience to give you a competitive edge.
Streamlining management and operations can help you become a more agile company. This might include bringing in new technology to do more with less and to improve turn time and accountability.
Consider making new offers – such as commercial transactions, education and training for your real estate agent customers, or new digital capabilities for customers such as mobile apps.
Regardless of whether the economy experiences a soft landing, hard landing, stagflation or a recession, anticipating what you might do in advance of these situations is essential to the success of title professionals. By planning ahead, you can overcome market challenges and adopt a new “R” word to describe your organization: RESILIENT. Of course, your Alliant National agency representative or agency manger is always available to discuss market conditions and ways to help your business thrive!
We’ve learned from the refinance boom and bust years that being a one trick pony in the title insurance profession is not the pathway to longevity. Diversifying your transactions with purchase, refinance, builder, REO and mobile home transactions is a good way to hedge your bets in the cyclical reality of the real estate market.
Commercial transactions can also be a great way to solidify your competitive position in the local market. However, many agents are a bit leery of taking the plunge due to the more complex nature of these deals.
Donna More, VP and Senior Underwriting Counsel for Alliant National Title Insurance Company, says that while she can understand an agent’s initial trepidation, there is a logical pathway for agents to move into the commercial end of the business, and Alliant National underwriting counsel can be a great resource as you are learning the ropes.
“I think an experienced underwriting attorney is key in these transactions,” More says. “We know right off the top what is going to come up. We can get the agent prepared, alert them on what they are going to need, and tell them what questions to ask – even before they get the search report – so they can avoid some surprises later on in the transaction.”
She notes that agents are hesitant to get into commercial because they don’t want to appear ignorant when questions and issues come up. But most of the tough issues will be resolved by underwriting counsel.
“We are going to be the ones who come up with methods of resolution, based on our professional experience,” she explains. “That is one of the big advantages we offer our agents. With our experience and knowledge, we are often able to predict what is going to happen, or what is going to be needed. We can already be thinking ahead to the best way to resolve potential issues.”
But let’s not put the cart before the horse.
There are some key steps you can take before venturing into commercial transactions. It’s also helpful to understand how the players’ roles are different and explore some of the elements that are unique to commercial transactions.
Learning about commercial transactions
The best way to learn the nuances of commercial deals, according to More, is first, to take on small deals in order to learn by doing; second, to work closely with underwriting counsel to get questions answered; and finally, to seek out educational opportunities.
“I recommend that agents who want to get into commercial and want to feel competent and prepared should take classes,” she advises. “There are always good takeaways from the commercial real estate seminars. Also, ask local attorneys what they recommend would be helpful to gain a higher degree of sophistication in commercial real estate.”
More says it shouldn’t be too hard to find educational opportunities, since bar associations and land title associations offer commercial real estate classes. Even if the class is geared towards lawyers, it can still give an agent insight into commercial deals, affording them a greater level of comfort, she adds.
More acknowledges that the most complicated commercial transactions are usually handled by attorney title agents but notes that there are plenty of non-attorney title agents who have been successful at developing a clientele with their existing real estate agent and broker customers who handle both residential and commercial transactions.
She also advises mining existing customer relationships for potential opportunities.
“Someone who bought a $3 million home and closed with you is probably a fairly successful businessperson and may be involved in buying and selling commercial properties,” she says. “Nurture those relationships.”
She also suggests getting immersed in the local business community and commercial industry organizations, especially the real estate associations like Commercial Real Estate Women (CREW) or NAIOP, the Commercial Real Estate Development Association (fka the National Association for Industrial and Office Parks).
“Being involved in the local commercial industry organizations is a very good source of knowledge and business,” More says. “Go to the local meetings and take advantage of the educational opportunities to build your confidence.”
How commercial title work differs from residential
Commercial transactions can be complicated, with more lawyers involved and often more parties to the transaction. In addition, the principals are often not individuals, but legal entities.
“The title agent needs to be very familiar with the types of legal entities in their state and what the requirements are for proof of good standing and proof of authority,” More explains.
She says an agent is also more likely to have to deal with ancillary issues, such as easements for access. Generally speaking, in a residential sale, the home is on a platted lot and there are no issues with access. But with commercial property, it could involve a landlocked parcel and you have to be concerned about access or the adequacy of access.
“The other important difference is how you deal with the lenders,” she says. “The lenders are going to expect more. In the more sophisticated transactions, there are going to be more requirements and different documentation needed. Even though you as the title agent would not be preparing the documents, you will have to familiarize yourself with all the documents in the transaction as well as get them signed as part of the package and recorded.”
More notes that construction loans are also more complicated for commercial properties and lenders will have a lot more requirements. The agent could also run into construction lien issues.
“Florida has a construction lien law that is very detailed and very complicated. That’s another reason why it’s so important to go to your underwriting attorney to get the guidance you need,” she advises.
Same basics, different pacing
The basics of the title and closing work in a commercial transaction is not very different from residential transaction.
“The agent needs to go through the commitment, see what the requirements are, and get familiar with the exceptions,” she explains. “It is especially important for a title agent to be able to distinguish what the parties are responsible for vs. what they are responsible for. And of course, they should come to underwriting as soon as they see something that makes them say, ‘I don’t know what this is.’”
However, More clarifies, the title agent must account for everything even if it is the sellers’ or buyers’ responsibility to actually perform the task or provide the documentation.
Sometimes commercial deals can be turned around quickly, but usually they take longer because the inspections and due diligence are more complicated, often involving permitting, approvals, DOT issues and access.
“In my seminars for Florida agents, I have always suggested checklists for any transaction, but it is most imperative in commercial deals,” More says. “Go through the contract. Check the timelines. Also, as the title agent, you need to share your title work with all parties – seller, buyer and lender. Sellers and their lawyers will have a much bigger role in a commercial transaction. The seller will have to come up with all kinds of documentation. On the buyer side, the lender will need to see the organization of the entity and will want to look at their books and balance sheets.”
And of course, the title agent will be involved in the curative work, even if it is only to give the seller guidance as to what will be required.
“In addition to keeping up with the timing, probably the most crucial part of what they do is keeping track of what needs to be fixed and how it needs to be fixed,” More notes. “That’s where we come in. They need underwriting to determine how to cure a problem or explore the alternatives available to fix an issue. We rate those alternatives – this is the best course of action or this is the option we don’t want to do.”
Final word
Commercial real estate transactions do require some expertise, but it is knowledge that can be acquired over time through educational opportunities and on-the-job experience with smaller transactions. But the most important resource you have at your disposal will always be the experienced and knowledgeable underwriting attorneys at Alliant National. We are always here to help you learn how to navigate this fascinating and challenging aspect of the title insurance business in order to take your agency to the next level.
I’m sure at some point in life, each of us has thrown up our hands and said, “I’m not worrying about the details, this is good enough.” Of course, when you deal with real property transactions, you quickly learn that the small stuff matters.
The claims team has seen several areas that can be typically resolved in the transaction or post-closing without ever rising to the level of a claim. Let’s look at three of those areas – Release of Liens, Release of Revolving Line of Credit / Home Equity Line of Credit, and Property Taxes – which all require attention to detail.
Release of Liens
Let’s say you’ve obtained the payoff letter from the correctly identified and verified lienor, closed the transaction, sent the funds to the lienor, and now you are moving on to the transaction. But wait! The lien is recorded in the county land records, so how are others to know it has been paid? Several lienors will handle recording a release in the proper county land records, but there are few lienors who fail to do so. Either the lienor sends an unrecorded release to their borrower, to the title company, or does not prepare one at all. In a few states, there are statutes that provide a timeframe in which a lienor must record the release after receipt of payment. In other cases, the instrument may have a clause that discusses the obligation of the lienor when the debt is paid. In all cases, as part of a post-closing, best practice process, a release or satisfaction should be promptly filed in the property’s county land records before the file is classified as completed. This may require a few follow-up communications with the lienor to satisfy this requirement, but it will be worth it in the long run.
Release of Revolving Line of Credit / Home Equity Line of Credit
The Revolving Line of Credit or Home Equity Line of Credit loans allow a borrower to draw funds, when needed, and the borrower can use the line of credit over and over while being secured with the property. Many closers may take the same steps as a typical payoff of a mortgage or deed of trust, but there are a few additional steps required to properly close down and have the loan released from the property. Just sending the payoff funds is not enough.
To properly address these types of loans, a written request from the borrower to close the account upon receipt of the full payoff is typically required. Many lenders request a signed letter from the borrower requesting to close the account. So, if you are wiring the funds, the seller’s written request to close the account will still need to be delivered to the lender. To provide evidence that the borrower’s written request was sent to the lender, a best practice would be to track the delivery of the request to the lender, either by facsimile, mail or email. Once you receive confirmation that it has been delivered and received, keep a copy of this information in the file along with a copy of the written request. Similar to the Release of Lien section above, a release or satisfaction should be properly filed in the property’s county land records before the file is classified as completed.
Property Taxes
Whether you are using a tax company to provide a report on the outstanding property taxes or doing the research yourself, if not handled accurately, unpaid property taxes may result in a homeowner being subjected to additional taxes and penalties or losing the property. In a few states, just looking at the county’s tax collector site is not enough as there are other entities required to be paid that are situated outside of the tax collector’s office. If you are doing business in such a state, identify all the tax entities to which taxes are due and payable when a property is conveyed or refinanced.
Another tax example involves states that are reviewing prior owner exemptions. If an exemption was deemed to have expired in an earlier conveyance, the tax collector’s office is sending letters to the current homeowner seeking payment for the difference caused by the changed exemption for the prior years. As an example, if there is a homestead exemption reflected but a company has held title to the property for several years, this may require a discussion with the tax collector’s office as to the proper calculation of taxes owed if the exemption is no longer valid. With this information, the proper amount of taxes can be collected at closing.
Our final tax example involves prior year’s unpaid taxes or issued tax certificates. In these cases, make certain the proper payment amount is collected and timely delivered to stop a tax lien sale or, if sold, any certificate holder from obtaining a tax deed. Depending on the state, the expiration of the redemption period after a tax deed is issued may result in a loss. As a best practice, the title company should confirm with the tax collector’s office or its designated entity that it has received payment and that the payment is being applied to the correct account(s).
Conclusion
Attending to the details in these three areas will provide assurance to all those involved in the transaction. Having properly addressed these matters, a seller or buyer will not have to worry about being contacted in a few months, or possibly years from now, to address these issues. If you have questions, please contact the Alliant National claims team.
The transaction is the largest in Alliant National history and demonstrates the underwriter’s commitment to partnering with its agents in the commercial sector.
With its growing national presence across 30 states and the District of Columbia, Alliant National is a well-known residential underwriter. However, it is also a force to be reckoned with in the commercial real estate field. It recently insured a $182 million refinance transaction with Chambers County Abstract of Anahuac, Texas. The transaction was a record breaker for both Alliant National and Chambers County Abstract.
“We were in absolute disbelief,” said Chambers County Abstract examiner Darla Chandler Lastovica, commenting on the size of the transaction. “We didn’t believe it was real until it was all said and done.” Lastovica helped lead the title work on the property.
“Alliant National has insured many commercial properties throughout its history,” said KC West, Senior Vice President and Southwest Regional Manager at Alliant National. “However, we’ve never tackled a property of this size and scope before. While it was a major lift, it was exciting to work on insuring such a large tract of land and to work closely with our partners at Chambers County Abstract.”
The transaction covering the sprawling 550 acre-property in Baytown, Texas, was completed on behalf of Ohio-based JSW Steel. The company is gearing up to renovate its pipe and plate steel mill facility on the site. Chambers County Abstract has a long relationship with JSW Steel, having produced title reports for the company’s law firm since 2014.
This particular transaction dates back to 2019, when JSW Steel opened a $10 million file with Chambers County Abstract. After title was opened, the order sat idle for more than a year until one of JSW’s lawyers informed the office that the transaction had ballooned in size to $182 million.
Aside from its sheer size, the transaction was enormously challenging in other ways. First, it had a complex legal description that included myriad tracts and easements. Second, the description changed over the years, making it a substantial effort to determine what pertained to the property. Despite having completed prior title work, it took considerable effort to review legal descriptions and surveys, verify legal instruments and match these to the various tracts.
Chambers County Abstract, however, is a seasoned player in the commercial real estate market, having worked on many commercial properties, including expansive, multi-tract properties. Having a company well-versed in the process is helpful considering the additional challenges commercial properties can pose over residential. For instance, even single tract commercial transactions can contain more instruments, loans, and longer documents than residential transactions. Multi-tract properties are exponentially more complicated, featuring lengthy legal descriptions, multiple tracts to search and volumes of legal instruments to record. Organizing all these components is “a work of art in its own right,” Lastovica said.
Integral to the success of any given commercial transaction is the role of the underwriter, which must make the final decisions as to whether the property can be insured. As Chambers County Abstract’s underwriter, Alliant National acts as a financial backstop if a title claim or issue were to arise. The relationship between title underwriter and title agent is crucial. Both parties must effectively work together to prevent financial loss. While important to every transaction, title insurance serves a unique role in a commercial context. There can often be multiple liens against commercial properties, so having proper insurance in place is critical to the lender getting an expected lien priority.
Alliant National’s guiding principal is to partner with agents and never compete. In its work with Chambers County Abstract, one can see the powerful and profitable logic in such an approach – for both residential and commercial properties.
