Title: What Exactly are you Buying?

The previous post in this series briefly discussed the “title” or “merchantable title” contingency.  Simply put, a contingency requiring that the seller provide “merchantable title” means that the property received by the buyer is not encumbered (read: limited) by any conditions or restrictions not acceptable to the buyer.  Typically, in order to provide proof of merchantable title, the seller will order and provide the buyer with a title insurance commitment.

A title insurance commitment will have two main parts, or schedules.  Schedule A typically lists the following information:

  • A commitment number;
  • The name of the proposed insured party (the buyer);
  • The policy limit.  Typically the purchase price;
  • The current owner (the seller); and
  • The legal description, tax parcel number and address of the property.

In reviewing Schedule A, it is important to verify each of the above items to make sure they match up with your understanding of the transaction (for instance, that the seller really can sell the property).

Schedule B is broken up into two subsections: Requirements and Exceptions.  As the name implies, Requirements section provides the reviewer with a list of items to be complied with before the title company will provide insurance.  These typically include satisfying any existing mortgages on the property, and the provision of a deed in proper form.

The aptly-named Exceptions section provides a list of items that will not be covered by the title insurance policy once it takes effect.  Some exceptions may be removed by providing the title company with certain proof, usually in the form of affidavits or statements from knowledgeable parties.  Some may not be removed.  It is vitally important that buyers review these exceptions carefully, and if you are unfamiliar with any of these items, this would be a great time to contact a real estate attorney.  If a buyer does not satisfy any listed requirements to get the exceptions removed before the closing, the exceptions become permanent.

Some of the most common encumbrances include:

  1. Real Estate Taxes.  You will want to ensure that all taxes are paid on the property before taking ownership.  If not, even if the taxes accrued prior to your ownership, the taxing agency may hold you responsible for their payment.
  2. Judgments.  If someone is sued, and they lose, the victorious party will sometimes obtain a judgment for an amount of money.  They can then “docket” this judgment against real estate owned by the losing party.  Once a judgment is docketed it can only be released by payment, voluntary removal or court order.
  3. Easements.  Easements are agreements to allow certain parties access or use of some or all of the property.  It is fairly common for a title commitment to include easements for utilities or municipal services if the property is located in a city, village, town, etc.  Some other examples include access easements allowing for access to the property or to waterways, or joint-driveway agreements.  You may or may not be able to remove an easement depending on the type of the easement and the circumstances involving the sale.
  4. Protective Declarations or Covenants.  If the property is located in a municipality, it may be subject to certain covenants or rules.  These rules may govern any of a number of items, from the size and location of buildings on the property, to acceptable paint colors (like this), and even the scope and types of acceptable landscaping.
  5. Unpaid Assessments or Condo Fees (if applicable).  If the property is part of a condominium, or if there has been recent work by the municipality, these charges may be linked to the property’s title.  As a buyer you will want to ensure that any unpaid assessments or condominium fees are paid prior to your taking ownership of the property.

These are just a few of the examples of items to be aware of with regards to the title of the property.  If you have any questions regarding whether your seller is providing merchantable title, or would like someone to assist you with your real estate transaction, feel free to contact one of our experienced real estate attorneys at (608) 837-7386.

P.S.  Go Brewers!