Reconnaissance: Lender Certificates–Just Say "No"

A 76Kb PDF of this article as it appeared in the magazine—complete with images—is available by clicking HERE

A number of years ago at an ACSM Annual Convention in Baltimore, an attorney for a lending institution made a presentation to a sizable audience of surveyors. A good portion of his program revolved around surveyor certifications.

The attorney passed out a copy of the "long-form" certificate that his employer required of surveyors who performed land title surveys. It was chock full of the same express guarantees and warranties (and traps) that surveyors typically see in most lenders’ certificates.

He went to great lengths to explain how he railed on surveyors, how he threatened and cajoled surveyors–anything to get them to sign his certificate– which he demanded that they sign "asis" with no alterations. His tactics included telling surveyors that they would be responsible should the deal fall through, that they would be responsible should the closing be delayed, that they would not get paid, that he would have to hire another surveyor–anything to get them to sign that certificate.

After a lengthy pause, the attorney then candidly advised those present that "any of you surveyors who sign this certificate are crazy!" Surveyors should accept this as full disclosure regarding lenders’ certificates. Yet, why do these things continue to exist?

I don’t believe I have ever seen a lender’s certificate that did not contain express guarantees and warranties. For example (the following examples are b oth from an actual lender’s certificate), "No encroachments, protrusions, overlaps, or overhangs of any improvements located on the Premises exist upon any easements encumbering or appurtenant to the Premises..."

If that sentence sounds harmless to you–think again. "Any improvements" includes that buried foundation that you did not know existed and could not possibly observe. "Encroachment" is a legal condition, not a matter of survey. "Any easements" includes that access easement that was executed, but never recorded. In short, they are asking you to provide, not survey information, but rather a legal opinion, reg arding something you cannot see as it relates to a line that you could not know existed.

Another example: "The undersigned has examined all applicable materials relative to those types of restrictions and requirements sometimes referred to as use, dimensional, bulk and parking restrictions and requirements which relate to the Premises, and has determined that the existing improvements shown hereon conform to all of the restrictions and requirements which are applicable to the Premises under the terms and the applicable zoning ordinance."

Any problem there? I can scarcely list all of them. For starters, did you really examine "all applicable materials?" Just wondering … what might that include? More importantly, surveyors need to recognize that "conformance" with the restrictions and requirements of a zoning ordinance is not a matter of survey! Conformance is a legal issue; conformance is a jurisdictional issue; conformance is not a survey issue. In this case, surveyors are being asked to certify to another legal opinion–this one related to compliance with restrictions of which they may have no knowledge.

It is beyond my comprehension that surveyors continue to sign these certificates. Yet, they do–and very simply put, that’s why lenders continue to demand them.

The attorney in Baltimore stated that 85% of surveyors simply signed his certificate with no questions asked! That is why we continue to see these certificates– because most surveyors sign them! When the lender tells me that I am the first surveyor who ever refused to sign their certificate, I have trouble deciding whether I would be more upset if they were lying, or if they are telling the truth! Unfortunately, they are probably telling the truth, and that is a sorry state of affairs.

So, what is the remedy? I believe it is a six-fold prescription.

1. Use a written contract that specifies the use of the standard certificate straight from the ALTA/ACSM standards. This shortform certificate is, after all, required in paragraph 8 of the standards. When the lender sends you the certificate (which everyone knows comes long after the survey is completed, but only two days–or two hours!–before closing), you can respond that this is not what you contracted to do. And in any case, it will take more time and money– which they, respectively, don’t have and don’t want to spend.

2. Be intimately familiar with the standards. 95% of the people you will deal with on a land title survey have never seen the standards and have no idea what they contain. Most of the clauses in a lender’s certificate (that are typically worded to put a huge burden of liability on the surveyor) are already addressed by the ALTA/ACSM standards in straightforward, non-threatening survey requirements. Be familiar, for example, with what the standards say about "encroachments" and be able to explain why the standards adequately address that issue without you having to certify that "no encroachments exist."

3. Understand the lender’s issues and concerns. Remember Stephen Covey’s 5th Habit–"Seek First to Understand, then to be Understood." We cannot dismiss the lender’s concerns out of hand–we need to understand them, and be able to accommodate reasonable requests. However, by being intimately familiar with the standards, we should be able to alleviate their concerns logically and within the context of the standards and the short-form certificate. (If we cannot, then what they are asking for is probably not something we can certify to anyway.)

4. Carry errors and omissions insurance and rely on your agent to guide you in rejecting certification wording. The bank would like you to have E & O coverage; do they really want you to jeopardize that coverage by using their certification wording?

5. Negotiate with the right person. Often you will find you are talking to a legal assistant who probably has a checklist in front of them. This person has no authority to make a decision or negotiate the certificate. Ask to speak with the attorney. Often you will find them flexible, reasonable and understanding of your issues.

6. Be able to communicate your concerns clearly, respectfully and with confidence. If surveyors will pull together and present a united front on the issue of long-form lenders’ certifications, I believe we will see them become less prevalent.

Clarification & Response on Title Commitment Descriptions
In his article "Of Title Policy Descriptions and Reality" that appeared in the May 2005 issue of The American Surveyor, Associate Editor Joel Leininger took me to task for suggesting in my January/ February article "The Surveyor’s Responsibility in Boundary Surveys and Disputes," that the description in a title commitment is "reliable for [surveyors] to use in retracement" and implying that it "may be nearly sufficient on its face."

While Joel extrapolated my comments out further than I intended and beyond what I stated, I was remiss in not better qualifying my opinion. I did not intend to imply that any description offered up by the title company is adequate.

My point as stated was that the title company takes responsibility for senior rights when they agree to insure a description. I stand by
that statement. I absolutely agree with Joel; however, that surveyors should not blindly accept any description offered up in the title commitment.

If the title company’s description contains errors, or (in the case of a retracement survey) is not from a record document (or both), then the surveyor should, at a minimum, communicate with the title company to determine the source of the description, explain any problems and concerns related to the description, and attempt to resolve (or at least clearly document) any discrepancies between the record description and what the title company is insuring (assuming they insist on using their undocumented or otherwise erroneous description). Serious questions should be raised about any description that is erroneous or of questionable lineage.

Gary Kent is Director of Surveying at The Schneider Corporation in Indianapolis. He is past-president of ACSM and chairs the ALTA committee. He is on the Indiana Board of Registration and lectures locally and nationally.

A 76Kb PDF of this article as it appeared in the magazine—complete with images—is available by clicking HERE

About the Author

Gary Kent, PS

Gary Kent is Director, Integrated Services at The Schneider Corporation in Indianapolis. He is past-president of ACSM and chairs the ALTA/ACSM Committee for NSPS and the Liaison Committee for ALTA. He is on the Indiana Board of Registration and lectures both locally and nationally.