Closing the Deal

The Scenario is a familiar one. Someone is purchasing a new home, or buying a parcel of property.

The multitude of hoops one must pass through seems to be never-ending. First of all, there is the trauma of finding the "right" property. Then, making contact with the realtor, possibly the seller, the lender, and ultimately the closing agent (usually an attorney or title insurance agent).

The simple act of filling out the loan application can be extremely intimidating. It seems that just getting an approved loan is tantamount to winning the lottery, but this is just where the "fun" begins. Throughout the entire ordeal, one is so eager to close the deal and get into the house that most of us never stop to think about who is protecting our interests. Or for that matter, whether our interests even need protecting.

There are so many professionals involved in this transaction we tend to believe that everyone is looking out for us. This may not be true, and most buyers do not even think about hiring someone to specifically protect their interests. They are just happy to close the deal.

The realtor is typically being paid by, and working on behalf of, the seller. The lender is interested in providing funding for the purchase in a way that protects the lender’s investment. The title insurer is interested in providing protection against faults in matters of title to the property in a way that creates the least amount of risk of claims that may be brought to the title insurance provider. The closing agent (who may be one of the above) is interested in closing the deal and getting everyone paid for their services.

While all of the people mentioned above are typically conscientious and well-meaning, there is no real incentive to inform the purchaser of potential problems that are typically referred to as "matters of survey".

These "matters of survey" relate to anything that could negatively affect the use of the property being purchased, and can be disclosed by having a current field survey of the property performed. Some examples of such matters include encroachments across property lines or building restriction lines (onto or from the property) of buildings, fences/walls, landscaping features, wells, swimming pool decks, etc. Other matters may include the location of utilities, access-ways, etc. relative to easements, property lines, or buildings.

While it is possible that "matters of survey" are covered items in title insurance policies, such coverage that protects purchaser/homebuyer interests is not likely to be included unless a survey is performed prior to issuance of the policy. Policies known as "lender’s policies" may cover "matters of survey" without the requirement for a current survey, but these policies do not protect the purchaser/homebuyer. The risk associated with this type of policy is often acceptable to the title insurer because claims from a lender are not likely to occur until the purchaser/homebuyer defaults on the loan.

In recent years, it has become popular to either have the seller sign an affidavit, effectively guaranteeing that no matters of survey negatively affect the property, or to utilize a survey document from a previously performed survey. In the former case, the seller may be unwittingly accepting some unwarranted risks or liability. In the latter case, the use of previous survey documents without the consent of the surveyor who provided them may be in violation of copyright laws. In either case, the purchaser/homebuyer still may not be protected from the expense of resolving matters that could have been uncovered by a current survey.

In today’s environment of instant gratification and expedited closure of deals, it is becoming less and less commonplace for a purchaser/homebuyer to be informed  about the benefits a current survey performed by the "logic" that doing so would slow down the closing process. This does not have to be so.

The primary reason that having a current survey performed can slow down the closing process is that it is not ordered from the surveyor until closure of the deal is assured. At this point, the incentive is to close immediately, thus leaving the implication that having a survey performed is impractical. However, if the purchaser/homebuyer is in control of deciding whether or not a current survey is desired, it can be ordered early enough so as not to negatively affect the closing date.

The key is that purchasers/homebuyers must be informed of the benefits a current survey can provide, and of the fact that the purchase of title insurance may not fully protect them. This notification must take place when the potential purchaser/homebuyer first contacts the realtor, or applies for a loan. Using this scenario, the purchaser/homebuyer can decide whether having a current survey is good "insurance" against matters that otherwise are not likely to surface before closing.

There is a school of thought that current surveys are not necessary for the real estate closing process. That concept is based on the aforementioned perception that surveys slow down closings, and the argument that there is no evidence that the incidence of problems created due to the absence of a current survey is commonplace. This argument is supported by the statistics related to title claims payments. An article in the Wall Street Journal in 2003 revealed that only $0.47 of every $10.00 paid in title insurance premiums is paid out for claims. While this may be true, the raw statistics ignore the fact that many of the problems related to "matters of survey" are not covered by the title insurance policy, thus are not likely to be considered in developing the statistics. It is the purchaser/homebuyer that is left to pay the cost of resolving the problems.

The many letters to advise columnists, anecdotal accounts, and outright "horror stories" of incidents where the purchaser/homebuyer has been left to resolve and pay for discrepancies  demonstrate the need for a better informed consumer of real estate with regard to "matters of survey".

Representatives of the American Congress on Surveying and Mapping (ACSM) have discussed this issue with the Department of Housing and Urban Development (HUD) during its recent hearings on the Real Estate Settlement Procedures Act. Interestingly, several HUD representatives related anecdotal accounts of their own related to "matters of survey" for property they, or relatives and acquaintances, have purchased.

ACSM has provided to HUD a form explaining to the purchaser/homebuyer the benefits of a current survey in the settlement process. The form is similar in size to the one currently provided to loan applicants with regard to termite inspection. ACSM has also provided to HUD language that can easily be included in the homebuyer’s manual that is given to those who apply for loans regulated by HUD. HUD representatives have expressed a willingness to seriously consider the inclusion of this information in homebuyer packages. The ACSM documents also provide information about the difference between the benefits provided by what is commonly known as a "mortgage inspection survey" and those provided by a full survey of property.

ACSM representatives have expressed appreciation for the notion of expediting the settlement process; however, they have also stated that expediency should not come at the expense of protection of consumers and the public welfare. After all, protection of the public welfare is among the duties assigned to surveyors when they are granted a license to perform surveys for their fellow citizens.

For information regarding the position taken by ACSM on the issue of "closing the deal", contact Executive Director Curt Sumner, LS at csumner@acsm.net.