March 16-April 5, 2016 —
COLORADO REAL ESTATE JOURNAL
— Page 21
Law & Accounting
T
his is the seventh in a
series of a dozen or so
articles that come from
some years of experience using
the Colorado Real Estate Com-
mission-approved contracts for
purchase and sale of real estate
for commercial real estate transac-
tions. Previous articles addressed
the buyer’s name, the seller, the
property and water rights.
The contract is contingent on
the buyer being satisfied with the
condition of title to the property.
The first step in the title review
process is ordering the title search
as to which the parties have sev-
eral choices stated in §8.
Section 8.1 of the contract offers
the parties a choice between a title
commitment and an abstract of
title. An abstract of title is a list-
ing and short summary of every
document affecting title to the
property that has been prepared
by an attorney or other title exam-
iner who has searched the entire
county grantor-grantee index for
the property. “In the old days,” an
abstract provided the title search
a buyer (or the buyer’s attorney
providing a title opinion) needed
to determine the condition of title
to the property. As title insurance
companies computerized the real
estate records, abstracts became
obsolete, except in some of the
rural counties. Almost universal
today is a title commitment,which
does not give the complete history
of documents affecting title to the
property, but does identify those
documents that still affect title to
the property. In addition, a title
commitment provides the terms
upon which the title insurance
will (commits to) provide title
insurance to the buyer to insure
its title to the property when the
property is purchased.
If an abstract of title is not cho-
sen, as is usually the case, §8.1.6
requires the seller to deliver to the
buyer any abstracts in the seller’s
possession. This requirement is
often ignored. In the rare instanc-
es when a title insurance policy
has never been issued before for
a particular property, and only
an abstract of title exists, the title
insurance company might require
the seller to deliver the original
abstract to the title insurance com-
pany as a condition to issuing the
title commitment.
The contract next requires the
parties to choose whether the
buyer or the seller will order and
pay for the title commitment and
the title insur-
ance policy. A
title commit-
ment gener-
ally is issued
at no cost,
although
a
fee may be
charged by
the title insur-
ance company
if the title com-
mitment
is
ordered with
the insured
party to be determined (i.e.,
“TBD”), or if the title commitment
is subsequently cancelled. Oth-
erwise, the title insurance policy
premium paid at closing covers
the cost of the title commitment.
The custom in Colorado is
for the seller to provide the title
commitment and to pay for the
buyer’s title insurance policy at
closing.
Trap:
The contract gives the
seller or the buyer the choice of select-
ing the title insurance company, but
with that choice comes the obligation
to order the title commitment, deliver
it to the other party by the “record
title deadline,” and to pay for the title
insurance policy.
That tie between
who selects and who pays makes
some sense, but, as title insurance
costs do not vary greatly among
underwriters and the buyer is the
beneficiary of the title insurance
policy, the buyer may care which
title insurance company issues
the title commitment. At the same
time, the seller may want to use
the title insurance company that
issued a policy to the seller when
the seller purchased the property.
If the seller’s existing title insur-
ance insures over a particular title
problem, the seller may have a
strong interest in not switching
title insurance companies so the
seller does not have to cure the
problem all over again for the
new title insurance company.
Tip:
A buyer who wishes to select a par-
ticular title insurance company, but
wants the seller to order and pay for
the title policy, needs to add a provi-
sion to the contract that says that.
Tip:
If the buyer selects an agent
to issue the title commitment (as
opposed to a title insurance company
that actually issues the title insurance
policy), the buyer also should specify
which title insurance company will
issue the title insurance policy.
While
some title agents write title insur-
ance policies only for one title
insurance company, some write
for two or more. Some lenders
and institutional buyers, generally
in very large transactions, will not
accept a title commitment issued
by an agent; it must be issued by
a title insurance company.
Tip:
If
an agent issues the title commitment,
the buyer might want an “insured
closing letter,” also called a “closing
protection letter,” from the title insur-
ance company.
This letter insures
the party receiving title insur-
ance against claims arising out of
the agent’s dishonesty or fraud
and the agent’s failure to com-
ply with closing escrow instruc-
tions. Although more commonly
requested by a lender, it is avail-
able to a buyer – if someone tells
you it is only issued to a lender,
don’t believe it and insist. The
contract should be supplemented
to provide that the title insurance
company will deliver this letter to
the buyer and its lender, although
title insurance companies often
give it simply upon request.
Under §8.1, the buyer also is
entitled to receive copies of the
“title documents” by the record
matter deadline.
Trap:
Since the
requirement to deliver copies of the
title documents is not the covenant
of a particular party, the failure to
receive them is not a breach of the
contract.
The buyer’s sole rem-
edy appears to be an extension
of time to review the title docu-
ments under §8.2.
Trap:
The con-
tract does not expressly provide that
the buyer may terminate the contract
if it never receives copies of all the
title documents.
Astrong argument
can be made, however, that the
buyer retains the right to termi-
nate.
Trap:
The buyer can terminate
the contract only if it gives the seller
a notice of termination in accordance
with §25.1. Failure to object is a
waiver under the contract.
“Title documents” include 1)
copies of any plats, declarations,
covenants, conditions and restric-
tions burdening the property, and
2) copies of any other documents
(or, if illegible, summaries of such
documents) listed in the schedule
of exceptions (exceptions) in the
title commitment.
Trap:
Note that
the buyer is not entitled to a summary
of plats, declarations, etc., if they are
illegible, even though they frequently
are. The buyer is entitled only to
summaries of illegible “other docu-
ments.”
Modifying the contract
to solve that error is worthwhile.
Tip:
Often, the recorder’s office can
produce a legible copy of a recorded
document when the title insurance
company cannot, and vice versa.)
s
Beat U. Steiner
Partner, Holland &
Hart LLP, Boulder
