Question on Objection to title policy and survey (section 6D)

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Question on Objection to title policy and survey (section 6D)

Peter Yeh
Houston, TX · Member since 2014 · 4 posts · 0 votes

Hello BPers, 

I'm currently in the process of buying a house in the Houston area and need some help on understanding the Objection section of the contract (section 6D). Appreciate if you can share your knowledge and experience. 

Background: I received a survey that was accepted by the title company when signing the purchase contract. The title commitment was sent to me yesterday and, upon a closer examination, I noticed that the U.E. (utility easement) is very close to the house (~1ft). I still like the house but it's a bit annoying now knowing that I cannot comfortably put in e.g. a patio in my backyard if I'd like to do so in the future. 

So my questions are:

1. Can I make objections based on this finding? Section 6D in my contract states that 

Buyer may object in writing to defects, exceptions, or encumbrances to title: disclosed on the survey other than items 6A(1) through (7) above; disclosed in the Commitment other than items 6A(1) through (9) above; or which prohibit the following use or activity: Residential

Since U.E. is stated in 6A(4) (Utility easements created by the dedication deed or plat of the subdivision in which the
Property is located.), does this mean that I don't have a case for Objection?

2. What are the possible outcomes of this objection? Since this issue cannot be cured, there's no point of a Cure Period. So the results can only be either we terminate the contract or I accept the property as is. Do I understand correctly?

Thanks in advance for your input. 

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Mark Brown
Contractor · Webster, TX · Member since 2016 · 94 posts · 75 votes
5y

Also as a side note, presumably your realtor filled in "residential" in the contract where you said it reads "or which prohibit the following use or activity: Residential"  You can actually expend on that one word next time. For example, put down anything you want to do that would expand upon the footprint of the house. Ex: "Residential with new back patio and outdoor kitchen" or "Residential with new room addition". Then if easements or something throws you a curveball, you have much stronger grounds to create an objection they can't cure and get out of the contract.

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  • Neil Narayan
    Real Estate Broker · Austin, TX · Member since 2015 · 715 posts · 527 votes
    5y

    you're right that teh seller won't be able to cure the condition therefore the objection will only help you if you are trying to renegotiate or back out of the contract

    1Reply
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    5y

    You probably want to check with title company or your attorney.

    Are you still within the number of days to object from when the survey was delivered to you?   Often we see 3-5 days, but title often takes 7 days, so my guess is that you are out/past the objection period to dispute the survey.

    Easement doesn't mean you can't build a patio, just means if they want to come dig up their buried utilities they may not have to pay you to replace/repair it if they have to damage.  Chances are they will probably never touch it while you are there...and if they do, they'll probably try to mitigate the damage, maybe go under it or replace it if they have to destroy it.

    I am thinking YES tough to cure to Q2, but not sure you can terminate at this point.  Depends on what your execution date is, what is in 6C prehaps, and what you have filled in 6D blanks.  You might also want to read the first 2-3 lines of 6D....exceptions.

    What utility is 1ft to the house?  Electric or internet?   I'm hoping not drainage line or gas line.

    Are there other options on where you can build a patio?

    1Reply
  • Peter Yeh
    OP
    Houston, TX · Member since 2014 · 4 posts · 0 votes
    5y

    @Neil Narayan, thanks for confirming.

    @Bruce Lynn, 

    Thanks for the reply. 6D states that Buyer must object the earlier of (i) the Closing Date or (ii) ___ days after Buyer receives the Commitment, Exception Documents, and the survey. In my case it is 3 days. I interpret that as 3 days after I received all three documents. Since the title commitment was delivered yesterday, I'm still within the period to object. 

    I know for sure it's not for sewer. Most likely electricity and gas. The U.E. band is quite wide (14'), extending from the fence to 1' away from the house. Exactly where the lines are buried I do not know. 

    Not really other options for a patio. In this case I'd probably put something that's easy and cheap to remove and recover.

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  • Jennifer Ryan
    Flipper/Rehabber · Arlington, TX · Member since 2014 · 78 posts · 58 votes
    5y

    Hi Peter, 

    Basically, the "Objection Period"  is one of the 32 plus, "Buyer's out" on a Texas 1-4. It's not really meant as a remedy to the objection. It's designed to give you an out for something that you want to do with the property as a owner occupied. Say you planned to raise chickens or have 5 dogs and it wasn't permitted... It gives you a chance to change your mind even after the "Option period " is up. If you're in doubt as to the easements, you can ask to extend the closing date so you can do some research.

    Hope this clarifies it a bit.

    1Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y

    Most title exceptions you either:

    1) Remove by closing - Like prop tax liens or 3rd party claims

    2) Survive closing - Like utility easements, which should not be a problem unless you don't want power to the complex

    If you have a title review period, as a buyer you'd write a letter stating which you'll accept and which need to be removed by close.  Seller can say yes or not.  If no, then you have the option to terminate and get your EM back (at least the way I write PSAs).

    1Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    5y

    Is the U.E. shown on the plat? If so, you can't object. Even if you could, unless the U.E. can be vacated, it won't serve any purpose unless you wanted to terminate. 

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  • Peter Yeh
    OP
    Houston, TX · Member since 2014 · 4 posts · 0 votes
    5y

    @Jennifer Ryan, @Steve Morris, thanks for your input. 

    @Guy Gimenez, yes U.E. is on the plat. 

    I had a discussion with a RE lawyer today. He said that as a buyer I can always object and terminate the contract (no one can force you to buy something you don't want). However that doesn't mean that I'm guaranteed to get my EM back (he needs to look at the contract to determine but we didn't have time for that). 

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  • Mark Brown
    Contractor · Webster, TX · Member since 2016 · 94 posts · 75 votes
    5y

    A 14 foot wide utility easement across your entire backyard?  Usually they run those things along the back fence.  I would ask the title company for a copy of the easement document and see what that says about what utility lines there are.  Also, I might try one of those "Call Before You Dig" where they will come out and mark out where the utility lines are so you can see.  If you just want a patio, it may not really be an issue. But yeah, if you wanted to build anything back there more than a patio, like a room addition or something, then it would encroach on the easement and cause a big problem whenever you sell.  I normally try to make sure my purchase contracts for my investors have an option period of about 10 - 14 days and make the title commitment due within the option period so we have a chance to review these things. If you're past the option period, but have a loan and therefore a 3rd party finance contingency, that's your next easiest way to get out of the contract.  Often you can call up the lender or loan broker, tell them the situation, and they might disapprove your loan for you, kicking you out of the contract.  Lenders have about a zillion reasons they can use to kill a loan application, so they can probably find one to fit your situation.

    2Reply
  • Mark Brown
    Contractor · Webster, TX · Member since 2016 · 94 posts · 75 votes
    5y

    Also as a side note, presumably your realtor filled in "residential" in the contract where you said it reads "or which prohibit the following use or activity: Residential"  You can actually expend on that one word next time. For example, put down anything you want to do that would expand upon the footprint of the house. Ex: "Residential with new back patio and outdoor kitchen" or "Residential with new room addition". Then if easements or something throws you a curveball, you have much stronger grounds to create an objection they can't cure and get out of the contract.

    2Reply
  • Peter Yeh
    OP
    Houston, TX · Member since 2014 · 4 posts · 0 votes
    5y

    @Mark Brown, 

    So many great tips. Really appreciated. 

    When talking with the lawyer today he was also surprised that the U.E. is so wide. My guess is that because this house does not have a back side neighbor, the whole U.E. that's usually shared by two houses now runs inside one. 

    If I go through the lender route and get my loan disapproved. Does this affect me negatively for the next loan application?

    0Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    5y

    @Peter Yeh  Yes, per your attorney, you can always object but your objection, at least under this provision, would be outside the terms of the promulgated language. And it's kind of odd that an attorney, without reviewing your contract, would tell you that you can always terminate the contract (presumably without cause) with no concern about the seller remedies provided under paragraph 15, including a potential suit for specific performance. It appears your counsel assumes the seller will accept the earnest money and release you...which may or may not be the case. 

    1Reply
  • Mark Brown
    Contractor · Webster, TX · Member since 2016 · 94 posts · 75 votes
    5y

    @Peter Yeh. No. This is just an internal decision at the lender for this one specific property. They are disapproving the property, not you or your finances. It’s not something that goes on 3rd party credit reports. I’m sure they would be happy to consider the next property you bring them.

    0Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y
    0Reply
  • Jennifer Ryan
    Flipper/Rehabber · Arlington, TX · Member since 2014 · 78 posts · 58 votes
    5y

    Thanks Steve. I should have been more precise but I try to keep my replies simple. If a buyer passes all the contractual  deadlines, & then backs out, they will most certainly lose their earnest money and they could be sued for specific performance by the seller. Keep in mind, I am not an attorney but I've been a Texas realtor for 14 years. 

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    5y

    Fun fact - I've closed on about 50 multifamily buildings -- maybe $100m+ of deals.  I don't think I've ever even looked at a title policy.  And I've never used an attorney in any closings.


    Maybe I've just been lucky....

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