Monday, December 24, 2012

Sufficient Legal Descriptions

An estate planning attorney recently wrote me with this question: "Hi Kevin! Are title insurance companies happy to have a simple legal such as Map #0001, Parcel 0202 as opposed to a more extensive legal description?" Here is my answer: "I've got kind of a roundabout answer and some practical suggestions. First, real estate law is what the title companies say it is. From a practical standpoint, whether a title company underwriter is correct or not, the decision he or she makes is, for practical purposes the law. Sometimes we can persuade the underwriter to come to a different conclusion, or get a different underwriter from another title company to make a different underwriting decision, or pay more money for an endorsement of some sort, but the title company has the final say, and if we don't like it, then the remedy is to file a quite title action or probate or whatever we need to do to get a court order. This is a very bad result for a client. I am assuming that you are asking for the purpose of funding trusts. One way of doing this is to get the copy of the deed vesting title to the client when the FIRST purchased it an use that. It is also good to compare that legal to the last deed of trust (to a non-private lender) to see if those legals match. If they do, then you have a reasonable assurance that the legal is correct. I would recommend against shortening or interpreting that legal, and where possible, cut and paste rather than retyping. If you do have to retype, then have one person read the legal description to another person who will check it against what is written. Legals can be mind-numbing, and it helps to have two people involved in this process. This method gives you a high decree of success that you have gotten it right, but it is not insurance. Also, it is susceptible to garbage in, garbage out if the first legal was not accurate. As far as whether this method is above or below the standard of care for an estate planning attorney, I don't know. The best way that I have seen this done is to have the client bring in the title policy from when they purchased the property, then send the proposed deed (using the legal in the title policy) to the same title company with a request that you want them to issue a 107.9 endorsement to that title policy. There may be a charge for the endorsement of +/- $150, but it is INSURANCE in the event of an error in that legal description. This would likely not only meet the standard of care, it also caries insurance as to the amount of the original policy. The endorsement will only ADD the trust as an insured under the original policy, but it does not insure anything that has happened to the title AFTER the date of the policy. If the client wants that, then they will likely have to purchase a new policy. If the client is planning on selling the property within the next 2-3 years, then I recommend that the client spend the money on a new policy and that they pay an extra premium for a "binder" which then can be used in the subsequent sale. The reason for this is that you pick up the additional coverage, but you also learn sooner rather than later about potential problems with the title which need to be resolved prior to selling it. Time is a big plus in solving title problems. As to the real legal answer to your question on the sufficiency of a legal description for the deed, See, Miller and Starr, California Real Estate 3rd Section 11:13 (2004): "Description required. In order to give constructive notice, the instrument must contain a description of the real property sufficient to identify it, or it must refer to another recorded document that contains an adequate description. Adequacy of the description. Minor imperfections in the description do not defeat the notice given by recordation of the instrument as long as the property is clearly identifiable and the instrument provides enough information that an examination of the public records or the referenced documents will provide the subsequent party with knowledge of the correct description or property. However, where the property cannot be clearly identified, the instrument does not constitute constructive notice. When extrinsic evidence is admitted to explain an ambiguous description, adequacy of the description is a question of fact, but when the adequacy or inadequacy appears on the face of the instrument, it is a question of law." Sample language on the cover letter to the title company (in this case transferring the title from individual owners to an LLC owned by them): "Please find enclosed the following documents related to this matter: 1) Copy of signed Operating Agreement for the LLC; 2) Original Grant Deed; 3) Original Preliminary Change of Ownership Report; and 4) Original tax declaration (not to be recorded). You should already have copies of the LLC1, LLC12, and the lender’s consent to the transfer, but let me know if you need me to send those documents or anything else. Please attach the correct legal description to the deed, record the grant deed, and issue a 107.9 endorsement to the title policy. You may bill the LLC for the $100 endorsement, plus the recording and handling charges, and mail it to …"
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