As foreclosures resume after pauses due to the COVID-19 pandemic, a predictable uptick in lender title claims has followed. Spotting trends in these claims can help us identify common traps for the unwary. One recurring category of claim issues seen recently is an incomplete legal description that fails to include all of the parcels the parties intended to convey, often resulting in a significant encroachment or even lack of title to the parcel where the intended residence is located.

Of particular note for mortgage lenders, a lender’s title policy may not provide coverage for failure to receive a valid lien on an intended parcel. The Covered Risks set forth in the 2006 ALTA Loan Policy provide coverage for defects in title to the estate or interest described in Schedule A as of the date of the policy. Schedule A typically provides that the policy
insures a mortgage encumbering a fee simple interest in the “Land,” which is defined as the land described in Schedule A
and affixed improvements that by law constitute real property. The definition of “Land” goes on to explicitly state that “the term ‘Land’ does not include any property beyond the lines of the area described in Schedule A.” This framework can
result in a lack of coverage for failure to receive a lien on an intended parcel if the lender did, in fact receive a valid lien on the land identified in Schedule A of the policy.

Seeing how things can go wrong gives us insight into strategies for avoiding these issues on the front end.

A closer should be sure to identify the source of title for all parcels listed in the purchase agreement. In many claims, a
purchase agreement (or even MLS listing) will identify two or more parcels by reference to the county’s tax identification number, but only the parcel containing the residence will be searched. While county geographic information systems (GIS) are not a substitute for a title search or professional land survey, they can be helpful in identifying the parcels intended to be conveyed and sometimes their source of title as well. Similarly, lenders should take care to confirm that the precise parcels listed in the purchase agreement are evaluated in the origination appraisal, then check the parcel information against the legal description contained in the mortgage to the extent possible.

Attorneys should also confirm that the new conveyance deed includes a complete legal description derived from all deeds vesting title to the intended land in the seller. We often see tracts of land that have been created over time
through acquisition of neighboring parcels. The seller may have even combined the parcels for tax purposes so that they
are identified by one tax identification number. If the legal description is pulled from only the most recent deed into
the seller, the borrowers and their mortgage lender may be missing title to a portion of the land intended to be purchased.

While lack of title to an intended parcel can be addressed by obtaining a deed for the missing parcel, getting cooperation from a borrower to encumber a missing parcel may be challenging in a foreclosure context. If they become necessary, legal actions take time and may delay the foreclosure process. In the words of the namesake for the “Benjamins” changing hands in a real estate transaction, “an ounce of prevention is worth a pound of cure.”