What are Surface Title Opinions?
Throughout the history of property ownership in this country, people who have purchased real estate or loaned money secured by real estate, have wanted to know whether the parties signing that deed or mortgage are all of the necessary parties to convey (or mortgage) marketable title to that real property. If the seller of real property is executing a warranty deed in favor of the buyer, then that seller is warranting, essentially promising with the strength of a legal guaranty, that they are conveying marketable title to the described property. In theory, the buyer can go back on the seller if there are any defects in title to the real property, but in practice, the seller may have already taken the proceeds and invested them in a new residence, or worse yet, moved out of state without a reliable forwarding address. Prior to the internet, it could be even more challenging to track down sellers who had moved out of state.
Instead of relying solely on a seller’s warranty, buyers and lenders adopted the practice of hiring an abstractor to review the public records and bind together every document affecting the subject property as an abstract. An Abstract of Title can only be produced in Oklahoma by a Licensed Abstractor working for a company with a Certificate of Authority and Abstract Plant for that particular County. Abstract companies must build a Plant and apply for a separate Certificate of Authority for each County where they are abstracting property.
Next, the lender or buyer would ask a locally licensed attorney to review the abstract and render a written opinion as to the status of the seller’s title. The examining attorney may make requirements based on the documents in the public records. These requirements must be met before the transaction can occur. The attorney is looking for anything that could be the basis of a loss or damage to the party asking for the opinion. Real property has a history. Court proceedings such as divorce fights, estate disputes, foreclosures, and guardianships can show up in the history to a piece of real estate. When you acquire real estate, whether it’s for your primary residence or to develop into an income producing asset, you don’t want to bear the risk that any of the parties to those proceedings might assert an ownership interest in the property. Similarly, if the property was once owned by A, B, and C, but only A and B are on the subsequent conveyance out, the buyer or lender will want to know what needs to be done to eliminate C’s outstanding ownership interest in the property. In addition to ownership issues, mortgage lenders are also concerned that there are no liens or encumbrances filed against the property that would prevent their contemplated loan from being a first priority lien.
By issuing a title opinion stating that title to the subject property is marketable, the attorney takes on the risk of any loss or damages resulting from covered title issues. Local bankers usually don’t have a problem relying on the opinions of local attorneys they have long standing relationships with, but national banks and mortgage lenders want something stronger than a guaranty from an attorney they’ve never heard of or worked with. Title insurance fills that role. Instead of relying on a local attorney’s opinion, the lender is issued a title insurance policy by a nationally known title insurer like First American Title, Fidelity Title Insurance, Stewart Title Insurance, Alliant, or Old Republic. If a mortgage lender is selling their loans on the secondary market (this is very common) having that lender’s policy of title insurance is a necessity. That secondary mortgage market requirement is what drives a lot of residential transactions to title companies.
State specific statutes describe the requirements for issuing title insurance policies in each state. Oklahoma requires that each policy of title insurance be based on (1) an updated abstract of title; and (2) an attorney’s title opinion. If you’re paying attention, you’ll realize these are the same two things we started with: the abstract and the attorney title opinion. In practice, this means that title attorneys are examining title and rendering title opinions, and then title insurers are relying on those opinions to create commitments for title insurance. Some of the larger title insurers employ full time attorneys to draft opinions for their transactions. Other companies prefer to send their abstracts to outside attorneys in private practice who render title opinions to be used by the title insurer. Regardless of which attorney examines it, the insured property owner or lender’s recourse is to make a claim under the title insurance policy.
Surface title opinions will come with a list of exceptions – matters that the examining attorney is not expressing an opinion on. Common exceptions on surface title opinions are oil, gas, and other mineral rights, water rights, zoning issues, and any other matters that the abstract is not certified to. Reviewing mineral ownership usually involves a thorough review of several thousand documents that don’t affect surface title and therefore aren’t shown by abstractors. Instruments affecting water ownership are filed with the Oklahoma Water Resource Board and not always in the public records.
Once the transaction is completed and all of the requirements made by the attorney and/or title insurer have been met, the title insurer will type up the actual title insurance policies (usually an owner’s policy for the buyer and a lender’s policy for the lender) and send them to the insured.
Surface title work is the primary focus of Ryan’s practice. If you are an abstractor, a title insurance agent, a lender, or any other type of entity that needs Oklahoma abstracts examined and surface title opinions rendered, please contact Ryan to discuss further.