Commercial Real Estate Investing From A-Z Top Things to Watch Out For in a Title Commitment
What are the major issues that can arise on a title commitment? We talk with Mindi McLain, attorney and co-owner of Wright Law.
You can read this entire interview here: https://bit.ly/3rPVNjT
Tell us some of the biggest issues that you have found in a title report before.
I have had some big messes, I don't even know how to describe how messed up a property can be. Deals that are too good to be true are typically not true. I've had a few deals where, especially if you're buying something from a family that has been in a family for a long time, and then somebody down the road decides they want to sell it, most of the problems that you see are with people that have died in the chain of title ad nothing's been done. There hasn't been a probate of their state, there hasn't been an affidavit of heirship. You're trying to build a family tree, and it has 80 branches, and they had 12 kids. I've had a lot of them, especially small deals, but we had to just go and find all these heirs that were lost. I look for the lost heirs and say, Hey, did you know that you have a 1/64th interest in this property? And would you mind signing this deed? So those can be wrecks, but it can usually be worked out.
Another issue is a family, and several people have died. And we find that one of the heirs is a minor, meaning they're under the age of 18. But they've come into title on a property. In Texas, you can get around that, but you have to get a court order allowing a parent to sell that property on behalf of the minor. And then the proceeds from the sale have to go into the court registry, and then it sits there until they turn 18. And then they can go and cash out their inheritance. That happens if someone dies and their heir just happens to be seven or eight years old, or 14 years old. They still are an owner of that property, but legally, they don't have capacity to own property or to sell property. And so you have to involve a parent or a guardian.
Some of the worst things I’ve seen are people buying property and not fully reviewing everything that’s in Schedule B and then finding out that there’s a restriction on their property that they didn’t know about. The title company is not going to necessarily tell you hey, you can’t use this property that looks like a retail store, you can’t use it for retail. They’re just going to note in their commitment that there’s no restriction, or a deed, or subject to whatever it was in this document. If you go back and read it, and you bought a property and you wanted to use it for a funeral home, and then you later found out that there’s actually a restriction on that property that says it can’t be a funeral home, or whatever you wanted it to be, then you have a problem because the purpose that you wanted that property for you cannot do it legally because there’s a restriction. And that wouldn’t be a covered claim, if that restriction was an exception to your policy.
Also leases, some people will see that there’s a memorandum of a lease recorded, and they won’t really dig into what the lease actually says and ask the seller, Can I see that lease ahead of time? And maybe the tenant either had an option to purchase a property or a right of first refusal or something like that. And they come back later and say, actually, you didn’t have a right to buy this, I had a right to buy it. So they try to undo the sale.
People are getting savvy to all the ways that you can generate income from rural properties. And so that includes not just oil and gas leases, and mineral production, but also solar farms, wind farms, all types of alternative energies.
Mindi McLain
mindi@wrightlawtx.com
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