From a title insurer’s perspective, the issue of survey coverage is a double-edged sword. These days, most owners decline to pay for a survey when buying property but lenders insist on a policy that includes survey coverage. On one side of the sword is the fact that many claims are denied based on a survey exception after the owners/buyers declined to pay for a survey, and it is distressing to see so many owners without adequate protection under their policies. From that perspective, we try to encourage attorneys to encourage buyers to pay for a survey. Surveys give owners a more thorough understanding of the land they’re buying, and us a more thorough understanding of what we’re insuring. On the other side is the fact that over the years, title insurers have paid many claims because we have relied unwittingly on inaccurate surveys. In some instances, it costs a title insurer more money to defend a claim based on a faulty survey than it would cost if the survey had never existed.
In most cases, a compromise solution is offered that keeps lenders happy and provides some underwriting safety for title insurers: in the vast majority of lender policies, survey coverage is provided to automatically, regardless of whether a survey exists, on loans of up to five million dollars. (Other conditions apply; see below) Owners do not get the benefit of this compromise. There is less risk of loss on a lender’s policy than there is in an owner’s policy, so more coverage can be afforded lenders without causing an increase in claims or premiums. For the most part, title insurers pay claims on lenders policies only when lenders encounter enforceability problems at foreclosure proceedings. No matter what the title defect may be, as long as the homeowner continues to make timely mortgage payments, the lender suffers no loss. Owners, on the other hand, bear the brunt of title defects and suffer losses far more often. Consequently, the risks of giving survey coverage on a lender’s policy are not as high as they are for the owner’s policy insuring the same property.
Survey coverage, at its most basic level, means that the insurer agrees to pay for loss or damage resulting from matters as shown on the most recent survey. If a policy does not expressly except to matters of survey, the insured lender is entitled to file a claim upon suffering a loss over any matter a survey would have revealed. The standard survey exception means that the company will not be responsible for paying any claims arising from any matters that a current survey would have revealed. A survey can reveal something as crucial as whether the legal description in the contract and deed matches what the buyer thinks she is buying. Surveys can prevent accidental mistakes, as well as the more serious issue of seller fraud.
Surveys also are extremely helpful for revealing things like a neighbor’s garage encroaching onto the property being purchased, the location and width of utility easements, whether any structures violate setbacks, etc. For this reason, it is extremely important that we give survey coverage only when we have an accurate, up-to-date survey, signed and sealed by a professional land surveyor. On occasion, a plat or map will contain sufficient information to allow us to substitute the plat for a survey and give survey coverage. In most instances, however, plats do not provide sufficient detail for us to know what risks we would be taking in giving survey coverage.
The general conditions that must be met in order for us to give survey coverage for are as follows:
1. Surveys must be no more than six months old. If a survey is more than six months old, we will give survey coverage with an additional provision that there is no survey coverage for matters subsequent to the date of the survey. If there has been recent construction, a survey prior to the commencement of construction will not be considered current even if it is less than six months old.
2. There must be no new construction on the property to be insured. In the event of a construction loan, a lender will have survey coverage if the construction has not yet begun.
3. The survey must be a full and accurate survey. If the survey presented is a foundation survey or boundary survey, survey coverage will be limited to only those matters as are shown on that type of survey. A complete survey will show the metes and bounds of the land, total area, improvements, encroachments, easements, fences, set-back lines, bodies of water, rights-of-way, areas in dispute, joint driveways, and the like.
4. For loan policies to automatically qualify for survey coverage, the deed of trust to be insured must be less than $5,000,000. Any policies insuring deeds of trust for more will contain a survey exception.
5. A lender’s policy insuring a deed of trust on a parcel that contains more than 25 acres will not automatically qualify for survey coverage, but will be reviewed on a case-by-case basis.
We at Statewide encourage you to call us any time you have questions about survey coverage, survey exceptions, or any other matter relating to surveys. Our senior underwriting staff and legal counsel will be more than happy to help you.