April 20-May 3, 2016 —
COLORADO REAL ESTATE JOURNAL
— Page 21
Law & Accounting
T
his is the ninth in a series
of a dozen or so articles
that come from some
years of experience using the Col-
orado Real Estate Commission-
approved contracts for purchase
and sale of real estate for commer-
cial real estate transactions. Previ-
ous articles addressed the buyer,
the seller, the property, water
rights, ordering the title commit-
ment and owner’s extended cov-
erage. This article addresses the
buyer’s title review.
The steps envisioned in the con-
tract for the reviewof title include:
1) ordering the title commitment
or titleabstract; 2) thebuyer receiv-
ing the title commitment and the
title documents by the record title
deadline; 3) the buyer reviewing
title; 4) the buyer making any
objections it wants to make in a
notice of title objection or termi-
nating the contract in a buyer’s
notice to terminate by the record
title objections deadline; 5) if the
buyer gives a notice of title objec-
tion, the seller either satisfying the
buyer as to the title objections in
it, or not; and 6) if the seller does
not satisfy the buyer as to any title
objections, the buyer either with-
drawing those title objections or
letting the contract automatically
terminate by the title resolution
deadline.
Trap:
That the contract
automatically terminates if title objec-
tions are not resolved can be tough
on a party that really wants the deal
to close because the objection may
give the other party a way out of the
contract.
Later installments in this
series of articles address contract
termination in more detail.
Trap:
A buyer’s title objection does
not need to be reasonable; it only
needs to be made in good faith.
Sec-
tion 8.2 of the contract provides
that the buyer, on or before the
title objection deadline selected
by the parties, may give a notice
of title objection “based on any
unsatisfactory form or content
of title commitment … or any
other unsatisfactory title condi-
tion, in buyer’s sole subjective
discretion.” Section 29 states the
requirement that the buyer act
in good faith. Proving in a legal
action that the buyer is not acting
in good faith is very difficult. The
leeway given to the buyer means
the seller rarely can challenge the
buyer’s right to make a particular
title objection. All the seller can do
is choose not to address it and risk
losing the deal.
Trap:
If the
buyer has any
title objections,
it may elect to
terminate the
contract under
§8.4, without
giving the seller
an
opportu-
nity to cure the
buyer’s title
objections.
Sec-
tion 8.2 allows
the buyer to
make its title
objections “notwithstanding §13,”
which refers to a number of title
exceptions that are presumed to
be acceptable. The issues raised
by §13 are addressed in a subse-
quent article. If the seller wants to
limit the objections the buyer may
make, the seller needs to add a
provision to the contract that sets
out what the buyermay not object
to, such as, for example, the title
matters listed in §13.
Trap:
A buyer may terminate the
contract on account of “any unsat-
isfactory title matter.”
Under §§8.2
and 8.4, a notice of title objection is
not limited to record title, the title
documents, off-record matters or
§13 matters. In short, title objec-
tions give the buyer a huge way
out of the contract. Throughout
this series of articles, we will point
out how hard it is for the seller
to have a firm contract so long as
title matters have not been fully
resolved.
Trap:
The buyer has an option to
terminate the contract for a title objec-
tion; the seller does not.
The buyer
can get out of the contract if any
aspect of title is not acceptable.
The seller can get out of the con-
tract only by refusing to address
all of the buyer’s title objections.
Trap:
The contract does not require
the seller to do anything to cure an
objection made in a notice of title
objection.
Indeed, the seller does
not even have to respond to the
notice of title objection. If the seller
does not respond, or the seller
declines to address everything in
the notice of title objection, the
buyer has a choice. It can accept
the title matter it objected to or let
the contract terminate, which hap-
pens automatically if the buyer
does not, by the objection resolu-
tion deadline, withdraw all of the
title objections the seller does not
address.
Tip:
If the buyer is lodging
a title objection, the buyer should
do so clearly and by stating objec-
tions, not just requests.
A notice of
title objection is often written as
a series of requests to the seller
or the title insurance company,
without clearly stating that the
buyer objects to the title matter.
Perhaps the buyer is trying to
hedge its bets by not clearly mak-
ing an objection. This is not a wise
approach.
Trap:
If the buyer makes
requests without calling them objec-
tions, the seller ignores them, and the
buyer does not then withdraw them
before the title resolution deadline,
the contract may automatically ter-
minate.
The buyer needs to know
in its ownmindwhat is and is not
an acceptable titlematter, since the
contract forces the buyer to decide
what title matters are deal break-
ers if they remain. Similarly, the
seller needs to decide what title
objections it will not fix even if it
means losing the deal.
Trap:
If the buyer does not time-
ly object to a title matter shown in
the title commitment and the title
documents, the buyer is deemed to
have accepted the condition of title
shown in those documents.
The last
sentence of §8.2 makes clear that
silence is acceptance. That sen-
tence has a peculiar twist to it. It
applies only if “seller has fulfilled
all of seller’s obligations, if any,
to deliver to buyer all documents
required by §8.1.” The seller has
no obligation to deliver copies of
the title documents.
Trap:
Thus, if
the buyer does not receive copies of all
of the title documents, it must lodge
a title objection by the record title
deadline; if it does not, the buyer will
have accepted the condition of title
disclosed by the title documents it has
not seen.
Trap:
If the buyer is required
to obtain the title commitment and
does not receive it in time to give its
notice of title objection, the buyer will
have accepted the condition of title
shown in the title commitment.
Tip:
The best approach for the
buyer, although not always feasible,
is for the buyer to complete its title
review early enough so the buyer
can find out which exceptions the
title insurance company is willing
to remove, alter or insure over with
an endorsement.
Once the buyer
knows where it stands with the
title insurance company, it can put
in its notice of title objection only
the items that require the seller to
do something the seller has to do
in order for the buyer to close sat-
isfiedwith the condition of title.
s
Beat U. Steiner
Partner, Holland &
Hart LLP, Boulder
370 17th Street, Suite 4800 | Denver, Colorado 80202
303.825.0800 |
James L. Kurtz-Phelan - Real Estate Practice Chair
Real
Estate
Attorneys
with
Rea l
Experience
