The best you can get is someone’s opinion!
Title, Vesting, Searches, Recording – Why its broken and what you can do about it.
This blog explains how real estate ownership (and other rights) are created, made official and then detected later. We also explain the major fault within our detection system, and what has been done to protect parties from financial loss due to it: Title searches, defects, title insurance commitments and policies. Easy to read, everyday language:
All – Who’s the owner and who else has rights to a property?
Renewable Energy Developers – Who’re you going to lease/purchase from?
- The U.S. has a recording system for real estate records – Opinions of ownership are based on using this system. Recording makes documents official and public record in a county’s recording office. These records for any property are just a historical log.
- Title Search – To determine ownership and who has other rights to a property, a portion of that log (records) must to be examined (searched.) The end-use of the search determines how far back in history the records must be searched.
- Releases – No document can be removed from that log. Instead, it must either expire per the applicable statute of limitations, or be voided. To void a document, a proper release must be recorded.
- Deeds – To determine ownership and who has other rights to a property, a portion of that log (records) must to be examined (searched.) The chain of deeds is verified to ensure it has no breaks/errors in it. The end-use of the search determines how far back in history the records must be searched.
- All other documents that affect rights to property – In that same search of deeds, the searcher also lists all docs of record, and crosses them off as they detect their releases or expiration dates. The unreleased and unexpired docs remaining at search completion are deemed to be those that affect title. These could be liens, mortgages, easements, other. They are listed on any search report and in the requirements section of a title commitment.
- Title & Vesting – The words “title” and “vesting” are frequently used interchangeably but differ slightly, depending on the state. Generally, “Title” denotes the ‘who’ of ownership, and “Vesting” denotes ‘how’ of ownership.
- Ex: A deed lists a husband and wife own a property as “joint tenants with right of survivorship”. The husband and wife are on title as owners…but their vesting means the interest of the first spouse to die goes “across” fully to the surviving spouse at death. You’ll have 1 or 2 persons to deal with here.
- Ex: If they owned it as “tenants in common”, where its 50/50, such when one dies, their interest goes “down” to their heirs instead of across to the surviving spouse. Common in second marriages. Here you’ll have 2 or more parties to deal with.
- Entities such as estates, trusts, corporations or LLCs may also hold title. These entities will have one or more persons authorized by their wills, trust documents, articles or organization, bylaws or corporate resolutions to conduct business on behalf of the entity.
- Record of ownership is a Deed- There are various types of deeds. The most common and most desirable is a General Warranty Deed. Other deed types such as a Special Warranty Deed convey ownership with some exceptions or conditions that may create future legal problems for you.
- Record of others’ rights are a mortgage, lien, easement – Mortgages and liens and the like give parties the right to stand in line to get paid back amounts tied to them, when a property sells – these are typically subject to various expiration dates. Easements and other documents give parties rights to use the property and typically don’t expire.
- Detecting ownership and rights – After a title search of a property’s records is performed, the best anyone can get in the U.S. is simply an opinion as to who has ownership and rights.
- Not definitive – Because these records are created, recorded, maintained and searched by humans, the search results are often inaccurate and are therefore not definitive. Problem?
- Human error & omission – Often, documents that were intended to be recorded to a property’s log are not recorded correctly due to typos, use of other addresses, names, etc.
- Invisible – This is called mis-indexing, and can make a document undetectable. Mis-indexing is only one example of what is called a title defect.
- Still valid – Mis-indexing does NOT necessarily make a document invalid (lien, deed, easement). More problems? Yes.
- Title Defects & Frequency – Mis-indexing is one of many types of title defects. Defects are problems that cannot be detected in a normal, accurate search of a property’s records. Regardless of when a defect originally occurs, once one is discovered it may negatively impact your lease/ownership of a property.
- Frequency – Legal claims due to defects arise in approximately 8-12% of all policies issued.
- Date – It may not matter if the defect occurred before or after your lease/purchase.
- Financial Loss – Legal claims due to title defects can lead to costly settlements, law suits, loss of investment and/or forfeiture of the property/solar-project while still being required to repay the debt against it.
Solution to abate the risk of financial loss due to title defects?
- Title Insurance Policies protect a solar developer from financial loss due to title defects.
- Premiums – Underwriters issuing policies in exchange for premiums.
- Defense – The underwriter will defend a policy owner’s rights to the property in court, 100% at their expense, and pay off the claim if they lose.
- Costs/Coverage – Title insurance costs a 1-time premium and has no deductible. The policy covers the holder for as long the holder has an interest in the property.
- Types – There are different policies for owners, leaseholders and lenders.
- Bad search – Title Insurance does not protect you against a poor-quality title search of a property’s records. Those are performance errors by the search vendor and are covered by the search vendor’s errors & omissions insurance – Do business with the best, most reputable search vendor possible with substantial E&O coverage. Our enterprise-level search partner is such, and is the leading search vendor in the nation.
- Title insurance commitment? – Most lenders, buyers or prospective leaseholders require a title insurance policy to be issued to them after closing, for the protection that is described above. In advance of closing, they request an assurance that the property’s title is in good enough shape that a policy can in fact be issued at closing, so they request a written commitment from the title insurance underwriter stating such. The policy protects a solar developer from financial loss due to title defects.
- Title Search – A commitment on a renewable energy project can only be provided to you after an underwriter reviews an extensive search of the property’s records, (a 120yr or even a Patent search.)
- “Patent” refers to the record of the US Govt’s land grant/sale to the first private owner.
- Requirements & exceptions – Commitments are always contingent upon a set of requirements that must be met by closing or shortly after closing, and they’re also subject to a list of exceptions to coverage. All are listed in the commitment.
- Solar commitment searches take longer and cost more – They average 30-60 days and $700-1,300 per parcel searched. You pay for searches only. Each deed may contain multiple parcels. Each parcel has its own recorded history and requires its own search.
- When do solar developers need a title commitment? Once you have the land under signed agreement by its owners and all other objectives have been met so that you are prepared to move forward, then a title commitment should be ordered. It permits you to:
- Begin curative tasks – Making various adjustments to the land records so that you may proceed with your intended use of the land with as little risk as possible. Securing releases, requesting lien payoffs, removing liens, etc.
- 30yr-60yr search – If you’ve ordered this search up front, then this portion of the property’s history won’t need to be searched again during the commitment’s lengthy search. You may begin curative work on documents it already discovered, giving you a head start.
- Order an ALTA Land Survey (American Land Title Association) – You must first have a commitment before ordering this. It is a costly, detailed survey of the property’s boundaries and property records listed in a commitment. All are then drawn, providing a visual representation of all parties’ rights to the land – boundaries, easements, rights of ways, etc. It is critical to plotting locations for construction & improvements, etc.
- Alternative – You may order commitments on our platform, choosing the underwriter you prefer, and receiving all benefits of our automation, standardization and centralization of the 11 mandatory steps of ordering/handling title searches & commitments. For free.
- Do not order title searches from underwriters. Instead, save additional weeks per project by ordering them from our enterprise-level search partner – just like each of the Big-4 underwriters do. Underwriters are not in the search business. They are in the business of issuing title insurance policies after deals close, where they earn premiums. They don’t perform searches. Instead, they order a large percentage of their searches from our enterprise-level search partner. Underwriters are then forced to deliver searches to you, answer your search questions and coordinate accounts payable. For these reasons, searches are low priority for underwriters, and that creates weeks of needless delay for you.
- Access to an enterprise-level search vendor – Our platform gives you access to order from our enterprise-level search partner. The largest commercial search vendor in the nation, serving the Big-4 underwriters and 12 independents, searching in all 3,300+ U.S. counties.