125. Title and Surveys

This episode is in two parts. So actually I take it back, it's in three parts. So I'm gonna have the intro here. And then I'm going to drop in a pre-recorded section that was recorded in class. And then I've got a little bit of material yet to cover that was not covered in class that will be added on. So that will be the third part. So with that said, I'm gonna go ahead and stop this now. I'll drop in the audio from the class lecture. And then I'll pick back up after the class lecture with the remaining material needs to be covered. All right, so we've covered up to this point. The parties, the property, the sales price, which includes financing. There's a short little review on license holder disclosure. In terms of the earnest money, I'll come back and post something on that. But earnest money is a dollar amount that the buyer puts down in association with the contract with the signed contract that is deposited with the title company. And that earnest money has to be delivered within three calendar days from the effective date of the contract. And if that third day falls on a holiday or on a weekend, then it's extended until the next business day. And usually what you'll see is here in Texas, what you'll see as earnest money is about 1500 to 2000 on your median home price. Maybe 100,000 or zero to maybe 200, you might see $1,500. It, you know, 200,000 plus, you may see $2,000, $2,500. When you get into your higher dollar properties, you'll see a higher dollar amount tied into that. So it's not necessarily percentage. But the buyer wants to put down enough earnest money to make sure that the seller knows that they're serious about the offer, or whatever serious about the contract, serious about the offer that they're making. And the earnest money is there that if there's a, it gets applied to the, as a credit to the buyer on the closing costs. But if there's a default, then that money can be used as part of that default, as liquidated damages. So when I get into a later section on the default and remedies, I'll talk more about that and how that plays out. So what we're gonna talk about now is a title policy and the survey. And we're looking at paragraph six of the, of the Trek, one to four family residential contract. And we started off with this paragraph where it says title policy, "Cellar shall furnish to buyer at either sellers or buyer's expense and owner policy "of title insurance issued by." And what you would fill in that blank is the name of the title company. Now one of the questions comes up is like, well, what title company do we use? It's not uncommon if you look in MLS in the multiple listing service for the listing agent to put a preferred title company in the property listing. And usually it's because that agent, that listing agent has that relationship with that title company. And not just that title company, but more specifically with an escrow officer. So an escrow officer is an individual that works with the title company and will facilitate that closing on behalf of the title company. There's a poster we had in the law office that I was in in Houston. And it had a, it was a three or four part poster where it had the escrow officer at the front of a boat with a bullhorn. And you had all the different parties involved in a transaction with paddles, staggered it throughout the boat. And the escrow officer said, ready, set, close, and paddles went flying everywhere. And then they said, okay, let's reschedule. And that's, there's some truth to that in terms of the escrow officer's job is to bring all these parties together to make sure the transaction is efficient and closes. And so usually the listing agent has that relationship with the list, or that listing agent has that relationship with the escrow officer. My take on it is one, you wanna make sure if the title company you're using is a reputable title company. And there are title companies that do go out of business. And if you have your money escrowed with that title company and you've got a 30 day close or a 45 day close, and in the middle of that transaction, that title company goes into bankruptcy or shuts down. They go out of business. You could be in trouble. Like it could affect the closing on that transaction. That happened here. There's a title company that was based out of Colorado that had offices here in Texas. And literally one day the employees showed up. And the execs in the office said, go home, we're closed. We're like not doing business in Texas as of eight o'clock this morning. And so all of those transactions that were, all that escrow money that was held with that title company was just locked in. And it was going to affect a lot of those transactions. There's a number of them that didn't close on time. As a result of that, the legislature changed, they passed a law. All of this is regulated by the Texas Department of Insurance. Legislature, I can't say it was a legislature. I know Trek changed its rules that allowed it to come in and take over those funds and take over that situation and then divvy up those files and that earn us money to other title companies. And so that way it won't affect the closings. So there's another story I had where there's a title company out of the Dallas area. And the owner of that title company literally took off with all the money and disappeared. And so as a result of that, all of those transactions were in jeopardy at that point in time. So it's important that you use a reputable title company. The other issue I have is the escrow officer that you use. My preference is, if I'm representing the seller is to try and use the title company the escrow officer that I work with. If I'm representing the buyer, it's the same policy to use the escrow officer in the title company that I work with. The seller can't force the buyer to use a specific title company. If the buyer is paying for the policy, then the buyer can make the decision of who they want to use. But in this case, if the seller is paying for the policy, their attitude is I want to determine what title company we're using since I'm paying for the policy. Now we get into other, there's some federal violations that are going to come into play based on a seller making or requiring a buyer to do certain things. But in this case, if the seller is paying for the policy, they generally want to pick the title company. If the buyer is paying for the policy, then the buyer can make that decision. The worst thing you can do is get into a situation where you've just got an escrow officer that is just not efficient, non-responsive, not very good at communicating. And if you haven't worked with them, that they were picked by the other side. And so you're just kind of stuck and going through that transaction and your client ends up getting frustrated. Because of that, and you're like, look, I'm calling, I'm texting, I'm emailing, I'm doing everything I can to try and get this escrow officer to communicate with me. And it's just not working. So the relationships are a big part of this. So a title policy issue by the title company in the amount of the sales price dated at or after closing, ensure buying or against loss under the provisions of the title policy, subject to the promulgated exclusions. So there's some exclusions that are in that policy. And then they go to list, there's nine of them that are specific here. So what this is, is just like if you get insurance policy for your vehicle, right? So your auto liability policy. It's an insurance policy. It says, if you get into an accident, here's what we will do, here's what we won't do. And so a big part of that insurance policy is not just like what your coverage amounts are, but it's what the title company is not gonna do. And we call those exclusions. And so in this case, the title company is going to issue a policy protecting the buyer in the event there's an issue with that property. And we'll talk a little bit more about that in here in a minute in terms of what that means. So, we go to my, go back to my notes over here. So one of the questions is who pays the title premium? Well, there's two boxes either the seller or the buyer. And then a lot of times the question gets asked, well, doesn't the seller always pay the price? doesn't the seller usually pay and my response is it's always negotiable. It's always negotiable. Now what you'll generally see is that the seller is paying for the title policy, the title premium. But again, it's always negotiable. So you never go in with the assumption of doesn't the seller always pay, not necessarily. And then we look at the next thing, the next question is in what is the amount of that premium? How is that premium determined? Well in Texas, that premium is regulated by the Texas Department of Insurance. So the Texas Department of Insurance sets those rates for the title insurance premium. In other states, it could be negotiable in terms of what that premium ends up being. So just like if you if you wanted to get your vehicle insurance, who's the what what companies, there's companies out there now, I'm trying to remember the one in particular where they say come here and you can you can get a rate for all the insurance, you know, the insurance companies on auto insurance. Was it the general? Yeah. So you've got where they're like look here's all these different rates and they can vary. And then they can get more subjective based on your driving history based on your credit report, based on your age. We don't necessarily have those same issues with with real estate. Real estate is real estate. Now what where it changes is based on the the valuation of that real estate and that loan and that transaction. That's what changes. So if we go to I'm going to click on click on this link, which takes me to the text before Texas Department of Insurance page. And then you can see here here are the rates. Here we go. Here are the rates for the title insurance premium. And we started off with anything up to $10,000 in value for that property. The basic premium is $238. If we go down here to $100,000, there we go. The basic premium is $875. So to get a gauge I always say it's not apples to apples, but look at about 1% on average. Once we get above $100,000, then we've got these policy ranges. And then we have to run a calculation with this this multiplier. So if it's if it's a million dollar policy, we subtract $100,000. We multiply by 0.00554 and then we add $875. And then that gives us the premium for that transaction, for that for that value of that transaction. So like here, here's an example they have on their page policies, $4.8 million. And in that range you would end up subtracting a million. So you subtract a million, which gets you 3.8 million. Multiply that by 0.00456. That gets you 17,449.30. And then let's see do we add anything here again. Then we add the 5861. So we come back over here and we add, where do we go here, add the 5861. So premium for a $4.8 million transaction would be $23,310. Another way to determine the premium is, and I was having difficulty finding this, the title companies used to have a calculator on their websites. And so I had to do a Google search, where I typed in the title premium rate calculator to where I could actually find the webpage that gave me the calculator. I don't I'm going to have to ask and find out why those aren't showing up on their websites anymore. But in this case we can do the same thing. So we're going to go to Texas, all these rates differ throughout the US. So we're going to go to Texas and then we're going to go to Bear County. And then we can pick the underwriter. And in this case this is Fidelity. And if you all go to the roundtable with Doug Becker, anybody? No. So he was with Chicago. But in this case I'm going to pick Alamo Title Insurance and then click Next. And then the transaction type is going to be a property purchase that we're going to look at. And then let's do a $300,000 transaction. So that's going to be the purchase price. And then let's say we're doing a FHA loan. So an FHA loan is going to be three and a half percent down. So that's going to be a $289,500 loan. And then the property type is residential. And is this qualified under the CFPB's Tilla Respa Integrated Disclosure Rule? Yes. You'll learn more about that later. And then is this no? And then we're going to apply this exception. And then we need to come down here to endorsements. And we're going to select the T17 and the T19 and the T36. So these are all endorsements that can be purchased based on that transaction. And it depends on, it's usually going to depend upon what the lender requires. So it'd be like the lender coming in and saying, like let's say you're getting auto insurance. And you're like, okay, I'm getting auto insurance on my new pickup truck. And then the title company says, I mean the insurance company says, oh, but wait a minute, you're putting oversized tires on that truck. And you're putting a lift kit on that truck. Oh, and you're going to be pulling a trailer. So we're going to charge you a little bit extra because you've got bigger tires. Maybe we think you're going to be more aggressive out there on the road. Or maybe you're going to be doing more off-roading, right, which could lead to more damage to the vehicles. So we're going to charge you a little bit extra premium for that. And you're going to be pulling a trailer that creates additional risks. So we're going to add that premium on. So now you've got your total dollar amount for your insurance, which is the basic policy plus these add-ons. And that's basically what we're looking at here is the title company, or the insurance, I mean the lender coming in saying we want to add these additional endorsements and amendments to the policy. We want additional coverage on these things. And we'll talk more about that later. So then I click finish. And so now what we have is a $300,000 purchase price. And if you look up here, the total policy premium is $1900.83. And then that's what the seller is going to end up paying. If you check the box in the contract that says who pays the title premium, if it says the seller, then that's what the seller will end up paying as part of their closing costs. So when I say that on the selling side, the seller will usually incur about 6 to 8% in cost based on the purchase price of that property. If we go with the assumption that the real estate commission is 6%, then you've got your title premium and you've got some other title company closing costs. And then closing costs in general, like doc prep and recording fees, things like that, that will usually add another 1 to 2% in cost to that seller for that transaction. And then the buyer is going to have the buyer's own cost. And then what you got to do is look at the actual percentages. And it could end up being 7 and a quarter, 7 and a half. But you've got to look to see what that actually is. But that's where these costs start coming into play. And then down here, I'm going to come back to you. So down here, then we have the amendments and then the endorsements. So there's the T17, the T19, the T36. We've got the amendment, which is the exception to area and boundaries. And so there's a cost for each of these. So the T17 is a $25 charge. The T36 is a $25 charge. This amendment down here related to the taxes. If you combine that ends up being $25 total. And then the other thing is when that policy, the buyer wants its own policy. But the lender also wants its own policy, separate from the buyer. So it would be like if you got auto insurance, you're getting auto insurance that covers you. But it would be like your lender also whoever's loaning you the money to buy that vehicle also wanting coverage. They want to make sure that the vehicle actually exists and that it has four tires and that nobody can claim ownership in it. and that the registration fees being paid and that if you don't pay the registration fee that it's not gonna give reposites, which is not. We're not gonna do that with personal property vehicles. So you don't have deed restrictions on a vehicle. So there's all these extra things that come into play on real estate that don't necessarily apply to a vehicle purchase. Question? - So this title is an individual person. So the buyer and the seller can, I guess, split the cost of the premium? - You could. So the question was, can that premium be split? Yes, and here's a way that you could do that. It's if the, that could be negotiated. The seller says, I'm only gonna pay half of, that I'll pay for the title premium, but only paying for half. Okay, so that could be negotiated. The buyer or the seller could allow concessions like 3% of the purchase price towards closing costs, but then the seller says, buyer, you're paying for the title premium. You can pay it out of that $9,000, but you're paying for it. You know, on a $300,000 purchase. So any, again, everything's negotiable. Everything's negotiable. If the, if the lender's policy is issued at the same time as the owner's policy, then that lender's policy is an extra $100 charge. And that's what we see here, where we see total policy premium is $100. And then we have the endorsements. And those endorsements usually end up being, well here we've got 146 plus another 25. So about 170, so it ends up being about $275 on the buyer side. Again, that come now, if we look at the buyer's closing costs, they're usually looking at about 4% on average. Not an exact size, but a good estimate. And so that's where some of these fees start coming into play on that transaction, where the buyer's going to incur the buyer's costs. Another way of doing this is going to, go back to my notes here. Another way of doing this is going to a title company app. Now, I'm not sure that those are available to the public, but real estate agents have access to title company apps. And so the one, I've got some listed here, and some of the ones I have. So Alamo agent, Stewart title, Trinity title, first American. And so one of the things you want to do is if you're closing with that title company, is go to that title company's website or that title company's app and use their app to determine your closing costs. Determine the costs as part of that transaction, because the title company's where they make extra money, and I'll show you some of these expenses, but they make extra money on certain fees that they charge. And so certain title companies charge certain fees, specific to that title company. And so that's why it's best to go to that title company to determine what they charge or what they don't charge. So to give you an example of what that looks like, I'm going to go to Alamo Titles app, called Alamo agent one. And what we're looking at here is on the buyer side. And I'm going to plug in, we can determine the loan type, conventional FHA, VA, cash, USDA, interest only, owner finance. So let's go with the VHA loan. And so you can see there's the 3.5% 3.5% down payment on that VHA loan. So we're going to do home price is going to be $300,000. And it's 3.5% down, 4.5% interest rate for 30 years. Hazard insurance has been estimated at 0.68%. You can go to the Texas Department of Insurance's website, and there's a rate calculator for your property type and the value of that property in the county. And you can get a list of all the insurance companies and an idea of what they charge for the insurance premium for that property. And then taxes. Taxes here, they've got 2.479896%. What you need to do is actually go to that property and look in the bearcane of the praiseal district to determine what the actual tax rate for that jurisdiction is for that property. Because if you could be here in San Antonio, and there's different taxing jurisdictions based on where that property is located. So there's a laundry list. We've got the city, we've got the county, we've got the school district. But then there's a list of others that come into play. And so the best thing is go to that property in B-CAD and pull up the actual tax rate for that property and then plug that in. And then the other thing, and then we've got the closing date. And then the other thing we can do is go to options in the upper right hand corner here. And I'm going to click on closing costs. And so here's a laundry list of closing costs that tie into a real estate transaction. And here I've got the Lenders title policy being paid by the buyer. We've got the escrow fee as being split. The escrow fee is what the escrow officer charges to the parties to close that transaction. Again, there's nothing set in stone, but usually you'll see $350 to the buyer, $350 to the seller. And so here we have that fee being split. That's $700 fee. We've got the T19 endorsement. We've got the survey cover endorsement, the T17, T36, T30, and then other mortgage title policy endorsements. And then we've got other fees associated with that transaction. And I'll cover these in a separate lecture. We'll get into what those fees are. And then I can go back and then if I run compute, there's the monthly payment. There's the amount of money that the buyer would need to bring to closing $22,905. And that's going to include the down payment. That's going to be a $10,500 down payment. It's part of that 3.5% down payment requirement for an FHA loan. That is subject to change based on the buyer's FICO score. But I can click on closing cost. And then there I get the breakdown. So the same thing we were looking at over on the title company website, we're seeing the same thing here. There's the lender's title policy is $100. Their escrow fee is actually $450. It's going up. Wow. Let's get more expensive to close the transaction. T19 endorsement, the survey cover endorsement, the T17, T36, T30, all of those fees that we see right here in the app were also over there on the website. So same fees. So based on this, I can quickly run a breakdown if I was closing with that title company to determine what the buyer's closing cost are going to be and what the line item expenses are. And the buyer and the seller are going to want to know that. And so if the seller asks the question, OK, well, what if I pay the title premium, what's my net? Well, you run a closing cost estimate with the net to sell right here pretty quickly. And so here's an idea of what your closing costs are going to be and what your net associated with that transaction is. So there's a breakdown of all of those items. How are the rates set? As I mentioned, they're set by the Texas Department of Insurance. And so there's actual title insurance manual. And in that manual, it has the list of the rates, the subjective rates, the dollar amounts. It has a list of the rate rules. And it has a list of the procedural rules that are associated with the real estate transaction and the title insurance associated with it. And as I mentioned, the simultaneous issue of the owners policy and the mortgagees policy is the title premium, the owner's title premium, plus the $100 for the mortgagees policy. And then you're going to have the endorsement expenses. So the commitment for insurance. So what is it? [ Pause ] All right, this is not showing up very well. I had a PDF document I had added. And for some reason it didn't get uploaded. So the-- what will happen though? In the contract, if we go back to the contract, it says the title company will issue a policy. I mean, we'll issue a commitment within 20 days after the title company receives a copy of the contract. So once the contract is signed, usually the-- one of the agents will deliver that contract to the title company. And usually that's by email. Then it's up to the buyer's agent to deliver that earnest money to the title company within the three days from the effective date of that contract. And so the title company then starts the process. process of doing research on that property, they'll research title, they'll research their owner's name, and they'll generate the title commitment. And that title commitment is then sent out to all the parties associated with that transaction. And the title commitment is a contract between the title company and the parties, effectively the buyer, that says in the lender, that says if all these conditions in the title commitment are met, we will issue a policy on this property. We will give you title insurance on this property. And so, couple of things to note in the title commitment, there's four parts to a title commitment. There's schedule A, schedule B, schedule C, and schedule D. And the main ones you need to pay attention to are schedule A, B, and C. Schedule D is, there's some information in schedule D, but it's usually not relevant to the transaction itself. But I'll tell you what's in there. So, schedule A will include a GF number, also called a guarantee file number, and this is a number that's assigned by that title company. And so, think of it like an account number. And so, you can look at that guarantee file number or the GF number, and know based on the code which title company that is and where they're located. And then there's the extra digits for that property itself. You'll see the commitment date, the policy or the title commitment was issued. And then there'll be an effective date. There'll be a reference to the proposed insured. That's going to be the buyer and the borrower. There'll be a reference to the loan amount. And then there'll be a reference to the value of the property for that transaction. So, if it was a $300,000 transaction, the purchase price, and it's a FHA loan, then you subtract out the 3.5% to get you down to the loan amount. And then the loan amount would also be referenced in schedule A. Schedule A will include the legal description of the property. So, if it's a lot in block, it will include a lot in block. If it's a meet some bounds, it will include the meet some bounds. It will also include the record title owner of the property. So, like who actually owns the property. And then it will also include that individual or that owner's interest in the property. So, if it's a freehold estate, if it's a fee-simple, absolute ownership, then it will say fee-simple as the interest. If it was a lease hold estate, if it was a lease, then you can get a title policy on a lease. You never, you usually don't see that on residential transactions. But if you had a 10, 20, 30 year lease where you were taking up two floors in a class A office building downtown, you might want to get a title policy on that lease to ensure that there's no issues associated with the ownership or anything else associated with that building. That could affect your lease with that property. Then we go into Schedule B. And Schedule B is the exceptions, the list of exceptions. And this is what the title company is not going to cover. This is what they're not going to ensure. And so, if we go back to the contract, I referenced these nine items. One through nine, so restrictive covenants, standard printed exception for standby fees, taxes and assessments, leans, craters, part of the financing, utility easements, et cetera, et cetera. Those are all going to be listed in the title commitment in Schedule B. And then the title company will also include a list of other items. An example might be, or an example would be if there's deed restrictions on the property. If that property is in a subdivision and there are deed restrictions on that property, then the title company is going to say, we are not going to ensure the property in relation to those deed restrictions. So if the owner is in violation of the deed restrictions that we're not going to provide coverage on that, easements. So if there are easements, the title company says, we are not ensuring the easements associated with the property. And the issues with the easements were not providing coverage on that. So there's two types of easements. There are actually three types of easements. There are easements in gross. And an easement in gross is a utility easement. So with an easement in gross, you only have what's called a "servient estate." That means that that estate, that property is encumbered by that easement. But there's no dominant estate that benefits from that easement. So if you want electric, water, sewer, gas, cable, telephone, internet, you need to have an easement on your property for the utility companies to be able to bring those utilities to your property. So in a planted subdivision, you will have these easements laid out as part of that subdivision plan, as part of that plant. There's another type of easement called an easement of pertinent. And an easement of pertinent has both a dominant estate and a "servient estate." And so the "servient estate" is the estate that is encumbered by that easement. It's affected by that easement. The dominant estate benefits from that easement. So let's say you own a piece of property on the highway and I own a piece of property back behind you and I don't have any way to get access to it. So I come to you and say, "Hey, I want an easement through your property so I can access my property. I'll pay you $10,000 for this easement." And you say, "Okay, $10,000." So your property is referred to as the "servient estate." My property would be the dominant estate because my property benefits from the use of that easement. There are many other types of easements. There's a laundry list of other types of easements, but the types that exist out there, maybe an easement to a billboard, an easement for an oil and gas company to get to a drilling site or to oil and gas platform. We can have visual easements where you can't build within a certain height so that you protect the view. So there's all different types of easements, but the two general types of easements are the easement and gross and the easement of apartment. The third type is where there's an apparent easement. And that's where there's no easement recorded of record. In order for an easement to be enforceable, it needs to be in writing and needs to be filed with the county clerk where the property is located. But there are times where the title company will come in and say, "It looks like you might have an easement across your property. We can't find any evidence of it. We don't know that one exists, but it looks like there's this Jeep road going through your property. So it looks like there could be an easement. And we're not going to cover that if there's any issues associated with that easement." And so, and then the other thing, building setback lines where in a plated subdivision, you're going to have building setback lines and those are going to determine where you can't build. So if you own a lot and that lot is 60 feet wide, yeah, and 120 feet deep, usually you might see this building setback says that you cannot build within the first 25 feet from the front of that lot line. And you can't build within 10 feet from the back of the lot line and 5 feet on either sides. So you have to build within that envelope. One of that is so that you have consistency in that neighborhood in terms of where the buildings are situated. You wouldn't want somebody building right up next to the property line in your property. There are properties that have no setback lines, so an owner could literally build right up to that property line if they wanted to. So you might see building setback lines, the title company is not going to insure against those. So what we look at in Schedule B is what the title company is not going to cover. Now most of your residential transactions, you're generally not going to find a lot of issues in here, especially plated subdivisions. You're probably not going to find a lot of issues in here. If you start looking at a larger track of land and the title company says there is an oil gas pipeline easement running through your property. And we're not going to insure against that. Then an attorney would come in at that point and say negotiate, and he's up terminally recently, but negotiate with the title company of what will you cover and what won't you cover in that instance? Because we've got to figure out what's going on here. We've got to make sure that the owner, when they buy this property is protected. And there's an insta I heard recently, where this was within the last two years, where there is a property on the south side that had a very old oil gas easement or pipeline easement, I'm sorry, I keep saying oil gas. A pipeline easement. running through a property and that was probably recorded 60 plus years ago. And the title company ended up having to pay out on that. And it wasn't excluded. It wasn't exception from that policy. But what can happen there if you've got a blanket or let's hear a better example, a blanket pipeline easement. What that means is whoever owns that easement can come onto your property and put that pipeline wherever they want if it's a blanket pipeline easement. Most of our easements will define where that easement is located. You want it to be very specific. It's this wide and it's located exactly in this location on the property and this is the specific use. That's how specific you want to be in terms of that easement. But there's easements where I want to easement across your property. Sure. And the owner signs the agreement or agrees to it, not realizing it's a blanket easement across their property. Well, that affects the use of that property. Because if that, let's say that owner wants to develop that property and put a multifamily project on that property. And then the owner of that pipeline easement comes in and says, "Oh, you know what? We've got to run our pipeline right through the middle of the property where all your apartments are located. You need to tear all those down so we can put our pipeline in." That owner has some issues because that owner of that easement has the right to do that. Well, that's where the title company is going to say, "Look, we're not going to come in and get involved in that. We're not going to provide coverage on that." Well, the lender is not going to loan money if their loan is subject to that type of issue occurring. So this is where an attorney will come in and maybe contact the owner of that easement saying, "Hey, we need to either get this easement released or we need to figure out where the easement's going to go so that we can determine what our use of that property is." And then have the title company cover that specific -- and then maybe even cover that specific easement if there was an issue in the future in relation to that easement and title to the property. Usually you'll see more negotiating on schedule B with commercial transactions than what you'll see with residential transactions. And then schedule C are what I call the title "curative matters." And these are the things that have to get cleaned up before the title company will issue the policy. And so it may be we need marital status affidavits from the sellers. We need to make sure like we know their marital status. There may be a probate issue that needs to get cleaned up. Maybe there was a probate but the record title owner is still showing the husband and wife and both the husband and wife are deceased. And so then you contact the seller and say, "Well, were these estates probated?" And the seller says, "Yes, they were probated." Well, it just turns out the administrator of that estate never filed the deed transferring the property, either out of the estate to the beneficiaries or into the estate itself. So it's getting things like that cleaned up. They might require in that name search, if they were to search for my name as a seller, they're not going to find much. They're going to find my transactions here in Barracanick. Because what they're looking at are judgments. If I've been sued and there's a judgment out there of record, they're going to look at bankruptcies. They're going to look if I haven't paid taxes on the federal and state level, mowing leans, hospital leans. Any kind of lean you can imagine. So they're going to run a name search. Think of it kind of like a super background check. And see what comes up. Well, my name is going to show that I've done a couple of transactions here in Barracanick for real estate. And that's it. But if you take a very common name here in Barracanick and you run that name, you may end up with 100 pages of names to go through. And it may, the middle names, the middle initials or names may vary, so you can weed those out pretty quick. But then it may be pulling the records on 10 bankruptcies and researching those to determine if there's been an issue or if that person, the seller, is that person that's been involved in that bankruptcy. Same thing with all the other leans, judgment lean. I had a transaction not too long ago where they found a judgment on somebody with the same name out of Harris County. But it wasn't the same person. And so in that case, he filled out a not-same person, affidavit, saying, I am not that person and I don't have a judgment against me. What that does is if that is the person and they do have a judgment against them, then the title company that can then go after them based on that affidavit to recover any costs that were incurred as part of that judgment or that issue. But what they're looking at is making sure that if there's any judgments out there or any type of leans that all those were taking care of before they go to closing an issue of policy on the property. And then the Schedule D outlines who owns the title company and then who's getting paid where that premium is going, who's getting part of that premium. Then why is title insurance so important? There was a first American had a website going back to the early 2000s, early to mid 2000s. I don't know when it stopped, but they had a lot of research material on their website and they used to have what was called the claims chronicles. It was how to spend a million dollars and not have any fun doing it. And it was story after story after story where the title company had had to pay out on title insurance claims. So just like if you get in a car accident, you either call the insurance company or you get on the app and you go, I was in a car accident, right? And then they submit the information and then they start processing it, they contact you, they send out an adjuster and then you move forward. Well, in this case, if there's an issue, then you contact the title company and with your auto insurance, they're like, okay, here you've been in a car accident. The adjuster says it's going to cost 5,000 to fix it. Okay, go fix your car. Well, title companies don't want to pay out on claims that they don't have to. So there's a forgery fraud that exists. One of the first things that happens when you go to a closing is the closer is going to say, if you're, let's say you're the seller, they're going to say, I need to see a copy of your driver's license. So they take that driver's license, they go make copies and they come back and then they go over the settlement statement or now the closing estimate. But sometimes escrow officers don't look at the driver's license and they don't go, wait a minute, that's not the same name that's on the contract and on the deed and you're not that same person what's going on here. There are times where family members will try to sell property of other family members that they don't actually own it. So there's fraud that exists so the title company is supposed to catch that. The capacity of the parties. If you've got an elderly grandma that shows up and just doesn't look like she knows what's going on, the title company should say, wait a minute, we're going to stop this and make sure there's no issues in relation to capacity here for this individual to make the decision to actually sell this property. There's a story where in those claims chronicles where there's a fee attorney and a fee attorney is an attorney who will close transactions for a title company. And he was closing the transactions and taking the loan pay off money from the bank that was on the new loan that was supposed to pay off the old loan and wasn't doing that. He was pocketing the money and the next thing you know all these transactions are all these properties started going into foreclosure. So the title company had to step in quick and pay off all those mortgages that should have been paid off to begin with and it was in the millions of dollars. And then they had to go after him to seek whatever redress they could. There are times where you've got individuals saying, oh yeah, I own this property and they go to sell it and in MLS it's in their names but the property was never probated. So now you've got to determine who actually owns that property under either can it still be probated, can that a state still be probated or the state law apply and then how does that play out. There's many transactions that I've either been part of or privy to that have been held up because of probate issues. That's just almost near impossible to sell that property. Give me some more context. So the question was what happens if there is no will? First of all, if there is a will, it has to be probated within four years from the date of death. And so if it's not probated within those four years, you can't probate that will. You've got to plan B. So plan B then you go to the Texas Estates Code. So you go to state law and And then that law is going to determine who has rights, not rights, but who are the beneficiaries to or who are the heirs, there's not beneficiaries, but who are the heirs to that estate. So in a will, the will can say, I want all of my property to go to these three people. And then the will, if the will is probated, then that's what would happen. But if there is no will, now you go to state law, and state law says, oh, wait a minute, those three people don't even get anything, but all these other 15 people do. If you don't have, if there's times where you don't need to go to probate, so probate is the process of administering the will, what the will says. And so you could use affidavits of airship, you could use affidavits of airship to satisfy the title company's requirements in terms of who the heirs to that estate are. So what do you mean they wouldn't have to go to probate? So there's, so you don't always have to go to probate. So let's say that you've got grandma and grandpa, and the grandpa passes away, and then grandma passes away. And there's no money in the bank account. There's one vehicle and there's a house, and the house is paid off. In that case, you don't need to go through probate. You could. There's some instances where you may have to, because there's certain, if there's stock that they own, then you're probably going to have to go to probate and get letters test material to be able to transfer ownership of that stock. But let's just say all they own is the house and the car. Well, then you could use affidavits of airship for the real estate. And affidavit of airship is a document that says this was the deceased's name. This is where they lived. This is where they died. There either was or was no will. These are the children. And there are no other known children. And there were no other marriages. And so the title company can then rely on that and then apply state law using the Texas and the states code to determine who those heirs are. And so if there's three children and they're all from the same marriage, then those are the three sellers to the property of the property. So you look to the contract. There are three names around the contract. There are three names that are going to be on the D transferring title to the buyer. You know, title company looks at that. So you don't need to go through the expense of going through probate. So if there's instances where a title company does research and they say there's no past new taxes that are owed or there's no HOA assessments that are owed and they close that transaction and then the new owner is getting to notice saying, hey, you owe $10,000 in taxes. Title company is going to pay that off and then go back after the previous owner because previous owner says, hey, I don't own anything on this property. Taxes know nothing. So because you as a new owner don't want to buy property and then next thing you know, you got these issues showing up. And the lender doesn't want that to happen because they don't want their loan affected. So that's why they have their policy in effect. So we will stop there in terms of why title insurance is important and I will come back with the follow up on surveys. So I'm back with the wrap up material or the material that was not covered in the class lecture and just got a few more items and this relates to the survey. So in the Trek 1-4 Family Residential Contract for Resale, there is a provision. It's in paragraph 6-6 and it's titled Title Policy. But in that it says the standard printed exception as to discrepancies, conflicts, shortages in area or boundary lines, encroachments or protrusions or overlapping improvements and then you check a box will or will not be amended or deleted from the title policy. I'll take that back. It's the first box says that the first box is will not be amended or deleted from the title policy. The second box says will be amended to read shortages in area and then it's either at the expense of the buyer or the seller. And so that's paragraph 6-6 of the Trek Contract. And the purpose behind that there's a standard printed exception in the schedule of the title commitment that says the title company will not cover those items, those are exceptions to coverage. So the discrepancies, conflicts, shortages in area or boundary lines, encroachments or protrusions or overlapping improvements. So that means the title company is not going to provide coverage if there's an issue with the boundary line, if there's an issue with an encroachment over the boundary line. So one of the most, maybe I can say one of the most common in a residential transaction, residential situation is the neighbor's fence is a foot over into your property. So the fence is on your property but it's not on the property line, it's a foot inside your property line. And so your property line is actually on the neighbor side of the fence and there's a foot and a half, sometimes it could be two feet, it varies. As Hadoop Company says, if that's an issue, we're not going to provide insurance coverage for that. Now one way around that is to delete that provision to where the title company will only, like the only exception would then be shortages in area. So the title company in that instance, so if the first box is not checked, the title company is not providing coverage for those issues. If the second box is checked where the title policy will be amended to read shortages in area, then the title company will cover those issues. So shortages, I mean not shortages in area but the boundary lines and encroachment's protrusions are overlapping improvements but they will not cover shortages in area. That's so they're not going to cover the size of your property, the acreage or the square footage of your property in this section. And so if the buyer wanted that coverage, either T to be paid for by the buyer of the seller, then that box will be checked. In that case, the title company is going to want to survey. And more times the title company is going to want to survey anyway and the lender may want that in their file. So if the parties are providing a survey, then the question is why would they not want that coverage? And I would say in a residential transaction because it costs a little bit extra money. It's really not that expensive. And when you look at the actual amount for that deletion of that exception, the title, the title manual, this is in rule 16, amendment of exceptionist area, boundaries, et cetera, it may be amended in an owner or a mortgage policy upon the payment of an additional premium. In the case, only of an owner policy, the equivalent to 15% of the basic rate in an owner policy, or 5% of the basic rate in a residential owner policy of title insurance. So those are two different forms that depends on which form is being used with a minimum premium of $20. And so if you're using Form T, T1, then it's 15% of that premium. So let's say I think the policy on a $100,000 premium for $100,000 transaction is $875. Let me pull up my calculator here. Give you an idea of what this looks like. So take the 875 times 0.15 is $131.25. So on a $100,000 transaction, with that premium, it's not going to be that much money, but it's still money. When the buyer says, I'm not going to worry about that, that's not going to be an issue. And that's their choice to make. But like I said, if that exception is going to be deleted, the title company will want a survey. If the seller already has a survey that's been provided to them, then that can be used. We have what's called a T-47 affidavit that the seller would sign stating that there either have been no improvements since the date of that survey. Or if there have been improvements, then they need to be notated. And then the title company can make a decision as to whether or not they want to require a new survey in order to provide coverage under the title policy. And so for example, the sellers may have added a deck to the back of the house, or they may have added a storage shed in the backyard. and they went through the HOA. approval process and they're within the setback lines and you know there's no obvious encroachments then in the title company may allow them just to notate that and then accept the survey the existing survey otherwise if a new survey has to be ordered then the parties would need to determine paragraph 6c as to who will pay you the buyer of the seller and on a residential transaction you know the cost of the survey always varies but generally I think you're looking at about four to five hundred dollars if it's just a basic lot and block lock and a lot and block you know there's there's no issues in terms of line of sight things like that that usually you're gonna see about a survey costing about four to five hundred dollars when we get into commercial transactions like I said you generally I don't know that I think maybe I can't say I don't think I've ever seen this on a residential transaction and from my personal perspective that doesn't mean it hasn't happened just haven't seen it the whereas on a commercial transaction I would I would be checking that box if I was the buyer or representing the buyer or advising the buyer as far as consulting with that buyer on that transaction and and with a commercial policy your dollar amount could be higher you know just in terms of the purchase price of that property you know it could be in to the millions and so that premium could end up being higher but in that case if you're you're buying a piece of property that's worth a cup of a million you probably want to spend a little bit extra for that piece of mine knowing that there's insurance coverage in place if if something were to occur one thing to note or that is the type of survey so there are when you say survey you may go well that's okay a survey is a survey and there it's important to know that there are different types of surveys so let's let's take a step back if you have a subdivision that is being platted or has been platted meaning you've taken an unplated track of land a large track of land and then the the the properties being divided up into lots and blocks and roads and sidewalks and green spaces and common areas then that will be reflected on a plat map and so the there will be a survey of that so division and that survey will have a plat and then that plat will be signed off on by the governmental agency and the you know where that property is located and then recorded with the county clerk so you can go to the county clerk's office or website and pull up that plat map and then it will show you the picture of the whole neighborhood with all the lots and blocks and roads and green space and building set back lines and things like that and so there will be a survey of that but the plat is what gets recorded the survey generally never gets recorded so the developer would have the survey for that so division but the plat would get recorded now if for an individual owner or for a buyer they can get a survey on that property and so the survey is going to be a picture of a specific piece of property so if you've got lot one block one then the survey would would cover lot one block one now it would also reflect part of the adjacent properties to lot one block one and the it's going to show the boundary the boundary lines but now what's important is to determine what type of survey you need for for that transaction that you're you're working on so there are boundary line surveys and this is going to show the boundaries in the corners of a property okay if you get a land title survey it will show the boundaries rights of way and easements okay so there will be additional information notated on that on that survey the you can get a construction survey for construction you can also get what's called an as-built survey which will show the improvements after the construction period either during the construction phase while the construction phase is ongoing or after the construction has been completed and that would show the improvements to the property you can do what's called an OSSF survey that's for an onsite sewage facility and that's a surveyed by an engineer if you were putting a the generic term is the septic system or septic tank but you've got the correct term is the onsite sewage facility and we either have aerobic or anaerobic septic systems and so the anaerobic septic system septic system is the old system with the lateral lines and then the aerobic system has I've not had one installed in years but the one I had had three chambers to it and so there's a process where it would treat that water and then it would spray that water into the yard through sprinkler heads or you can also put a field for the discharge of the water where you're running lateral lines above ground and and the water is getting discharged that way and so the OSSF survey is going to show where the septic system is going and then where the discharge field or the sprinkler lines and then heads are because there's there's laws in place in terms of where that where that water can and can't spray if you're putting a sprinkler heads there's a there's a property up by a canyon lake that I was looking at last year and the property is literally right next door to a water system tank up there at canyon lake and so there's there's a law in place that there has to be a 75 75 foot radius from that that tank so that way your discharge doesn't happen the potential to contaminate that water supply and so I saw somebody had built on that lot and the septic system was in the bottom right hand corner the lot had a had a very steep topography and they ended up building a two-story lake lake cabin on the property and had cleared the you know had cleared the lot and then the bottom left hand corners where the septic system was located in the aerobic septic system and so there is that 75 foot barrier from the water system tank next door so they would have had a septic they would have had a OSF survey OSSF survey done on that property to determine where the septic system could go and where the discharge lines would be and then we've got subdivision survey as I mentioned that's that's for a subdivision the plant is what gets recorded and that's going to notate the the smaller tracks the roads the green spaces the common areas the building setbacks the easements you name it and then there's also a topo survey and the topo survey will include the elevation and natural objects grading you know you may want a topo survey if you're looking at building on a track of land to determine what the what the slopes are there's instances where people have looked at a track of land ago that that land is flat and and it's not you know it's it looks that way but it's really not and then you also have to account for drainage there's a property that was sold and the problem was that it was flat and so they had to engineer that property based on on the improvements to account for the drainage drainage is one of the number one factors that will have an impact on residential real estate development and really any any real estate development but more particularly residential because you've got the density component of of the homes and then you've got the ALTA survey the ALTA which is the American Land Title Association survey and this one is the most comprehensive and includes boundary lines location of primary structure and then any improvements location of any ancillary improvements and buildings easements right of ways so it's the most complex and it can also be the most expensive one thing you want to make sure that you don't do is get into a situation where you have you order one type of survey let's say on a on a residential transaction like I said usually those you're those are going to run you about four to five hundred dollars on a on a commercial transaction or farm and ranch transaction that cost can increase significantly and there's transaction that I'm on privy to that the parties ordered effectively what was a boundary survey property never been surveyed it was about 400 acres they surveyed the property it was a boundary survey and and it also show it showed the one improvement the primary structure the improvement to the property and then that was it and so there was a certain fee for that and what was needed was a more comprehensive survey that showed all the easements, the roads, the right of ways, it needed to be more comprehensive. And so if it had been done the first time, it would have been one feet. So I think the first round on that was about $7,500 for the initial survey. But because the additional elements were needed on that survey, the improvements, the easements, the right of ways, et cetera, the roads, the driveways, so that's not an easement, but it's a, we needed those notated on the survey, and it needed to be done quickly. And so there was a significant cost to having that survey done, not again, because the boundary had already been done, but to add the additional information. So if that had been done the first time, it would have been less expensive than what the total cost ended up being. So it's important to make sure that you get the right survey up front, and then you have an idea of what that cost is gonna be. So why is the survey important? It identifies the boundaries, the encroachments, protrusions, easements, unrequited easements that may show up on the track of land, building setback lines, utilities, points of ingress and egress, a lender's really gonna wanna see points of ingress and egress. Title company will also look at that as well. And that could be a driveway. It could be a, not a driveway, but a point of entry into a property, if it's farm and ranch. But it's important to note that you've got a right of ingress and egress. There's one track of land, I'm aware of that was at Bikinian Lake, where it was a large ranch that was purchased, and it was on both sides of the highway. And one track, or actually the track on the lake side of the highway, was split with a gorge, or maybe it was more like a draw, but it was a deep crevice, and it didn't have any water in it. But that split that property on that side and two. And so the track that was further to the Northwest did not have a point of ingress and egress, and they had tried to get one from textile, and because of the, where the road was located and the topography of that land, it was too dangerous to grant a point of ingress and egress there. And so then one option was to try and go through the other neighborhood next door, and second option would have been to build a bridge from that track of land to the other track across the draw, and that would have been really expensive. There was a height requirement that would have come into play because there's potential water that could go through their flooding, and so that was going to be a significant expense. So it's important to know that you've got a point of ingress and egress to the property. You want to check with your lender and title company determined which surveys required based on your needs, but also based on what they need. And I would ask that question early. What is the title, what kind of surveys the title company going to need, and what kind of survey is your lender going to require if they require one? I would also, if you're representing a party in a transaction, I would discuss with them the type of survey. And if they're selling the property, I would discuss, you need to get a copy of that survey, and if they don't have one, then it might be worth proposing having a survey done on the property as part of the listing, and that way you can catch any issues that may arise. 'Cause there's instances where property may be in the family forever, no survey was ever done, and maybe additional tracks were acquired, but nobody really knows what's going on with that boundary line, and then you list that property, and next thing you know, it could be tied up for years in litigation because you didn't find out until after the contract was signed, that there's issues with the boundaries of that property. And so my opinion is it would be worth considering being proactive and getting a survey done on the front end. The problem with that is if you have a seller that says, I'm not gonna spend $10,000 or $15,000 on a survey out of pocket right now, you must be crazy. But I think it's worth having that discussion, giving them the big picture, and letting them make the decision as to whether or not they want to do that. And then also having that conversation about who's gonna pay for the survey, there's different perspectives on who pays. A lot of times on the residential side, it's always negotiated, so it just depends on kind of what the seller wants for their net and what the buyer has in terms of available resources. But on the commercial side, one argument to make is for the seller to pay for the survey because if the transaction doesn't close, you generally have a longer due diligence period or option period in a commercial or firm and ranch transaction, then you do with the residential transaction. And you can have a survey done, but if you get into that transaction to find out you can't use the property for your intended use or you can't change the zoning or there's some reason you can't get it plated, but you have a survey done. The buyer's gonna walk, but that survey is of no value to them. And so for the seller to pay for it, the seller still has a survey they can use if they turn around and sell the property, you know, list the property again to sell it that now that's a value to that seller. There's other ways of structuring the cost of that survey. One would be that the seller pays for it upfront, but if the transaction closes, then the buyer incurs that expense. Another would be for the buyer to incur the expense, but if the transaction closes, they get a credit to the purchase price for the cost of that survey. So there's different ways of structuring that cost. And one thing I would note is make sure you get the right survey so it doesn't delay either getting the correct survey on the front end or you don't incur additional cost as I mentioned earlier. And then the other thing, one of the most important things to note about surveys is you wanna make sure that you don't look like an idiot if you have a copy of a survey and you're out on a property. And so one of the things you wanna do is look on the survey and there will be a reference to True North on that survey and also on the plat, have you ever have a plat? And so you wanna find out which way is pointing True North and then I would suggest getting out your smartphone again and open up the Compass app and then pointing that Compass app to True North and then lining up the survey or the plat to align with the north on that app and then that's your starting point in terms of where you are in that property. And then you'll also have the point of beginning and then it will notate each of the additional points on the boundaries for that track of land and what should happen is it should come all the way back to that original point of beginning to where the property closes. So that's the review of title and surveys and that's all I've got to say about title and surveys.