Title Issues - Part II of a Series
my second newsletter on title issues, I review title from both the
buyer's and seller's perspectives under the Offer to Purchase and
Contract (Form 2-T). The treatment of title is the same
under the Offer to Purchase and Contract - Vacant Land (Form 12-T), but I
will limit my explanation and paragraph references to Form 2-T.
My review will be chronological from contract execution to closing.
First, Paragraph 8(a) requires the seller to "use best efforts to
deliver to Buyer as soon as reasonably possible after the Effective
Date, copies of all title information in possession of or available to
Seller . . . ." In practice, this delivery rarely, if ever,
occurs, unless the buyer's attorney discovers a title problem and
requests information. The most frequent requests are for an
existing title policy or a survey. You can assist your selling
clients by asking if they have these documents during the listing
interview and making them readily available to prospective buyers.
Second, the buyer is responsible for the title search, and the buyer
can raise an objection to title at any time prior to closing - even
AFTER the expiration of the due diligence period. In the standard
contract, the title search and examination are not limited by the due
diligence period. Under Paragraph 8(f), a seller must "convey fee
simple marketable and insurable title" at closing.
Third, as you may recall from last month's newsletter, a seller is not
required to deliver perfect title. To that end, the standard contract
lists several encumbrances on title that a buyer must accept. They
are the following:
- - property taxes for the current year, prorated to date of closing;
- - utility easements that do not materially affect value;
- - unviolated restrictive covenants that do not materially affect value; and
- - other encumbrances approved by the buyer in writing.
Also, as part of the title delivered, Seller must convey a property with legal access to a public right of way.
Finally, the standard contract covers what happens when a seller cannot
deliver good title, and the result for sellers is probably not what
they expect. If the seller cannot convey good title, then
the buyer may terminate the contract, in which event, according to
Pargarph 8(l), "the Earnest Money Deposit and the Due Diligence Fee
shall be refunded to Buyer and Seller shall reimburse to Buyer the
reasonable costs actually incurred by Buyer in connection with Buyer's
Due Diligence without affecting any other remedies." In other
words, the buyer gets all of her money back, gets reimbursed for home
inspections and other due diligence costs, and can still sue the seller
if there is a valid reason for such a suit. For these reasons, I
suggest asking your selling clients for any information they have about
title issues on their property before listing it. You are most
likely to find major title problems on property that the owner has
inherited or received as a gift. From my experience, you may also
find problems with private access easements, shared wells, and other
joint use situations.
I hope this information will help you to avoid title issues in closings
by being proactive early in the listing or contracting process.
not hesitate to contact me to receive more information on this topic or
to suggest topics for future editions of 'A Legal Moment'. You may not
rely on this content as legal advice for any specific situation, but
should instead contact an attorney for specific advice.