Beware the “of record” Exception

The advent of Internet title searches hides a new pitfall: title companies sometimes insert an exception for “easements and restrictions of record” into “Schedule B—Section II” of the commitment without calling out and listing individual exception documents.

The subtle “exception” appears most often in residential title commitments because certain underwriter’s guidelines only require the title agent to examine title back to the last good warranty deed and purchase money mortgage. Therefore, the title agent may not feel the need to search further back in time in order to issue the policy. This approach does nothing to inform the buyer of the specific restrictions applicable to the property recorded prior to the last deed and mortgage and is a serious disservice to the agent’s client, the buyer/insured.

The problem with using this generalized “exception” is that the commitment may not inform the buyer of all documents that affect title. Unless the buyer or counsel notices this exception, they may erroneously believe that the property is free of any recorded easements and restrictions which may significantly impact a buyer’s decision to purchase. Failing to notice this exception could have malpractice implications as well for the lawyer.

Title companies are not yet commonly using this exception in commercial transactions where more thorough searches are still the norm. However, real estate practitioners should remain vigilant and spot the exception in any type of transaction. If this exception appears in a commitment, counsel should request: (1) that it be deleted; (2) that the commitment list all easements and restrictions recorded for a period of years; and (3) that the title company supply counsel with copies of all listed documents for review. No exceptions.

Read more at MichBar.org

Tom Treppa