What is a title report? What is a title commitment? What is a survey? What are some things that you need to watch out for in the title report/commitment and the survey? Mindi McLain, a Texas attorney and co-owner of a law firm, also co-owner of a real estate investment company. She represents investors, developers, lenders and real estate projects throughout Texas and a few other states.
Tell us a little bit about you.
I practice primarily in the areas of real estate, a little bit of business law, and some estate planning. But real estate is what I really love to do. I also do some investing locally here where I live in commercial and residential real estate. I get excited about working with other investors, and I also represent some lenders, and some institutional clients. But my wheelhouse is investors and developers who are working on all kinds of real estate projects. I graduated from Texas A&M University, and then went to Texas Tech School of Law in Lubbock, and I graduated in 2008. So I've been licensed in Texas since 2009.
What is a title report? What is a survey? And what does it do for you when you're purchasing a property?
Since I live in Texas, and I'm licensed to practice law here, and I invest here, I'll talk mostly about Texas. But I have reviewed title in lots of different states, I have one client in particular that I've done foreclosure work and selling commercial property in Florida, New York, Maryland, and Ohio, a long list. I worked with other attorneys in those states, but it's pretty similar across the board. Of course, every state has its own quirks. And so I would always recommend that you get someone who's licensed in your state. Title work means you're looking back in the records, so that when you buy a piece of property, you know that you have good title to, that you'll become the owner and you know exactly what is going to affect that property. There are lots of different things you can order from a title insurance company. Some people will call it a title report, some people will call it a title run. Most often what you want from them is what's called a title commitment. A title report is usually just a short one or two page document, it says title is vested in this person or entity. Here's the legal description and there might be a lien against it. It's not as in depth as you might want.
Title commitment will do that for you in a title run, some people will call that a run or run sheet, it might just be a printout that has a bunch of references to documents that are recorded, but it doesn't really explain what those are. A title commitment is the most comprehensive title instrument that you might want if you're going to look at buying a property and most contracts are going to reference a title commitment. The title insurance company that you choose will take your contract, open title on it, and they'll look at who the owner is, what sort of easements, encumbrances, liens, problems are out there, and what needs to be done or fixed before closing, so that if you're the buyer, when you close, you have good title to the property. And when that commitment then closes, it becomes what's known as title insurance. That's if you pay the premium for that, but that'll be an insurance policy that you have as long as you own the property. So if something came up after closing, and someone said, I actually own this property, or an old lien that you didn't know about cropped up or something like that you can make a claim on your insurance policy.
Surveys go hand in hand with the title commitment, but that's actually sending a licensed surveyor out to their property to look at what's on the ground. The title commitment doesn't do that, the title examiner does not visit your property and actually take a look at it. They're just looking at records, whatever is publicly available, but the surveyor is actually going to go out and visit your property, he's going to measure whatever you ask him to, the boundaries, or the improvements that are there. Or maybe you want to know what something's going to look like once it's constructed or something like that. So they're going to give you a survey, which is just a drawing of your property and of how much square footage is in your property. Or how many acres. Are there any setbacks? Or easements? And where are those actually located on the ground.
So title commitment and survey go really well together, when you are purchasing a property to give you a good sense of what you're buying, and what problems you might need to get fixed before you actually write a check and pay money and take over this property. That is a really broad overview of title work and surveys. Those are, to me, the two most important things besides your contract that you're going to want to spend some time on. And one issue that I sometimes see with clients is they sign a contract, and they get a title commitment, but they really don't spend any time looking at it. They just think, Okay, good. It says that the person who signed my contract is the owner. So we're good, let's close, let's get this deal done. And they really don't dive into what's in the commitment. And that's really where things happen. You really need to review that because every title commitment has what are called standard exceptions, just like on your car insurance policy, or your property insurance, there are going to be certain things that are just not covered by this insurance. But even more important to you, rather than the standard exceptions that are in every policy, there might be some specific exceptions that are in yours. And so those are the documents you want to focus on. Those could be prior reservations where people have reserved minerals, wind, energy, or solar energy, or they've put a restriction on your property that says, You can't have a mobile home, you can't use this for commercial property, etc. It could be lots of things, there might be something in there about a lease that affects the property, it could be that there's a right of first refusal that someone else has to purchase the property or an option to purchase, lots of different things. So that title commitment is super important. And as soon as you get it, you want to review it very carefully.
In Texas, it's made up of four parts and they're called schedules. Schedule A tells you who owns the property now, and who's proposed to buy it. And if there's a lender who's going to make the loan on their property. Schedule B are the standard printed exceptions that are in every policy. And then they'll add to that any specific exceptions that are going to be part of your policy. So these are, We are not going to cover these particular things. So that's pretty important. Schedule C are the requirements, and that's the title company saying in order for you to close this and for us to issue insurance on it, you have to meet these requirements. That might be we need to see your entity documents, if you're an LLC, or a corporation, or a partnership. Or if one of the parties is married, we need the spouse to join in signing the deed. All of this has to be done before we can close goes into Schedule C. That will also tell you if there are any liens against the property that have to be paid off, etc. And then Schedule D is like a disclosure of the title company and who owns it, what the premium is going to be when you buy the insurance.
What are some of the things that people should really watch out for in the title report and the survey?
Once I get a title commitment back, I spend most of my time reviewing Schedule B, which is not called Schedule B in every state, but those are the exceptions to the policy, followed by Schedule C or the requirements. I would say the first mistake that people make is getting the commitment, and not even really reviewing it or never getting past Schedule A.
The second thing that they do is they review Schedule B, but they don't really dig into what it says. So it's going to say, these are things that are excluded from your policy, it's not going to give you the whole summary and analysis of what those things are, it's just going to say, this document recorded at Volume One, page two, on November 2, 1980. is excluded from your policy. And if you don't ask, what is that document recorded at Volume One, page two, November 2, 1980, you'll never know what that document said. There could be an easement recorded, a lease recorded, or a deed recorded. But you'll want to ask the title company, or your closer, for copies of those documents. Some title companies will hyperlink them, which is cool, you can just click on it, it will take you right to the document. If you're in a county or city that's not that technologically advanced, you can just ask for those documents referenced in Schedule B, or the exceptions portion. And then you're going to want to actually go through and read those.
This is where the survey can come in handy. If you get a title commitment, and it has 18 easements listed, or it has a right of way deed or something like that, your surveyor can take that Schedule B and those documents and he can locate those easements or those roadways on the ground, and then show you where they are on your survey. Otherwise, you're reading and trying to figure out if it says Joe down the road has a 20 foot wide access easement across your property, and you may not know exactly where that is, you might have to plot it and try to figure that out. If it's an access easement, or a roadway, it could be a pipeline easement. It could be an electric line easement, lots of different types of easements.
That would be my second thing to look out for, just read those documents, get copies of them, look through them. The title company are doing their best to make sure that when you close and they issue insurance, that title is as clean and clear as it can be, so that they want to avoid any claim in the future. But they're not guaranteeing that you won't have a claim and they're not guaranteeing that they went through and read all of those documents and disclosed everything to you. It's just like insurance on your house or your car. You want to know what's in your policy and you want to get the right coverages and have everything you want. But you may have a claim that isn't covered at some point down the road. And it's the same with title. The goal is that you won't ever have to make a claim because you'll figure some things out and get them cleared up and get title fixed before you ever close. But don't close on a title commitment not having looked at the actual documents that are referenced in your commitment.
The same with the survey, if you get it back and you have questions, you want to make sure your title commitment and your survey go hand in hand and that your surveyor has actually reviewed your title commitment and that he or she has included those documents that need to be included on the survey. That way you know where it's at, and your survey can actually be part of your title insurance. If you tell the title company that you want the survey to be reviewed and approved, and you want to amend your title policy to have the enhanced coverage for the survey, then the title company, and the surveyor will work together to make sure that you don't have any encroachments. Or if you do, that those get disclosed and dealt with if somebody's built over your property line, or there's an improvement on your property that's built onto an easement or over a setback or something like that, they’ll figure all that out ahead of time, just so you know what you're getting into. But don't rely on the fact that you have title insurance, thinking that you can just make a claim later, and it'll be covered, because claims get denied as frequently as they get dealt with, in my experience.
Is this something that our attorney would have us ask for, or as buyers we would need to make sure that we ask for?
If they know what they're doing yes, but it depends, some attorneys, you may call them and say, Hey, can you help me with this contract, and they might draft a contract for you. And then it gets signed, and it gets sent off. And then they may not get notice when the title commitment gets issued, or they may not get a copy of it in time. Most contracts have some deadlines. It might say once you get your title commitment and your survey, you have so many days to review those and make any objections. So you might only have five days or 10 days, that's negotiable. But there's usually a deadline of how much time you have. And it's based on when you received your title commitment, when you received your survey, if you've had a survey, when you received those exception documents, that's when your time starts running. So if you want your attorney to review those things, just make sure that they are either copied on all the correspondence with the title company, or you get it to them as soon as you receive it, so that they have a chance to review with you, go through it, and point out any issues. And then if you need to object, you'll usually need to send written notice to the seller that says we object to these certain things and we want you to fix them, or move them, whatever the case is.
But if you don't object in time, at least the Texas standard contracts, will say that the buyer has been waived the right to object to those items, and you have to just go ahead and close and deal with it later. So your attorney should review it, but make sure that they're in the loop because of those deadlines. They’re not getting everything that you're getting or that your realtors are getting. They may not have the opportunity to advise you on potential items to object to or try to fix before closing.
It's funny that you're mentioning that because I would assume that everyone loops in their attorney for these things, but clearly not.