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Texas Boundary Law and Modern Title Company PracticeDeletion of Survey Exception in OTP and Loan PolicyAccessAccess Endorsement T-23Lender Endorsement T-19 for encroachments of Improvements Owner Policy Endorsement T-19.1 for encroachment Of improvementsRecent Case Law on Owner Policy Coverage Using Reference to Survey Deletion of Survey Exception in OTP and Loan PolicySchedule B #2“Any discrepancies, conflicts…or boundary lines, or any encroachments or protrusions, or any overlapping of improvements.”Fee for the survey deletion, provided by Rate Rule R-16.15% of the Basic Rate in an Owner Policy (T-1);5% of the Basic Rate in a Residential Owner Policy of Title Insurance –One to Four Family Residences (Form T-1R), with a minimum premium of $20.Examples of additional title policy fee for deletion:$200,000 OTP T-1 Basic Rate=$1,983Deletion=$297.45$1,000,000 OTP T-1 Basic Rate=$5,861Deletion=$879.15$200,000 OTP T-1R Basic Rate=$1,983Deletion=$99.15$1,000,000 OTP T-1R Basic Rate=$5,861Deletion=$293.05Premium for Deletion on the Loan Policy, Per R-16 = $0.Coverage provided by the deletion, for all title policies:“Discrepancies, conflicts”: Any part of the described property that is described by any adjoining legal description in conflict or overlap with the legal insured.This ties to the duty of the surveyor to research all adjoining legal descriptions and show any overlapping or disputing legal description of an adjoining property into our legal description.“Boundary lines”: Again, it requires we know that the boundary lines of the property as set out in the vesting deed of the present owner are located by the survey, and shown on the drawing of the property presented for review. Any question about the location therefore must be noted in the notes on the drawing.“Any encroachments”: Refers to showing what is visible on the ground when the survey is done, as to anything seen that would be over the boundary line into our property from an adjoining owner.“Any Protrusions”: A term referring to any of the present owner’s improvements being partly off the property, as seen on the ground by the surveying crew, and needed to be identified as to how much of the improvement lies beyond the boundary.“Any overlapping of improvements”: Refers to finding while surveying improvements beyond the boundary, as located in the survey and therefore referenced in the drawing as mon Claims in this area:Fences are not on the boundary of the property.Parties believing they own to the fence, in light of years of a fence being in place, and claiming title to the fence, if it takes in part of the insured tract, or, for our owner, if it takes in property beyond their boundary line.Care must be taken to show the fence location and any discrepancy from the boundary line, to allow proper exception to be taken in the title policy for the matter, and avoid later claims under the policy between neighbors.Recent claim: Our new insured received a letter from his next door neighbor that the fence between them was being replaced by the neighbor, and that a current survey revealed the fence of our insured was three feet beyond the boundary between the parties, in a platted lot subdivision. Bushes were also in the area beyond the boundary according to the neighbor’s recent survey. The letter gave the owner three weeks to remove any bushes he wished to save, and stated the fence would be removed by contractors, and any remaining bushes would be removed, and a new fence would be installed by the neighbor on the boundary line shown by the new survey.The owner ignored the matter, and when the contractor arrived and began removing bushes, he called the police.The neighbor, with his current survey and letter, convinced the police to not interfere with his fence replacement.Our insured later filed a claim for his damages, but he had not purchased the deletion of boundary exception, as provided in the owner’s T-1R policy, so his claim was denied. He had relied on a prior survey in his purchase of his home, which showed his fence as the boundary, in apparent error. He had no privity to the prior surveyor, whose prior work was apparently in error, and had no recourse for the loss. We use this claim as an example both for why every person acquiring a property should have a current survey of the property, and why they should purchase boundary deletion in their Owner’s title policy.Texas Real Estate Commission (TREC) promulgated forms survey coverage issues.Recent changes to all residential TREC contract forms, except condominiums, provide the parties, in entering a contract of sale, must now consider whether they want to purchase the deletion of boundary exception in the OTP or not, and who will pay for the deletion. The new provision under paragraph 6, Title Policy and Survey: states:“(8). The standard printed exception as to discrepancies, conflicts, shortages in area or boundary lines, encroachments or protrusions, or overlapping improvements: ___(i) will not be amended or deleted from the title policy; ___(ii) will be amended to read, “shortages in area”, at the expense of ___Buyer ___Seller.”This change was mandatory for all TREC Contracts on June 1, 2014.The result has been a renewed consideration by real estate agents, in advising their clients about survey coverage in the Owner’s title policy, as to whether to accept a prior survey in the contract, or require a new survey be done for the purchase.Survey Provisions in the TREC Contract Provide:Every TREC contract provides their shall be a survey furnished; Either a prior survey with a promulgated by Texas Department of Insurance form T-47, that states there have been no changes, or what changes have been made, since the date of the prior survey; or a new survey paid for by either the Buyer or Seller. This is a negotiated matter that has been in the TREC contract for many years. But recently, real estate agents have been changing their views about advising their clients, especially because of the change of having to now advise their clients to obtain the Owner’s title policy boundary deletion, for the policy, and who will pay for that additional coverage.Many real estate brokers now advise their sales people to always advise a purchaser to obtain a current survey.And, to obtain the additional protection in the Owner’s title policy with boundary deletion. Both of these TREC contract matters are important to our industry and yours, as we need the benefit of your current survey, to safely provide the boundary deletion, and have the benefit of your certification to our insured and to us for our transaction.AccessThe Owner’s Title policy T-1 insures as a Covered Risk Against:“4. No right of access to and from the Land.”The Residential Owner’s Policy T-1-R insures as a Covered Risk Against:“You do not have any legal right of access to and from the Land.”These coverage provisions make a proper determination of how the access to the property can be insured necessary.In a platted lot subdivision with a public dedicated street shown, and used by all owners, this is easy and simple.However, in acreage tracts, we are relying on the survey to determine the location of easements to the insured Land, and the tying of the easement descriptions to the Land descriptions is therefore necessary for us to insure.And, while the wording appears to only require the Land abut an easement, or platted street, in case law there are many cases now requiring a further status of a way that can be utilized by the owner for vehicular access. This has arisen from cases where the sole access was either blocked by physical barriers, such as a steep drop in the middle of the platted access easement, or other restrictions on the ability to use the apparent access.Our claim experience about access:In one case in New Mexico we had a platted subdivision, with an dedicated roadway throughout. However, the platted road contained a huge boulder, blocking the entire width of the platted road. So, parties had been driving onto an adjoining lot for several years, to access lots in the rear of the subdivision. When the owner of the Insured lot was blocked, by a gate being put up by the Land owner next to the boulder, his access was stopped.We had a duty under the title policy to insure his access, and eventually, by lawsuit, established an access easement, because of the use for many years of the path around the boulder. When we insured we needed a survey showing the access, but instead had only been furnished a drawing showing the lot and a platted road in front. While a very unusual case, we rely on the surveyor in every case to know the location of the access we insure.Access Endorsement T-23This is an endorsement to both the Owner’s Title policy T-1 and the Loan policy T-2, that insures the property abuts a named street, and has both actual vehicular access and pedestrian access, set out in the Access Endorsement, to a certain street, and that the street is open. This is a commercial property only endorsement that also requires that improvements are already on the property. It has become very popular in commercial loans and development to require the endorsement. The cost of the T-23 endorsement is $100.00 for each policy.When a request to the surveyor for this endorsement is made, it is important to know the need of the title company in surveying is both to establish the access to a particular street is provided to the improvements presently located on the property, and to also show that the street providing the access is established and open to use by the public. The latter normally is accomplished by the plat being filed before we insure, and the road being built and opened to use. Also, the curb cuts being located as built for access to the improvements. If the City has issued building permits, and the curb cuts are constructed, it should be sufficient evidence of the existence of access for this endorsement. We sometimes are asked to issue for multiple streets in one policy with an endorsement being created for each street. If you are given a request for us to issue the Access Endorsement, be sure to inquire as to which streets.Lender Endorsement T-19, as to Encroachment of ImprovementsInsured Against - #3 c“3. The Company insures against loss or damage sustained by the Insured by reason of: …Enforced removal of an Improvement located on the Land at Date of Policy as a result of a violation, at Date of Policy, of a building setback line shown on a plat of subdivision recorded or of filed in the Public Records, unless an exception in Schedule B of the policy identifies the violation;…”.The wording of this exception was changed by the TDI, effective January 3, 2014, to exclude coverage under the title policy for the matter, if an exception is taken for the encroachment in Sch. B of the title commitment. This change has raised the issue for the title industry to be certain a survey shows any improvements that violate the building set back line, and to take an exception in the Sch. B for such encroachments. But, it has also required further underwriting of decisions as to when and if such exception can be removed. For instance if the violation has been in existence a long time and no enforcement of the building set back lines has been made by neighbors or the city or homeowners association of the subdivision. With a request from the lender for removal of the exception so that they continue to obtain full coverage under the T-19 Endorsement this has become a regular issue we decide.Therefore, knowing the exact dimension of the building line encroachment has been even more a focus of our attention in 2014. Having former surveys that show the violation therefore has been helpful to determine the prior existence of the violation.Insured Against - #4 a“4. The Company insures against loss or damage sustainedBy reason of:An encroachment of:an Improvement located on the Land, at date of Policy, onto adjoining land or onto that portion of the Land subject to an easement; oran Improvement located on adjoining land onto the Land at Date of Policyunless an exception in Schedule B of the policy identifies the encroachment otherwise insured against in Sections 4.a.i or 4.a.ii; orA final court order or judgment requiring the removal from the land adjoining the Land of an encroachment identified in Schedule B; orDamage to an Improvement located on the Land, at Date of Policy that is located on or encroaches onto that portion of the Land subject to an easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved;…”Under the portion of the coverage in a. above the presence of an exception for the matter in Schedule B now gives no coverage to the lender for the matter. This has led to some lenders requiring us by underwriting decision to delete the exception taken in Schedule B, for what are considered minor exception matters. Typical examples of Lender requests for deletion would be the following:An encroachment of the garage into the rear utility easement, if the easement remaining could still be used to maintain the utilities. For instance a one foot encroachment into an 8’ u.e. if the other lot adjoining behind our insured lot also contains another 8’ u.e.The review would require us to examine the plat of the subdivision in addition to the survey furnished to know how much the entire width of the u.e. was on the ground.A survey showing both the u.e. on our lot and the adjoining lot would greatly assist in this determination.Another common issue is the encroachment of the roof of the garage into the aerial easement that is above 20 feet typically and is usually 5’ wide adjoining the 8’ u.e.We always need the survey to show the encroachment of the height or lack of encroachment of the roof into the aerial easement. The encroachment of the typical storage building in the rear of the yard into the u.e. The issue for our underwriting decision of removing the exception in the Loan policy for the encroachment involves, will this require much damage if it is required to be moved, when the u.e. is reworked by one of the utilities. We therefore need to know if the shed is on a slab or just on the ground. Insured Against - #4 b Another issue before us now in underwriting is will we give the coverage of #4 b that requires we pay for a lender loss if there is “a final court order or judgment requiring the removal from any land adjoining the Land of an encroachment identified in Schedule B;”.If your survey shows an encroachment of the home, or driveway onto an adjoining tract, and we give this coverage we might have to pay the “loss or damage sustained”, of the lender for such order or judgment that requires the owner remove that encroachment. So your survey is critical for our needs to show any encroachment of any of the improvements off our insured Land. And, if we determine we cannot give this coverage we must put an exception in the title commitment to the lender, that they will delete from the T-19 endorsement the coverage of #4 b. This normally results in either the parties having to obtain a consent to encroach from the neighbor or removing the encroachment before the transaction closes. This often requires further survey work, to prepare a description, for the consent to encroach document, of exactly how much land and what improvements are allowed to be encroaching by the neighboring owner. Or, if this is into a public right of way, a description for an ordinance, from the City involved, allowing the encroachment. Insured Against - #4 c As to The exception #4 c. regarding encroachment of Improvements into the utility easement and resulting damage when the utility makes improvements, we also have the issue of needing the exact dimension of encroachment to allow proper underwriting of the risk of giving the lender all of the coverage of #4 c, for “Damage to an Improvement…”, “…which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved,…”.If we cannot give this coverage in our opinion, we request the owner secure a consent to encroach for the improvements in the u.e. from each utility using that easement. The normal process is the utility then examines it’s needs and decides if they can use the easement as encroached upon or not.ExamplesIn one case we recently had a utility decide an offending gazebo into their utility easement had to be removed. It had been only identified as existing when an owner had a survey done after a purchase. So no exception had been taken for any encroachment in the loan policy involved, and no deletion of T-19 #4 c was done. In a second case when our owner applied for building permits that would have placed a driveway into a u.e. along the side of the lot, the utility refused to allow it to run the entire length of their easement so the plans had to be altered to reverse sides of the driveway of the home. The u.e. appeared to have at present a use simply as a service line running to the small home being torn down for replacement by a new home, but the utility company also used the easement for extending service to a lot behind our insured lot, so refused to allow the driveway in their entire line. Careful surveying did show the overhead power line both going to the house and extending from the power pole beside the home to a rear lot. This type of excellent survey work is needed, under our duties to underwrite policies now, for major reworking of properties, such as a tear down of an older home, in deciding if we can give the T-19 #4 c coverage.Owner Policy Endorsement T-19.1 for Encroachment of ImprovementsDefinition of Terms“#2 …b. “Improvement” means a building, structure, road, walkway, driveway, or curb, affixed to either the Land or adjoining land and that by law constitutes real property, but excluding any crops, landscaping, lawn, shrubbery, or trees.”This expanded definition of what constitutes an improvement now requires we have surveys that are careful to show the location of all of the covered matters. We also have to be mindful of requesting that owners give us information carefully as to any added improvements since their survey, to be certain we know of any improvements that might encroach off the insured property. This includes the replacement of fences.More often we are requiring a new survey to give this coverage, and we are being requested to give T-19.1 on all types of property now. It is allowed for residential property.Insured Against - #3 b“#3. The Company insures against loss or damage sustained by the Insured by reason of:…b. Enforced removal of an Improvement located on the Land at Date of Policy as a result of a violation, at Date of Policy, of a building setback line shown on a plat of subdivision recorded or filed in the Public Records, unless an exception in Schedule B of the policy identifies the violation.”The revised wording of the coverage, effective January 3, 2014, is the same wording used in the T-19 Endorsement for Loan policies. However, with the owner, there is a continuing issue that a claim might arise if any violation of the setback lines exist when the policy is issued, and this coverage is given, unless we take a proper exception for the violation shown on a survey. This makes it a necessity for us to rely on the accuracy of the survey to insure. Based on the increased requests for this coverage the title industry is adjusting to sometimes having to require a new survey be done for a sale, even if a former survey is used, so that the surveyor is responsible to the title underwriter for any error. The risk of violations has become too great to always allow former surveys to be used. And, we are finding errors being made in prior surveys on a more frequent basis.Claim ExampleIn one title claim, we had a builder in a historic section of a large city in Texas, start a home after one year attempting to obtain approval from the Historic District committee. He was building in a neighborhood that had each deed when sold contain set back lines that were almost 100 years old. They were not shown on the plat of the subdivision, just in the vesting deed out of the developer in the early 1900’s. Somehow the title company and his surveyor both missed the fact the setback lines for the lot involved were 50 foot from the front of the lot. The City issued a building permit according to his plans using a 25 foot setback that his surveyor showed, and that had been approved by the Historic District Committee after one year of study.After completing the slab and framing of the first floor he drove out just as they took down side construction fences that had protected the neighbors from dust, and, standing on his front porch, for the first time noted the homes on both sides were 50 feet from the front lot line.He checked with our title agent, who discovered the error. So he tore down the home, redesigned the home to set back 50 feet, and filed a claim under his owner’s title policy for the error. The surveyor and title company negotiated a settlement for the error, and the home was rebuilt using the very old building line.Great care must be used in older subdivisions to be certain if no building lines are on the plat of the subdivision that they are found in the restrictions of the property.Insured Against - #4The T-19.1 Owner’s policy endorsement also contains the same wording as the T-19 endorsement for the #4 a violations of encroachments covered before in Loan policies. In addition, the T-19.1 Owner’s policy endorsement contains the same wording as the T-19 endorsement for the #4 b“A final court order or judgment requiring removal from any land adjoining the land of an encroachment in Schedule B;…”.This gives an owner defense for any forced removal action by City, neighbor or HOA that believes the violation is a cause for removal. So we must weigh very carefully allowing insuring this section of T-19.1 to the owner, if a survey shows any encroachment of improvements off our property. And, with the expanded definition of “improvements” in the endorsement, we have seen an increase in claims in this area.We often use the test of how long has the violation occurred, to assist in our decision to insure over a known building encroachment. Any reference we find to when construction was done in the chain of title, such as a mechanic’s lien contract, or a deed from a builder, or when taxes began to be paid on the improvements on the tax rolls, assists us in determining if we believe encroachments of a building can be insured over by reason of age. But as to fences, driveways, and any recent additions, we have to rely entirely on the accuracy of the survey work, and to require owners obtain consent to encroach from neighbors or cities.Under Section 4 c the same wording is in the Loan policy,“Damage to an Improvement located on the Land, at Date of Policy, that is located on or encroaches onto that portion of the Land subject to an easement excepted in Schedule B, which damages results from the exercise of the right to maintain the easement for the purpose for which it is granted or reserved;…”.This coverage adds to our risk assessment, any improvements in the utility easements on the property, that might be damaged, other than the excluded “crops, landscaping, lawn, shrubbery or trees”.And the Owner’s title policy is issued once, and remains in effect as long as the owner is in title. Therefore, the fact a utility may not need to remove an underground line for years, does not preclude them from use of their full easement forever. No limitations applies to protect against a later claim for the improvements we insured could be in the utility easement.Recent Case Law on Owner Policy Coverage Using Reference to SurveyA recent case, Lawyers Title Insurance Corporation v. Doubletree Partners, L.P. United States 5th Circuit Court of Appeals, filed January 14, 2014, that had been appealed from the Eastern District of Texas, Nos. 12-406692 and 12-4072,held that the Title company was liable for damages under an Owner’s title policy issued that included “a more complete title insurance policy” that would insure “against loss because of discrepancies or conflicts in boundary lines, encroachments or protrusions, or overlapping of improvements, excluding from the coverage specific matters disclosed by the survey.”In the final title commitment several encumbrances were listed, as exceptions, including the flowage easement to Lake Lewisville, that gives the United States the right to flood, overflow, and submerge areas of the property that lie below 537 feet in elevation. The easement also prohibits construction of any structures below that elevation without the written consent of the United States. Before closing, the owner, Doubletree Partners, L.P., retained a surveyor, who indicated the approximate location of the flowage easement held by the United States, showing it covered a relatively small portion of the property’s southern edge. In conducting the survey, the surveyor relied on flood insurance rate maps.He did not measure the elevations with respect to the flowage easement, and did not consult a publicly available contour map from the City of Highland Village.When Doubletree began to plan the use of the property they discovered a serious error, that there was a significantly larger no-building zone covered by the flowage easement.Doubletree filed a claim against the surveyor with the Texas Board of Professional Land Surveying. The Board ultimately decided that the surveyor did not violate any professional standards while conducting the survey. The Board did note that the location of the flowage easement to the United States was “substantially different from” the location of the easement shown on the documents on which he relied in drawing the survey map. The Board explained that the “best practice” is to identify the documents relied upon by the surveyor, which he did not do, and that the survey “could be considered confusing” for that reason. The Board concluded the procedure the surveyor used “appear(ed) to be adequate”, and “in lieu of further actions” by the Board, offered the surveyor the opportunity to sign an assurance of voluntary compliance with the Board’s rules in the future.All of this is as stated in the 5th Circuit opinion, giving us a rare inside view of the proceedings for surveyor review by the Board.Doubletree filed a claim against Lawyers Title, based on the policy and survey deletion in the policy, with the exception taken to the flowage easement in Sch. B, #3a, and sought damages of $850,025. Lawyers Title filed a Declaratory Judgment action, and, after cross motions for summary judgment, a Federal Magistrate ruled in favor of Lawyers Title, based on the exception taken in Sch. B #3a to the flowage easement. According to that court, under exclusion 3(a) Doubletree “suffered, assumed or agreed to” the flowage easement as an encumbrance on title by accepting the final title commitment, the vesting deed, and the leaseback agreement, each of which referenced the easement. In addition, the Magistrate held the survey coverage purchased by Doubletree did not cover the survey error in identifying the easement; the type of title insurance Doubletree suggested it purchased is not available in Texas; and the exception for the flowage easement excluded the entire flowage easement from coverage in any event. The 5th Circuit overruled this interpretation, and ruled that although Lawyers Title had a reasonable interpretation of the policy, that if they took a Sch. B exception #3a they did not cover the matter, Doubletree had a reasonable interpretation of purchasing survey coverage meant that the exception taken in Sch. B #3a was overruled by the deletion of the terms of the survey deletion, and that the accuracy of the survey was therefore guaranteed by the policy. This case therefore is now the United States 5th Circuit Court of Appeals ruling in the land. We therefore are now on notice that all work of surveyors must be correct, or we may be having a claim, if we delete the boundary exception, and it is found that any of the exceptions taken for encroachments are not as depicted on the survey, relied upon by the title company, in giving the survey deletion in their title policy. This will make further review of surveys more important for the title company, and careful requirements for Certification to the title underwriter by the surveyor, as well as errors and omissions insurance. It should lead to much more survey work to be performed for insuring title. ................
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