Despite the time and expense, title insurance proves to be the shopping center industry's best friend.
Sometimes buyers and sellers whine about the cost of title insurance. They suffer memory lapses as to why it is important. But title executives can easily recall stories from the field that illustrate the necessity of adequate coverage. They argue, convincingly, that title companies are the shopping center industry's best friends.
A good title officer is part detective and part historian, with a healthy dose of common sense and business acumen. "If thedoesn't close, no one makes money," notes attorney Bill Shebesta, who has been in the title business for 35 years. Based in Los Angeles, he is manager/counsel for Land America Financial Group, a holding company for three title firms. Land America's commercial transactions range from $5 million to $300 million.
In making decisions, title insurance companies strive to maintain an emphasis on being practical. Shebesta cites an example of this in a story about a shopping center in Northern. The 600,000 sq. ft. center had turned out a little different from the original plans and specs - a sewer culvert was discovered under the entire center, and the buyer wanted affirmative insurance that the culvert would not have to be removed.
Such situations can cause significant trepidation for both buyers and sellers. But in this case, the buyer's mind was put at ease after Land America - which checked the permits and reviewed specific ordinances that showed approvals from the governing powers - gave the transaction its blessing. It was a good save with no dire repercussions for the buyer, Shebesta recalls.
From his office in New York City, Jack Marino, senior vice president of Chicago Title and executive vice president of TICOR Title Co., notes that easements under buildings are a common issue for shopping centers. "If you look closely enough, you'll probably find manhole covers to service the shopping center," he says. Even without prior evidence of an easement, thorough site inspections are essential to securing adequate protection.
"The title officer is really a title doctor, solving problems," says Jim Kilgallon, executive vice president of Fidelity National Title Co. and director of National Title Services in Philadelphia. "We reflect on the records, disclose what is found and then work it out."
Ten years ago, Kilgallon recalls, a foreign investor was purchasing two large buildings that had been the home of the Philadelphia Bulletin at 30th and Market streets. Train tracks ran directly through the property, and the railroad had the paramount right of way. This caused the investor plenty of apprehension.
Wanting his next asset protected, the investor succeeded in gaining a limited exception to a defined area of right of way. "Without that," notes Kilgallon, "the investor may have walked."
The danger of hidden risk Title insurance is purchased to protect against hidden risks that can haunt the buyer in the future. Some of the more common issues include fraud, missing or undisclosed heirs, a party falsely pretending to be the owner of a property or wife No. 2 signing a document when wife No.1 was the original signator. Mounds of paperwork surround LLCs, corporations and trusts - best-seller reading for title officers, who often spend hours poring through paperwork to make sure that all the required legal documents are in order.
Marino delineates other reasons for the necessity of title insurance. For example, situations where records show that the lease has been canceled but not the option to purchase, or where court orders create a mortgage in a bankruptcy plan, can be missed if the title officer is not reading carefully. This can later create claims for the title company, but not the buyer.
In Tyler, Texas, for example, an owner of a western parcel deeded a .68-acre corner lot to a Burger King franchisee. "Unknown to anyone," recalls Bert Rush, senior vice president/national counsel of First American Title Insurance in Santa Ana, Calif., "the grantee had given a non-exclusive right for common use of roadways and parking to the franchise. A shopping center was built. The new owner was quite surprised to find big rigs parking on the property, breaking up the asphalt. The title company paid the owner $85,000 for diminished use and a missed easement."
Access is critical for the success of shopping centers and other businesses. Bob Taylor, senior title officer at North American Title Co. in Long Beach, Calif., recalls a landowner who purchased a $24 million piece of property. Years later, wanting to sell the land to a developer, the landowner found that an endorsement for the easement for access to the public street didn't exist. An adjacent property owner refused to give an easement. The solution, if it could be called that? Access to the property via helicopter.
The importance of common sense Chuck Vachout, national operations manager and area counsel for Chicago Title Commercial Center, notes that common sense is just as important as detailed knowledge. Vachout recalls a Los Angeles shopping center with underground parking that had an irrevocable license from the city to use a small city-owned parcel.
The small parcel allowed customers to exit the parking area and pull into the street. Wanting the license insured, title assessed the situation and decided that the city had no incentive to devalue the property because the possible loss of sales and/or property taxes would reduce the city's own revenues. Common sense in this case saved time and money.
Across the country, issues involving chain of title - the history of a property via deeds - vary as widely as American history itself. Rush expects transactions in New York and Massachusetts to have lengthy and complicated title chains. For example, in 1910 lots in Martha's Vineyard were given away with purchases at a men's clothing store in Boston.
Also, after the British gave William Penn Penn's Woods in pre-Revolutionary Pennsylvania, Penn gave away much of the land with vague boundary descriptions such as "from that oak to that sycamore." Kilgallon says that devolution of title often occurs in family bibles rather than deeds. And in many cases, property will transfer via inheritance for hundreds of years with few written records.
Vachout believes real estate taxes and mechanics liens are the two highest claims areas. "The county collector can show the taxes as paid the day we check; two weeks later it's a different story because the check is NSF (Not Sufficient Funds). Mechanics liens are missed and in several states they prime the mortgage."
Shebesta recalls a shopping center developer who decided to start construction prior to loan funding and title transfer. The developer went to his favorite title company, asking it to take his indemnity. Satisfied with his financials, the company complied.
Shebesta stresses the importance of establishing a good working relationship with a title officer. When push comes to shove, it's easier to solve problems with people you know. Title companies take risks for the owner, allowing them nightmare-free sleep. u Deborah Prussel is a Long Beach, Calif.-based writer.
California's Orange County has electronic recordings; Los Angeles County does not, but confirmation is usually received by noon the same day. In Cook County, Ill., it takes two days to receive confirmation.
When it comes to title insurance, technology's impact varies throughout states and the country. In many areas a "gap" issue exists in the time it takes from recording to access the information from public records.
Most major title companies are tech-savvy. However, information is not always available online. Title companies are scanning documents into their systems with the goal being a mini-closing book disk or CD. Chicago Title is creating a tracking system to allow file access. County recorders are going online; some statutes are searchable.
Congress adopted S.761, The Electronic signatures in Global and National Commerce Act, on June 16th. Stewart Title Guarantee Co. is spearheading the first paperless, online real estate transaction with a Utah refinance. An Online signing Room with technology designed by iLumen Co. was utilized, according to www.stewart.com.
Seventeen other states have enacted Uniform Electronic Transactions Acts (UETA).