A WARNING ABOUT PROPERTY SURVEYS
IN NORTH CAROLINA RESIDENTIAL REAL ESTATE CLOSINGS!

Up until 1997, North Carolina title insurance companies and mortgage lenders required that purchasers of real estate secure a new physical survey of the property from a North Carolina registered land surveyor. This new survey was routinely ordered from a surveyor by the closing attorney sufficiently in advance of closing so that all known problems could be determined prior to closing and the buyer would have a new survey at the closing table. The reason for requiring a new survey was rooted in the fact that the title search conducted by an attorney doing a title search could not determine from the public records matters which a physical inspection of the property might reveal. For example, if there were a fence, driveway, shed or other structure serving the property, and this structure was not actually located on the property, or the structure encroached to or from an adjacent property, this important fact would not appear as part of the title search. However, a new survey was an additional closing cost to the buyer, usually around $250.

Beginning in 1997, a local title company, Investors Title, made a risk decision to issue new title insurance policies to mortgage lenders with full survey coverage but without having a new survey. Since this new title company position essentially did away with a substantial existing closing cost for a survey, virtually all other North Carolina title insurers adopted the same policy to remain competitive. Based on this position, many mortgage lenders, but not all, have advised their borrowers that a survey simply isn’t necessary.  As a result, instead of the past certainty that a new loan survey would be required in all new purchase closings, we now have a situation where surveys are only sometimes required or requested by either a buyer or a lender.

What is being either overlooked by or not disclosed to buyers is the fact that this “survey protection” extends ONLY to the lender. This is clearly explained in the online position paper referred to in the previous paragraph. If the new purchaser or his/her lender does not request or require a new survey as part of closing, then the owners’ policy of title insurance (but not the lender’s policy) will contain an outright exception to coverage against any problem, encroachment or title defect that might be revealed by a survey. Therefore, the new purchaser, who probably believed the title policy covered all title problems, may be rudely surprised if a later problem crops up that could have been identified by having a survey done before closing.

In response to this situation, our office has drafted a survey disclosure form. We now require that, for all residential purchase transactions in which we are designated as the closing attorney, the buyer complete this form and return to us in advance of closing. This form discusses the pros and cons of obtaining a survey, and requires the buyer to elect, yes or no, if the buyer wishes our office to order a survey for them. If the buyer’s lender requires a survey there will, of course, be no election. When there is an option, and when we are asked, we always recommend a new survey for a homebuyer.