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Getting Abstract and Insuring Your Transaction


Understanding the difference - Abstract of Title vs Title Insurance. These concepts are well established in the real estate industry, but often misinterpreted even by seasoned pros. Maintaining a good understanding of these concepts is an excellent way to differentiate yourself self from less knowledgeable competitors.

Abstract of Title

An Abstract of Title is a full summary of all consecutive grants, conveyances, wills, records and judicial proceedings affecting title to a specific parcel of real estate. These items are packaged together with a statement of all recorded liens and encumbrances affecting the property and their present status. 

The person preparing the abstract of title, called an abstracter, searches the title as recorded or registered with the county recorder, county registrar, circuit court and other official sources. The abstracter then summarizes the various instruments affecting the property and arranges them in the chronological order of recording, starting with the original grant of title.

The abstract includes a list of public records searched and not searched in preparation of the report. In summarizing a deed in the chain of title, the abstracter might note
 
  • The recorder’s book and page number 
 
  • The date of the deed 
 
  • The recording date
 
  • The names of the grantor and grantee 
 
  • A brief description of the property
 
  • The type of deed and any conditions or restrictions contained in the deed

The abstract of title does not guarantee or ensure the validity of the title of the property. Instead, it is a condensed history that merely discloses those items about the property that are of public record. Thus, it does not reveal such things as encroachments and forgeries. Therefore, the abstracter is usually liable only for damages caused by his or her negligence in searching the public records.

Title Insurance  

Title Insurance is a comprehensive indemnity contract under which a title insurance company warrants to make good a loss arising from defects in title to real estate or any liens or encumbrances thereon. 

Unlike other types of insurance, which protect a policyholder against loss from some future occurrence (such as a fire or auto accident), title insurance in effect protects a policyholder against loss from some occurrence that has already happened, such as a forged deed somewhere in the chain of title.

Consider that a title company will not insure a bad title any more than a fire insurance company would insure a burning building. However, if upon investigation of the public records and all other material facts, the title company feels that it has an insurable title, it will issue a policy. A title insurance policy will protect the insured against losses arising from such title defects (hidden risks) as the following:
 
  • Forged documents such as deeds, releases of dower, mortgages
 
  • Undisclosed heirs; lack of capacity (minors)
 
  • Mistaken legal interpretation of wills
 
  • Misfiled documents, unauthorized acknowledgments
 
  • Confusion arising from similarity of names

Incorrectly given marital status; mental incompetence

Also, and most important, the title company will agree to defend the policyholder’s title in court against any lawsuits that may arise from defects covered in the policy. A title insurance policy consists of three sections:
 
  • The agreement to insure the title and indemnify against loss
 
  • A description of the estate and property being insured
 
  • A list of conditions of and exclusions to coverage

These uninsured exclusions include such title defects as:
 
  • Rights of parties in possession, not shown in the public records, including unrecorded easements
 
  • Any facts that an accurate survey would reveal (e.g., encroachments)
 
  • Taxes and assessments not yet due or payable
 
  • Zoning and governmental restrictions
 
  • Unpatented mining claims
 
  • Certain water rights

Title indemnity is made as of a specific date. Except with certain policies, a one-time premium is paid, and coverage continues until the property is conveyed to a new owner (including a conveyance to an insured’s wholly owned corporation). It does not run with the land. Coverage is thus limited to the tenure of the named insured, and certain of the insured’s successors by operation of law.

Most policies provide, however, that the coverage does not terminate: 

“So long as an insured retains an estate or interest in the land, or owns an indebtedness secured by a purchase-money mortgage given by a purchaser from such insured, or so long as such insured shall have liability by reason of covenants of warranty made by such insured in any transfer of conveyance of such estate or interest.”

There are two major types of title insurance, the owner’s policy and the mortgagee’s or lender’s policy. An owner’s policy is issued for the benefit of the owner, the owner’s heirs and devisees or, in the case of a corporation, its successors by dissolution, merger or consolidation; but the policy is not assignable. For an added premium, title companies will issue an extended coverage owner’s policy for certain properties to cover possible title defects excluded from standard coverage. Such title defects may include the rights of parties in possession, questions of survey and unrecorded liens.

A lender’s policy is issued for the benefit of a mortgage lender and any future holder of the loan. It protects the lender against the same defects as an owner under an owner’s policy (plus additional defects), but the insurer’s liability is limited to the mortgage loan balance as of the date of the claim. 

In other words, liability under a lender’s policy reduces with each mortgage payment and is voided when the loan is completely paid off and released. Because of this reduced liability, a lender’s policy usually costs less than an owner’s policy. 

Under a mortgagee policy, the loss payable is automatically transferred to the holder of the mortgage. Upon foreclosure and purchase by the mortgagee, the policy automatically becomes an owner’s policy, insuring the mortgagee against loss or damage arising out of matters existing before the effective date of the policy. In addition to these policies, title companies also issue policies to cover the leasehold interests of a lessee, a lender under a leasehold mortgage or a vendee under a contract for deed.

In the event of loss under a mortgagee’s policy, the insurer pays the mortgagee the balance due on the loan, and the owner is thereby relieved from making further payments. However, the owner still stands to lose the property and the investment. For this reason, it is generally sound practice to obtain an owner’s policy where the lender is already requiring a mortgagee’s policy; there is usually only a slight additional premium to issue both policies simultaneously. 

Some areas, by custom, require that both policies be purchased. Local practice and custom usually dictate which party to a transaction buys what type of policy. As an example, a seller may pay for the owner’s policy, guaranteeing the title, whereas the buyer may pay for a lender’s policy, protecting the mortgagee’s interest in the real estate. Title insurance may be required by custom, even where title is registered in the Torrens system, to protect against items not shown on the transfer certificate of title (unrecorded liens, such as federal tax liens). The Federal National Mortgage Association and Federal Home Loan Mortgage Corporation also recognize the importance of title insurance, and they require it on every loan they buy.

Title insurance premiums vary throughout the country, but their costs generally reflect the two basic title insurance considerations:
 
  • Cost of title examination 
 
  • Cost of risk insurance

The average cost is approximately 0.5 percent of the cost of the property. It takes a week for the policy to be issued, much less than the time it would take to prepare an abstract of title. If the same title company has recently issued a policy on the same property, then it may give a discount called a reissue rate.

Note that, if an insured property appreciates in value (as when an expensive improvement is made), it is good practice to increase the amount of title insurance to cover possible increased losses. Newer policies have an “inflation guard” endorsement to cover appreciation.

In summary, an abstract of title summarizes the various instruments and documents affecting the title to real property, whereas title insurance is a comprehensive indemnity contract under which a title insurance company warrants to make good a loss arising through defects in title to real estate or any liens or encumbrances thereon.

Have you ever encountered a situation where a client was confused about Abstract of Title or Title Insurance? How did you resolve this issue?
  • November 14, 2017

  • Saul Klein

RealTown® Visits Dick Betts of Agent Inbox at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
 
  • November 13, 2017

  • RealTown

RealTown® Visits the Hondros Education Group at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 13, 2017

  • RealTown

RealTown® Visits eXp Realty CEO, Jason Gesingthe at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
 
  • November 13, 2017

  • RealTown

RealTown® Visits with Jeff Turner, CEO of Immoviewer at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 13, 2017

  • RealTown

RealTown® Visits Michael Krisa at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
 
  • November 13, 2017

  • RealTown

RealTown® Visits with Sam Debord at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 13, 2017

  • RealTown

RealTown® Visits Luke Glass at the NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 13, 2017

  • RealTown

RealTown® Visits RIS Media at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 13, 2017

  • RealTown

RealTown® Arrives at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
 
  • November 13, 2017

  • RealTown

RealTown® Visits Yardi Systems at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly as they explore the NAR Conference and Expo in Chicago and speak with the folks at Yardi Systems.
  • November 13, 2017

  • RealTown

RealTown® Visits NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 13, 2017

  • RealTown

RealTown® Visits Pillar to Post at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 13, 2017

  • RealTown

RealTown® Attends the NAR Chicago Three


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 13, 2017

  • RealTown

RealTown® Attends NAR Chicago Two


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 13, 2017

  • RealTown

Exception to the Rule vs Grandfathering

 


Mistaken Identity — Variance vs. Nonconforming Use. What if you're working with a client who is buying or selling a piece of property and its use is outside of the current zoning guidelines? Can you ask for an exception to the rule, or maybe the property is grandfathered for this use?

The intelligent real estate agent understands the lingo of the trade and delivers the value of their knowledge to their clients. Do you understand the difference between these often confused terms? Variance vs. Nonconforming Use, each represents an exception to the current zoning code, but in very different ways.

Understanding a Variance

Getting permission from governmental zoning authorities to build a structure or conduct a use that is expressly prohibited by the current zoning laws or an exception from the zoning laws represents a variance. A variance gives some measure of elasticity to the zoning game.

The use of variances can have many forms. Many variances are granted conditioned upon the commencement of construction within a certain time period (for example, 12 months). This helps to eliminate land speculation. 

There are also use variances such as for apartment use in a single-family residential area. There is also an area or building variance where the owner attempts to get permission to build a structure larger than permitted.

To be granted a variance, the applicant usually must: 

  • Describe how they would be deprived of the reasonable use of the land or building if it were used only for the purpose allowed in that zone. 
 
  • The request should be due to unique circumstances and not the general conditions in the neighborhood.  
 
  • Detail how the use sought will not alter the essential character of the locality or be contrary to the intent and purpose of the zoning code.


Understanding Nonconforming Use

This exception is a permitted use of real property that was lawfully established and maintained at the time of its original construction but that no longer conforms to the current zoning law. 

The nonconforming use might include: 

 

  • The structure itself
 
  • The lot size 
 
  • Use of the land or use of the structure

The use will eventually be eliminated, although the nonconforming use status does not necessarily have to be discontinued upon the sale or lease of the property. 

By allowing the use to continue for a reasonable time, the government can assure itself that the use will not continue indefinitely and, at the same time, avoid having to pay just compensation for taking the property through condemnation.

When purchasing a nonconforming structure, a buyer should be made aware that in case of substantial destruction by fire or otherwise, the zoning statutes may prohibit reconstruction of the structure. In such a case, a buyer should discuss the possibilities of purchasing demolition insurance from an insurance agent. A nonconforming use can also terminate upon abandonment of the property.

So in the simplest terms, a  variance is an exception to the existing zoning, whereas a nonconforming use (also known as a grandfather clause) arises when there is a change to the zoning, but an existing use is still permitted to continue.

What is your experience with Variance vs. Nonconforming Uses? Have you ever had to deal with one? And if so what was your experience with the process?
  • November 14, 2017

  • John Reilly

RealTown® Attends the NAR Chicago


RealTown cofounders Saul Klien and John Reilly attend the 2017 National Association of REALTORS® Conference and Expo in Chicago
  • November 13, 2017

  • RealTown

RealTown® Visits Stefan Swanepoel at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 11, 2017

  • RealTown

RealTown® Visits John Moscillo Founder, More GCI at NAR Chicago


Join RealTown® Co-Founders Saul Klein and John Reilly, as they speak with friends and associates at the 2017 National Association of REALTORS® Conference and Expo in Chicago.
  • November 10, 2017

  • RealTown

Wait, That's Not Your Photo!


Understanding Copyright Infringement - Issues with Listing Photos. Baseball is no longer the national pastime. I think today’s favorite indulgence is surfing the web and checking the wonderful photos of real estate properties, whether they be exterior or interior shots, luxury homes, aerial views, video tours, 3D Imaging, you name it.

But who owns the photograph and what rights do they have to stop a third party from infringing on those rights? Those and related issues are the focus of several risk management articles prepared by the legal staff at the National Association of REALTORS®.

In an article titled “Who Owns Your Property Photos?” the author points out that: “Improper use of listing photographs, however, can create legal problems for agents, brokerages and MLSs. 

Authorship and ownership of photographs within the real estate industry is “fractured”. Who authored the photograph and who can use what photograph and in what way varies across the industry. 

Listing photographs may be taken by homeowners, real estate agents, MLS or brokerage employees, or professional photographers. Photographs may be owned or licensed to different parties in a variety of ways. A misunderstanding of how you may use the photographs for property listings could make you vulnerable to a copyright lawsuit.” 

The article cites an ongoing case alleging that Zillow continued to use the listing photos in connection with “sold” properties and that this use exceeded the scope of the photographer’s limited license to use the photographs only in connection with active property listings. 

As part of a Risk Management Strategy, the article recommends the following:

1. Review photography agreements to assess how you can use the photographs

2. Audit photographs to ensure compliance with the relevant agreements

3. Determine how you want to use listing photographs and ensure that future agreements permit those uses

4. Maintain a record of all photography agreements

To that end, NAR provides some Sample Photography Agreements for you to review with your attorney:

    •    Work Made For Hire Agreement
    •    Assignment Agreement
    •    Exclusive License Agreement

So, what happens when you display listing photos on your website provided by other brokers under IDX rules and it turns out that one of those photos is now the subject of a copyright infringement claim by the photographer?  If there was no way for you to know about the infringement claim, how can you protect yourself?

NAR’s Associate Counsel Chloe Hecht offers advice in a video titled “Window to the Law: Listing Photo Copyright Issues.” In the video, she suggests that you can limit your liability for copyright infringement by complying with the federal Digital Millennium Copyright Act (DMCA).

This act provides a “safe harbor” if a third party uploads infringing content on your website. But to enjoy this safe harbor, you’ll need to designate a copyright agent on your website and with the Copyright Office, implement a DMCA-compliant website policy, comply with the DMCA takedown procedure; and have no knowledge of the complained-of infringing activity.

 
In short, be respectful of the photography rights of others and be clear about what rights you grant others to use your listing photographs. And, as recommended in these articles, carefully review the relevant photography agreements.
 
  • November 9, 2017

  • John Reilly

Presenting Offers


Presenting an offer is an exciting proposition for even the most seasoned industry professional. But this is also a delicate time fraught with pitfalls and confusion. Industry experts Saul Klein and John Reilly take a couple of minutes to hit the highlights of important parts to consider when navigating this critical detail of the real estate transaction.
  • November 1, 2017

  • RealTown

Opt In vs Opt Out in Real Estate


Are you in or are you out? Did you know that data from the MLS is regularly harvested and utilized for all kinds of purposes? Did you authorize this? Maybe you did and you don't even know it! Make sure you understand the difference between opting in and opting out when it comes to the use of data in the MLS. 
  • November 1, 2017

  • RealTown

Managing Security Deposits


You've rented a property and collected a security deposit. Now what? There are lots of in and outs when it comes to managing a security deposit. Here Saul and John discuss the evolution of this concept and how managing this kind of situation can be tricky.
  • November 1, 2017

  • RealTown

Hiring Attornies


You may love them, you may hate them, you may even be one! But attorneys perform a critical role in the real estate industry. Do you need one and if so when? Saul Klein and John Reilly (who knows a thing or two about lawyers) spend some time examing this interesting topic.
  • November 1, 2017

  • RealTown

Seller Representation Among Real Estate Agents


In real estate everybody represents the seller, right? Not so fast, this idea that was once a foundational part of the real estate business changed some time ago. Saul Klein and John Reilly take some time to examine the elements behind who can really represent the seller in real estate.
  • November 1, 2017

  • RealTown

REALTOR® Compensation


How you heard this one before, "Hey I know what, I'll become a real estate agent, it's easy and they make tons of money!" This often heard comment among noobs makes any seasoned real estate professional laugh. Real estate is a serious business and it takes real work and time to become successful. Saul Klein and John Reilly spend some time considering working in the business and what newcomers can expect on the job. 
  • November 1, 2017

  • RealTown

Lead Generation in Real Estate


Many real estate agents are all about the leads. They ask questions like: Where can I get leads? How can I get more leads? And why don't my leads convert? But leads are only a small part of building a relationship with a client. Saul Klein and John Reilly spend some time examining the concept of leads and how to best consider this controversial topic.
  • November 1, 2017

  • RealTown

Real Estate Commissions


It's the most taboo topic in real estate. Even watching this video could land you in prison! But wait... Maybe somewhere along the way real estate agents got confused about what they really can and can't say about commissions. Saul Klien and John Reilly take some time to discuss this interesting topic and uncover some of the misconceptions about commissions in real estate.
  • November 1, 2017

  • RealTown

Value Range Marketing


What is value range marketing? How did it begin and does it work? Industry experts Saul Klein and John Reilly dive into the history of this marketing technique. 
  • November 1, 2017

  • RealTown