August 2000

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

     

SURVEY COVERAGE UNDER TITLE INSURANCE POLICIES

1. Basic coverage aspects.

An ALTA loan policy and an ALTA owner's policy insures against title problems specified in the insuring provisions of the policy.  When a general survey exception is included in the policy, it reads as follows: "Such state of facts as would be shown by an accurate survey and inspection of the land." This exception would probably not preclude liability for a defect in title of record not excepted to in the policy and not excluded from coverage. For example, if a recorded easement document or a recorded plat easement is not excepted to in Schedule B of the policy, the above quoted survey exception would not preclude liability even though a survey would show the easement. However, such an exception would preclude liability for certain matters that are not evidenced of record that might otherwise create liability. For example, consider an encroachment or a power line crossing the land. (An additional reason for liability being precluded might be paragraph 3(b) of the Exclusions From Coverage, which reads as follows: "Defects, liens, encumbrances, adverse claims or other matters:...not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy;"

What is the scope of liability if the policy contains no such survey exception? For example, suppose that the company has a survey, which incorrectly does not show an encroachment of the neighbor's brick wall onto the insured land? The title insurer would have to investigate. If the neighbor removed the wall, the claim would be resolved. If the neighbor refused to do so, the title insurer would have to take action to (1) get the wall removed or (2) compensate the insured owner for the difference between the value of the land with the encroachment and the value of the land without the encroachment-which is usually determined by an appraisal. The wall may not be removable if the statute of limitations bars a removal action. See G.S. 1-50(3), a six year statute of limitations, which seems to apply. (See the discussion of violation of restrictive covenants in Hawthorne v. Realty Syndicate, Inc., 43 N.C. App. 436, 259 S.E. 2d 591, aff'd, 300 N.C. 660, 268 S.E. 2d 494, reh. den., 301 N.C. 107,273 S.E. 2d 442 (1980), and Allen v. Sea Gate Ass'n, 119 N.C. App. 761, 460 S.E. 2d 197 (1995).) Also, if the cost of removal exceeds the appraised diminution in value, the title insurer could elect not to remove the encroachment and pay the diminution in value. The reason is that survey coverage is not a guarantee of exact physical status of the land.

Usually, affirmative coverage for a known encroachment upon the insured land is not available for an owner. This is because such coverage would, in all likelihood, result in a claim. Such coverage can, in some cases, be given to a lender in a loan policy. This is because a loan policy presents less of a possibility of loss, as discussed in 6 below. Such affirmative coverage might appear as follows: "The Company insures against loss or damage caused by the entry of a final judgment dividing the insured of its insured interest in all or any part of the land affected by the encroachment. Subject to the Conditions and Stipulations of the policy, the Company will pay attorneys' fees, costs and expenses in a court action, to the extent that the court action seeks such a judgment." 

Mercer v. Lawyers Title Insurance Corporation and Lawyers Title of North Carolina, Inc. (Unpublished Opinion, No. 815DC627, Court of Appeals, filed March 16, 1982), is noted for a discussion of the meaning of survey coverage.

Plaintiff purchased Lot No.66 in Prince George Estates Subdivision on June 7, 1978. A map of that lot is recorded in Map Book 16, at Pages 50 and 50-A, of the New Hanover County Registry.

On the same day, plaintiff paid a premium to defendant Lawyers Title of North Carolina, Inc. for an owner's policy on Lot 66. Plaintiff submitted a plat of survey dated June 2, 1978 which reflected the perimeter bounds of a tract purported to be Lot 66. The policy issued described the land by reference to the deed to the insured and by a lot and block description of Lot 66 shown on the above-mentioned recorded plat. Schedule B of the policy excepted a "[t]wenty foot access easement along the rear lot line of the subject property, as shown on survey dated June 2, 1978."

In March 1979, plaintiff received a revised copy of the above survey. The revised survey reduced the size of Lot 66 by over 6065 square feet from that shown on the first survey. Plaintiff claimed a defect in title and sought to recover of the defendants $5,000.00 as damages.  

Plaintiff stated that by referring in Schedule B to the plat of survey; defendant "insured the accuracy of that survey:"

In support of this, plaintiff cited Broadway Realty Go. v. Lawyers T Ins. & T Co., 226 N.Y. 335, 123 N.E. 754 (1919). The policy in that case insured title to property described by metes and bounds. After the metes and bounds description were the following words: "And also the building now being erected on said premises...the lands the title to which is hereby intended to be insured, being that on which said building now stands as shown by the survey of Francis W. Ford, dated February 27 , 1897, a duplicate of which survey is hereto annexed."

The annexed survey showed a building entirely within the lot line. In actuality, the building encroached beyond the described boundaries onto Broadway. The court held the title company liable under the policy. It concluded that plaintiff could have reasonably interpreted the policy as insuring the accuracy of the survey's depiction of both the insured land and the location of the insured building.

In Broadway Realty Co., the reference to the survey appeared in the description in the policy. In Mercer,  the policy described the insured land as "all of Lot 66 of Prince George Estates Subdivision, as shown on map recorded in Map Book 16, Pages 50 and 50-A of the New Hanover County Registry, North Carolina." There was no mention of a survey. The only reference to the 1978 survey appeared in Schedule B. Such language did not insure the accuracy of the survey as to the entire Lot 66. It referred to the survey only for its description of the twenty-foot access easement listed as an exception in Schedule B.  

The court in Mercer stated that the language which described the property insured by defendants appeared in Schedule A which accurately described the land which was insured. Lot 66 was located in Prince George Estates Subdivision. Its boundaries corresponded to those depicted on the map recorded in Map Book 16, Pages 50 and 50-A of the New Hanover County Registry. Plaintiff failed to show any defect in the title.

2. Encroachments onto adjoining land. 

Obviously. if the policy contains a blanket or general survey exception (see 1 above), encroachments of any kind are not covered.

If the title insurer has a survey and it incorrectly shows that, for example, a carport is not encroaching onto adjoining land when in fact the carport is encroaching, an interesting coverage question arises.

The policy insures against defects in title to the insured land. "Land" is defined in paragraph 1(d) of the Conditions and Stipulations. In the owner's policy, the definition reads: 

"land": the land described or referred to in Schedule A, and improvements affixed thereto which by law constitute real property. The term "land" does not include any property beyond the lines of the area described or referred to in Schedule A, nor any right, title, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent to which a right of access to and from the land is insured by this policy.

Some have interpreted the definition to eliminate coverage for this type of encroachment. Old Republic takes the position that this type of encroachment is covered and such claims will not be denied.

Also, ALTA Endorsement Form 9, Paragraph 1(b)(3), expressly provides such coverage for a lender. ALTA Endorsement Form 9.1 (Unimproved Land), Paragraph 1(c), and ALTA Endorsement Form 9.2 (Improved Land), Paragraph 1(c), expressly provides such coverage for any owner. All of this ALTA endorsement coverage states that, there are no such encroachments unless excepted to in Schedule B.

If a survey shows an encroachment, see 4 below for a discussion of affirmative coverage relative to encroachments. 

3. Encroachments onto easements located on the insured land. 

If the survey erroneously fails to show an encroachment on an easement affecting the land and, therefore, the policy excepts to the easement but not the encroachment, loss or damage because of the encroachment would be covered. Two of the ALTA form endorsements referred to in 2 above expressly state that there are no such encroachments unless excepted to in Schedule B. See ALTA Endorsement Form 9, Paragraph 1(b)(4); ALTA Endorsement Form 9.2, Paragraph 1(d). 

If the survey shows an encroachment, see 4 below for a discussion of affirmative coverage for encroachments.

4. Affirmative coverage for known encroachments.

On occasion, a survey will show an encroachment upon (1) adjoining land, (2) an adjoining easement or street or (3) an easement affecting the land. For a lender, due to the discussion in 6 below, in most cases, coverage can be given. This is especially true if the statute of limitations has run on any action to remove the encroachment. See G.S. 1-50(3), a six-year statute of limitation. The situation for an owner is more difficult since a claim is more likely in certain cases where the encroachment is substantial or potentially very controversial. One example of a very serious encroachment is when a house completely covers a sewer easement. The encroachment would be less serious if the house encroached, for example, one foot into a thirty-foot wide utility easement. A minor encroachment of a house upon the adjoining lot would be much more serious than the encroachment of a chain link fence upon that lot, but even the latter, while unlikely to cause a compensable claim under a loan policy, is likely to cause a claim under an owner's policy if affirmative coverage is given.

When affirmative coverage can be given, it might appear as follows: "The Company insures against loss or damage caused by the entry of a final judgment requiring the removal of all or any portion of the encroachment. Subject to the Conditions and Stipulations, the Company will pay attorneys' fees, costs and expenses in a court action to the extent that the court action seeks such a judgment." Of course, the running of the statute of limitations (if that can be ascertained, for example, by reviewing building permits and certificates of completion) can allow the owner to receive coverage in certain cases. See G.S. 1-50(3).

The ALTA Endorsement Form 9 for a lender, Paragraph 3(a), contains affirmative coverage for encroachments upon an easement excepted in Schedule B and Paragraph 4 contains affirmative coverage for encroachments upon adjoining land when the encroachment is excepted in Schedule B. The ALTA endorsement Form 9.2 (Improved Land), Paragraphs 2(a) and 3 respectively, contain coverages similar to the ALTA Form 9. CLTA Endorsement Form 103.3 provides easement encroachment coverage for a lender.

5. Affirmative coverage regarding location of easements on a survey. 

Sometimes a recorded easement will have dimension and location. Particularly, in commercial transactions, the insured will require the surveyor to plot the easement and note the book and page of its recording. The title insurer will then be able to add to its easement exception, "located as shown on [identify survey]."

6. Difference between a loan policy and an owner's policy and why it is easier to give coverage in a loan policy. 

It is easier to give affirmative coverage in a loan policy as opposed to an owner's policy because of a fundamental difference between the two policies.

In CMEI, Inc. v. American Title Insurance Company, 447 So. 2d 427 (Fla. 5th D.C.A. 1984), a Florida case involving an easement instead of a lien, the court held that there was no compensable loss or damage under a loan policy drawing a distinction between an owner's policy and a loan policy. The court stated that under an owner's policy, the owner is entitled to be compensated for the full amount by which his full value is diminished by the defect or encumbrance as long as the amount of diminution is less than the amount of insurance, even if the diminished value of the land exceeds the amount of insurance. Under a loan policy, the same would not be true since, if the lender acquires title to land worth more than the amount of insurance and the outstanding indebtedness even with the defect that was not excepted from coverage, the debt will be repaid and the insured security for the debt will not be reduced in value, the court noting that such a rule applies to outstanding liens as well as easements. In CMEI, the court stated that when an insured lender acquires title, he continues to be an insured under the Conditions and Stipulations but the loan policy is not converted to an owner's policy. The discussion seems to imply that while the land is the security the value of the mortgage is the key. See Goode v. Federal Title Insurance Corp., 162 So. 2d 269 (Fla. 2d D.C.A. 1964);Ring v. Home Title Guaranty Co., 168 So. 2d 580 (Fla. 3rd D.C.A. 1964), cited in CMEI. Also, see First Commerce Realty Investors v. Peninsular Title Ins. Co., 355 So. 2d 570 (Fla. 1st D.C.A. 1978). In Title Insurance Co. of Richmond v. Industrial Bank of Richmond, 156 Va. 322, 157 S.E. 710 (1931), the court reached a result opposite to that reached by the court in CMEI. There is a more detailed discussion of this in E. Urban, North Carolina Real Property Mechanics' Liens, Future Advances and Equity Lines 48-12 (Harrison Co. 1999).

7. Survey coverage without a survey.

Most title insurers today will give survey coverage to a lender in a loan policy without a survey in a residential transaction. This means that no general survey exception will be taken. See 1 above for such an exception. This can also be done for a small commercial transaction. When a commercial transaction is larger, a lender will usually insist upon having a survey. But in the event a survey is not obtained in a large transaction, a lender can still obtain survey coverage without a survey in certain cases. For owners, survey coverage is not usually given without a survey. From time to time, an older survey and a satisfactory seller's "affidavit of no changes" can be relied upon to give survey coverage to an owner even though a new survey is not obtained. The Title Company of North Carolina has a very flexible policy regarding survey coverage. Please let us know if we can help.

REVISION OF ARTICLE 9 OF UCC [SENATE BILL 1305] PASSES

The long awaited revision of Article 9 of the UCC was signed into law on August 2, 2000. Part IV of the Act is entitled "UCC Article 9 Filing Fees Increase." Part IV of the act becomes effective September 1, 2000, amends the old sections of Article 9 and applies to fees paid on or after that date.

The following fees have been raised from $15.00 to $30.00: (1) the uniform fee for filing and indexing and for stamping a copy furnished by the secured party to show the date and place of filing for an original financing statement or for a continuation statement; (2) the uniform fee for filing, indexing, and furnishing filing data for a financing statement indicating an assignment; (3) the uniform fee for filing, indexing, and furnishing filing data about a separate statement of assignment; (4) the uniform fee for filing and noting a statement of release; (5) the uniform fee for a certificate of information under G.S. 25-9-407. Also, where the Uniform Commercial Code index has been automated, the filing officer shall issue a computer printout of the index entries for a particular debtor for a fee of thirty dollars ($30.00).

G.S. 25-9-525, part of new Article 9, to become effective July 1, 2000, specifies that the fees discussed above will be $30.00 but will be $45.00 if the filing is more than two pages, plus $2.00 for each page over ten pages.

Parts I, II and III of the act become effective July 1, 2001. These parts cover the rules of secured transactions. The North Carolina Bar Association has a CLE program planned, entitled, "The Future of Secured Transactions: A Primer on Revised Article 9." The live program is on September 22, 2000 in Greensboro. There are replays in Asheville (October 25, 2000); Rocky Mount (October 31, 2000); Cary (November 7, 2000); and Charlotte (November 30, 2000). This program will be a detailed treatment. From time to time, we may comment on the act. At least we all have plenty of time to get familiar with it!

UNIFORM ELECTRONIC TRANSACTIONS ACT PASSES

The governor signed this bill (Senate Bill 1266) on August 2, 2000. It becomes effective October 1, 2000. The full text is available at http://www.ncga.state.nc.us/html 1999/bill s/current version/senate/s bil 1266.full.html. The provisions are contained in new Article 40 of Chapter 66 of the General Statutes, G.S. 66-308, et. seq.

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