Title Issues - Part II

      For 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.