Hey there, it’s Philip Hundl here. In this video, I want to talk about something really important for anyone who’s thinking about buying land: easements. Whether it’s a pipeline easement, a high voltage transmission line easement, a road easement, or an access easement, it’s crucial to be aware of any type of easement that encumbers the property before you make the purchase.
The Standard Procedure for Purchasing Property in Texas
Let’s do a quick rundown of how purchasing property typically works in Texas. Now, this isn’t always the case – there can be cash deals without title companies or title insurance involved. But for the most part, when someone’s buying land in Texas, they’ll want to get a title policy. This ensures that the person they’re buying the land from is actually the record title owner, the fee simple owner of the property.
So, here’s how it usually goes down:
- An earnest money contract is signed by both parties
- The contract is taken to the title company, along with the earnest money
- This “opens title” (you’ll hear this term from title companies, escrow agents, and closing agents)
- Opening title creates a file with a GF number, which the title company uses to track it
- The title examination begins by the underwriters who will potentially issue the title insurance
The Title Examination Process
The title examination is a deep dive into the property’s history. It looks at the chain of title to determine who the current owner is. Ideally, the current owner is the one who signed the earnest money contract as the seller. If not, that raises some questions that need to be answered.
After the examination, a title commitment is created. This commitment basically says, “If these things are done, then a title insurance policy will be issued.” The title commitment has different schedules or pages, and I want to focus on two of them: Schedule A and Schedule B.
Schedule A
Schedule A covers:
- How much the policy will be that’s going to be issued
- Who the record title owner is
- The legal description of the property
It’s super important to double-check that the legal description matches what you’re actually buying. If you’re buying ten acres, make sure it says ten acres and not five, because the title policy may only apply to those five acres.
Schedule B
Now, Schedule B is where you’ll find information about the different encumbrances on the property. This is where you’ll see any:
- Oil and gas leases
- Easements
- Utility easements
- Power line easements
- Road easements
- Deed restrictions
- HOA restrictions
You might also see some catch-all terms like “any and all leases, recorded or unrecorded, or tenants in possession.”
It’s crucial to really look at these easements. The title company will have these documents available, either electronically or as hard copies. I strongly suggest reviewing these easement agreements with an attorney who’s familiar with real estate. They can tell you exactly what it means.
For example, there might be a 30-foot wide permanent pipeline easement or a 60-foot wide high voltage transmission line easement. You can usually see a high voltage transmission line if you visit the property, but pipeline easements can be trickier to identify. There should be pipeline markers at or near the boundary line of the property, or where it crosses a road, but not always.
The Importance of Understanding Easements
I recently had a client who purchased a property that was burdened by a pipeline easement. The terms of the easement basically said that nothing could be done in the easement area, which was about 60 feet wide. The landowner wanted to build a driveway across it, but according to the easement terms, a road or driveway over that area needed to be approved by the pipeline company.
Sounds simple enough, right? Well, the pipeline company required a lot from the landowner: engineer drawings, diagrams, you name it. It was a pretty big burden on the landowner to gather all that information. And then, the pipeline company wasn’t in any hurry to review and approve the request. Meanwhile, the landowner was on a tight schedule to get the road built and start construction on their home. This created an unforeseen delay that caused some real problems for the landowner.
So, the moral of the story is: be aware of those encumbrances. They’ll be listed on Schedule B of the title commitment.
Schedule C and Closing Thoughts
Just for the sake of completion, I want to mention Schedule C. This part of the title commitment talks about the things that need to be done by the parties (usually the buyer or seller) to clear up any defects of title that need to be cured. Once these things are done, the real estate closing can happen and good title can be transferred. Keep in mind, this doesn’t mean the property will be without encumbrances – it will still be subject to the encumbrances on Schedule B. But at least the transaction can move forward.
I hope this information has been helpful. If you own land or are planning to buy land, please pay close attention to the encumbrances on the property, especially the various easements. It can save you a lot of headaches down the road.