“Why Use the Builder’s Title Company?”
Victor Rzepecki

 

            The foregoing question has been asked by many buyers and their agents.  The purpose of this article is to give you enough background information to enable you, the agent or the buyer to draw your own logical conclusion.

 

            The purchase of real estate is the single largest investment most people will ever make.  In this regard, there are many legal issues that need to be addressed prior to the builder ever “planting its shovel” into the ground. Most people today live in a subdivision, or a planned community, which in many cases was developed by one or multiple home builders.

 

            Title Companies are one of many professional participants in the development process.  Unlike personal property, real property is subject to a vast array of rights beyond the owner.  These rights affecting title to the real estate are often referred to as encumbrances, which can be monetary or non-monetary.  From the time a Patent is issued from a State or the United States, or acquired by Land Grant or other Congressional Acts, title to land can be subjected to all kinds of encumbrances and other legal concerns.

 

            Let us focus on some of the issues title companies, developers and attorneys are frequently faced with.  For example, down through the decades prior to now, various easements may have been granted.  Some of the recorded easements fail to include a legal description for the exact location of the easement.  These are often referred to as “blanket easements.”  The title company also discovered the acreage to be developed is subject to some outstanding fractional interests held by prior parties (now deceased) and there has never been any probate to distribute title to the appropriate successors.  Ten years ago, one of the prior owners filed bankruptcy in another State, the records of which are not available for review locally.  Last but not least, the property to be developed into a subdivision was created by “assemblage.”  One of the parcels making up the “project” says it is to be used for “religious purposes only and any other use will cause the title to revert back to the grantor.”

 

            The foregoing issues are not fiction, rather they are dealt with on a regular basis.  In most cases the builder, their attorneys and “their title company” have worked months in addressing and resolving these many concerns to the point where a parcel of land is suitable for development and meets the requirements of some local governmental agency.

If some title issues can not be totally cured, title companies also provide affirmative protection over some matters in the form of an endorsement to a policy of title insurance.

 

  These endorsements require careful and thorough risk analysis by the title company Underwriter and issues are normally “underwritten” on a case by case basis.  While title companies will undertake some risk, the nature of our business and product involves risk reduction rather than risk assumption.  Often the “builder’s title company” has decided to underwrite the risk as a “business” decision, whereas another title company not having the same business relationship with the builder would not be inclined to provide protection to a buyer from the builder.  The area of title underwriting is quite subjective and generally title companies don’t have to assume any risk they are uncomfortable with.

 

            Developing acres of land into a desirable, marketable residential subdivision requires the expenditure of significant time and capital.  In many cases a return on the time and expense incurred by the title company is not realized until the builder begins closing sales on its homes.  This lag time on return can be months and in some cases a couple of years.  The title industry takes a significant business risk in providing significant services with the objective of writing title insurance and providing escrow services in the end.  The same is true of agents working with buyers for weeks or months.  A level of commitment is to be expected.  Absent some degree of builder “loyalty,” let us consider a couple more reasons for using the “builder’s title company.”

 

            As mentioned earlier, title companies underwrite risk on a case by case basis.  This underwriting process is time consuming and usually requires the gathering of significant information from different sources.  In addition thereto, many issues require research of case law, statutes, both State and Federal that are germane to the concern.  Upon completion of the research, an underwriting decision is made.  Builders must also provide title companies with documentation regarding authority to execute documents.  Such documentation often include: Corporate Resolutions, Operating Agreements, Financial Statements and Indemnities.  Special or unique disbursement instructions may be in place, to facilitate efficient transfer of proceeds.  The “builder’s title company” has coordinated all of the many issues with the builder and all the other participants that may be “behind the scene.”

 

            Buyers and their agents need to be cognizant of the complexities that can exist in a project.  Insisting that the parties use “another” title company, which is totally unfamiliar with the history of title, lacks authority documents, special instructions, may be unwilling to accept an indemnity from the builder, or requires “mounds of paper” to make its own underwriting determination, will usually result in delay of the closing.  This brings us to what I believe is the most important reason to consider using the “builders title company.”

 

            Builders have two primary objectives: a) build a product that consumers want to have and b) get consumers into their home as soon as possible, with everyone getting paid!  Title companies want to see deals close on time and as efficiently as possible.  I believe agents want to see their clients enjoy their dream home and get paid their hard earned commission.  How do we increase the probability of attaining most of these goals?

Victor Rzepecki is Vice President of Underwriting in Arizona and represents Commonwealth Land Title Insurance Company, Lawyers Title Insurance Corporation and Transnation Title Insurance Company all three being national title insurance companies, providing real estate-related products and services on commercial and residential transactions in the United States, Canada, Mexico, the Caribbean and South America. LandAmerica Financial Group, Inc is the holding company.  Questions or comments can be sent to vrzepecki@landam.com