What is it?
When putting an offer together, realtors have the option of checking a box in the contract that could end up being very important to a buyer down the line. Paragraph 6 (A) (8) gives the following options:
This paragraph in the contract controls whether or not a buyer will get Survey Deletion in their Owner’s Title Policy. Survey Deletion (also known as “Area and Boundary Coverage’) is important coverage for a buyer. To see why, let’s start with the understanding that all matters shown on Schedule B of the title commitment are exceptions – meaning things that will not be covered by the title policy. In Schedule B (Item #2) of every title commitment the following exception is included:
“Any discrepancies, conflicts or shortages in area or boundary lines, and
any encroachments, protrusions, or overlapping of improvements.”
That means that if any of the matters listed exist on the property at the time of closing the buyer does not have coverage for these matters in their title policy. If a loss resulted from one of these items and the buyer needed to hire counsel to help them litigate the matter, the cost of the litigation and attorney’s fees would rest entirely on the buyer. Some examples of things that would not be covered are:
An adjoining landowner with improvements encroaching on to your buyer’s property;
An adjoining landowner claiming your buyer’s improvements protrude into their property;
Surveyor errors in locating improvements or the boundary lines of a property;
Fences lines not following the actual boundary lines of the property; or
Improvements from your buyer’s property that sit into an easement or over a building restriction on the property.
How can this coverage be added to the policy?
When the title company is presented with a survey, adding some coverage back into the title policy becomes an option. Once we have reviewed a survey we are able to add back in (a/k/a “delete” portions of the exception) to put this coverage back into the title policy. That is why you can think of this as “survey deletion.” We delete exceptions to coverage. When we add survey deletion to the policy the exception above is amended to read as follows:
“Shortages in area.”
The result for the buyer is that coverage for discrepancies, conflicts in boundary lines, and any encroachments, protrusions, or overlapping of improvements is now included in the policy.
What is required to issue this coverage?
In order to issue Area and Boundary Coverage we must be presented with a survey prior to closing. If we are using an existing survey we also must receive a Residential Real Property Survey Affidavit (“T-47) that describes any improvements that have been made to the property. We must also collect the premium for Survey Deletion at closing. On a residential policy the cost of Area and Boundary Coverage is 5% of the Owner’s Title Policy (15% for non-residential). Let’s look at the math for a $500,000 sales price as an example. The base premium for the Owner’s Title Policy, typically paid for by the seller, is $2,940.00. In that transaction the buyer would pay $147.00 to add this coverage to their title policy. That’s pretty minimal cost for some pretty important coverage for a buyer!
A realtor putting together an offer should only mark “will not be amended” if they have had extensive conversation with their customer to be sure the customer understands what they are declining.
Our closers at Texas National Title are always available to discuss Area and Boundary Coverage in more depth with your clients. We are here to be your partner!