Understanding titles to save time and money

By Steve Lazarus, Associate Broker

The Southpace Learning Series (SLS) is our continuing education program developed in-house to give our team an in-depth understanding of issues facing our clients.  Because our clients’ needs continue to evolve, so will we.

A purchaser has both the right and responsibility in a general sales contract to inspect the property and ultimately make a decision on whether the property condition is acceptable. The Purchaser’s inspection period is date sensitive and defined in the contract. This is nothing new for most of us.

What is new is the growing use of contract language whereby the purchaser has the responsibility to inspect the title of the property. This title inspection period is also date sensitive and defined in the contract.

The purchaser is required to report in writing to the Seller unacceptable title matters. If not reported by the letter of the contract, these matters could become permitted exceptions at closing. Permitted exceptions on title can be difficult and costly to remove.

The title process begins with the seller furnishing a title commitment to the purchaser showing seller has the fee simple title to the property, together with the documents relating to “title exceptions”.

If the purchaser is financing the purchase, this commitment with exceptions should immediately be sent to the attorney representing the loan company. Most of the problematic exceptions will be “red flagged” and ultimately resolved with the help of the loan companies’ attorney.

However, if the purchaser is paying cash for the property, identifying these problematic exceptions becomes the responsibility of the purchaser. It is recommended to employ legal representation to help facilitate the process. .

Clearly, competent broker representation is also imperative.That’s why as part of our continuing education program, we invited Bart Crawford, president of The Title Group, Inc. to discuss title issues with our team.

Bart spoke on the subjects of how a broker representing a seller can assist his client in identifying, addressing and remedying title issues that may arise in a title search and how a broker representing a purchaser can protect his client through the use of endorsements to the policy.  Specifically, Bart highlighted several title requirements including martial status, purchase and seller articles of organization and operating agreements, delinquent sewer charges, judgments and mechanics liens.

If the current owner is a single person or said property is not the homestead of the grantor a deed can be properly executed, delivered and recorded by affidavit stating such status. If the current owner and/or purchaser is a company, articles of organization and written operating agreements must be furnished to the title company showing organization and outlining who is authorized to sign for the company. The title company requires proof that assessments, delinquent sewer charges, judgments and mechanics liens are identified, paid in full and properly satisfied.

Unpaid property taxes can be paid by the seller at closing, but if the property was sold to the State of Alabama for unpaid taxes and ultimately purchased by an investor, the process to redeem can be cumbersome and expensive to the seller. A seller that has not paid taxes for three years could be forced to negotiate with the investor, not the county, in redeeming the property.

The title company will issue a commitment with exceptions to utility company easements, granted “right of way,” use restrictions, covenants and encroachments appearing on title. It is a must to understand how these exceptions can affect the purchaser’s use of the property.

For Example:  The property could have a structure built over a vacated alley. Utility company easements are granted for utility lines that might be buried in these vacated alleys. If the utility company needs to repair lines in the vacated alley, the owner must allow access. Putting the structure back to its original condition could be the responsibility of the owner.

Also, interruption to the occupants business would be costly. In this case, after a lengthy process, the owner paid in excess of $80,000.00 to relocate 100 ft. of sanitary sewer from underneath the structure.

Understanding title and its process from commitment to policy is challenging. Engaging a competent broker can shorten the process, keep dollars in your pocket and help insure your property can be used as intended and sold when ready.

Thanks to Bart Crawford for sharing his thoughts and knowledge!

Southpace Properties, Inc. is  Alabama’s largest independent commercial real estate firm. Southpace offers services such as office, retail, land, warehouse and industrial sales and leasing, tenant and landlord representation, development, consulting, investment sales, and property management – including asset & construction management, and maintenance. With nine CCIM designees, Southpace has one of the state’s highest number of CCIM accredited brokers under one roof.

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