A series of recent SBA financed real estate transactions handled by our firm highlighted the importance of identifying title issues early in the closing process. It is imperative lenders examine title exceptions to identify any matters that may impact the proposed use of the real property they are financing, and may some day own by means of foreclosure or otherwise. Lenders often misapprehend their ability to raise objections to title exceptions, survey matters or title defects when discovered late in the closing process as deadlines for raising title objections are governed by terms in the purchase agreement that often elapsed early in the course of a real estate acquisition.
Typically, a buyer has a finite number of days to review title and raise any objections as to matters of record that could impact their intended use for the property. In Florida for example, under the terms of the standard Commercial Contract promulgated by the Florida Association of Realtors for the acquisition of Property with improvements, a buyer only has 15 days from receipt of evidence of title, to deliver written notice to seller objecting to title defects. In some cases, the title examination period can be as short as five days, as is the case in the standard Vacant Land Contract and the Standard Contract for Sale and Purchase approved by the Florida Bar.
Some title exceptions, such as easements and setbacks, require the drawing of a survey plotting the easements and setbacks in order to understand how they impact the real property. For instance, a utility, access easement or setback may interfere with buyer’s intended location and construction of future improvements. Properties with improvements impacted by encroachments over easements or setbacks can expose the buyer, and a subsequent lender who acquires title, if the improvements have to be removed or relocated. Title insurance underwriters customarily will not provide affirmative coverage over these encroachments.
Encroachments or other violations constituting title defects must be raised by buyer during the title examination period. Failure of the buyer to deliver notices of objections in a timely fashion may constitute a waiver of any such title or survey objections. It follows that lenders should review the title examination period of the purchase contract carefully to avoid missing critical deadlines. Similarly, not ordering a survey to help understand the impact of title exceptions can be detrimental to a lender because title insurance underwriters are reluctant to delete or remove objections or insure over encroachments revealed by an untimely procured survey.
Lenders need to remember they are not parties to the purchase and sale contract, nor are they the intended third party beneficiaries of the contract. The lender’s sole, ancillary role is that of providing the financing to buyer necessary to complete the transaction. For that reason, the best practice is to monitor the timeframes set forth in the purchase agreement, request or require borrower to extend them if necessary, solicit from borrower copies of its written title and survey objection notices, and work in conjunction with borrower in identifying title and survey issues. For additional information on title or survey matters, please contact Victor at 407-618-0694 or at firstname.lastname@example.org.