Easements and Boundary Disputes
What’s Your Title Insurance Worth?
Imagine this: you decide to buy a piece of property, and you ink a deal with the seller. You schedule a closing, and pay a title company to check the title. You pay for the title policy, pay the seller for the land, and get a deed for the real estate.
You start your development, and are halted by the neighbor. That neighbor informs you that there is a document, the chain of title, which prevents you from carrying out your development plan. “But that can’t be; I have title insurance.” Yes, you do, but is that title insurance policy worth anything?
The Michigan Court of Appeals just decided a very similar case, ruling that the developer loses, has no claim against the title policy, and is out of luck. In that case (Seba v Lawyer’s Title Insurance Corporation, December 18, 2008, Docket No. 278911 (unpublished)), the title policy language excluded coverage for loss or damage arising from “easements and restrictions, if any of record, affecting the use of the property.
After the developer closed on the parcels, and started his development, he learned of recorded restrictions (a 1994 settlement agreement) which barred the use to which he wanted to put the property. He made a claim to the title insurance company. The title insurance company denied coverage, citing the exclusion above. Because the problematic document was recorded in county documents, but the title company’s search had not found the document.
So, the developer sued the title company for breach of contract and related claims. After all, what was the developer buying, if not a search of the title records and a policy to cover his loss if there is a title problem? Right?
Wrong. The Court of Appeals ruled, as a matter of contract law, that the developer has no recourse against the title policy or company. The language of the title insurance policy excluded coverage for such restrictions, if they are “of record” (recorded in county documents). Presumably, the developer has no legal recourse against the seller either.
So, what is a buyer to do? Check your title policy (and title commitment). Or, have your attorney check the policy, and the buy-sell agreement, and the closing documents. An exclusion like this one is fairly standard in title policies. If it has such an exclusion, is it worth anything to you?
