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Land Title Encompasses Land AND Structures
Slade Smith
   

Land titles include not just land, but the buildings attached to the land. Thus, a court order or administrative order to demolish a building affects land title, not just land value, even though it only affects a structure on land.

In 2005, a man purchased property in Seminole, Oklahoma with a 28,000 square foot steel framed masonry building that had been a church. As part of the transaction, the man obtained a title insurance policy from Lawyers title through one of Lawyers’ local agents.

Two years later, the building was severely damaged in a fire determined to be caused by arson. The day after the fire, the city demolished the building and removed the rubble, saying that it was a safety hazard.

Apparently as a result of the arson investigation, the man learned from correspondence among city officials prior to his ownership that the city never intended to issue a certificate of occupancy for the building on his property; that the city had entered an irrevocable agreement with a prior owner to raze the building; that there had been discussion among city officials to delay the fire department's response to any fire at the building; and that the city intended to condemn the building. He submitted a claim to

The man submitted a claim to Lawyers Title under his title insurance policy. He claimed that these unknown facts about his property created a cloud on his title that made it “unmarketable.” Lawyers denied the claim, and the man sued.

As you might guess, the man lost this suit, but we will examine why. The man’s title policy had typical language that "insure[d], as of the Date of the Policy . . . against any loss or damage . . . sustained or incurred by the insured by reason of . . . 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title." The man claimed, in essence, that the government correspondence created a title defect, making his title unmarketable. But that argument probably won’t fly for two reasons. One, the letters obviously aren’t the kind of records that are searched in a title search. Sure, they are “public records” in the sense that you can obtain them through a Freedom of Information Act request, but there’s just no way that a title searcher can be expected to do that thorough a search. Two, the records pertain to a building on the land, not the land itself. That often seems to be a signal to the courts that the issue can be disposed of as a land value issue, not a land title issue.

But that second part is a little bit of a closer call than the first. If a property has in its chain of title a recorded demolition order, that’s pretty clearly a title defect. Coverage will then depend on whether the policy has an exception for such orders.

Why is a recorded demolition order a title defect, even though it affects a building on land and not the land itself? Well, a demolition order infringes on the owners to exclude others from using the property. The demolition order gives others the right to enter the property and make a drastic change of its condition. In that way, it’s analogous to an easement that gives another a right to use another’s land.

The building/land distinction to determine what is a land title issue and what is not isn’t a reliable one, although some court decisions would make it seem so. The definition of “land” when we’re talking about land titles includes the land and everything affixed to it, such as buildings. Thus, a land title includes the structures affixed to the land, and a recorded document allowing a structure to be used or changed is a title defect if not discovered, just the same as one allowing use or change of land is a defect if undiscovered.

The instance where the land/building distinction is important is when a policy holder is claiming coverage under the “marketability of title” provision in her title insurance policy. Generally, things affecting the condition of the land do not make a title unmarketable. Therefore, a demolition order won’t generally make a title unmarketable, because it just potentially allows the condition to the land to be affected.



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