If a title company will provide survey-related title insurance protection for a buyer without requiring an Improvement Location Certificate (ILC), why might it still be worthwhile for my buyer to obtain an ILC? If a title company will issue survey-related protection based on an ILC, why might it be worthwhile for my client to obtain a more rigorous (and more expensive) survey?
§7 a of the Real Estate Commission-approved contract allows the buyer and seller to specify that the buyer’s title policy will delete the survey exceptions from the title company’s coverage. If the survey exceptions are removed from the policy, then the title policy protects the buyer from some of the title problems which would have been shown by a correct survey.
With an ILC, the surveyor essentially estimates the described perimeter of the property in relation to property’s improvements. Colorado statues require ILCs to disclaim: “I further certify that this improvement location certificate is not a land survey plat or improvement survey plat, and that it is not to be relied upon for the establishment of fence, building or other future improvements lines.” Though not as rigorous as a survey, an ILC sufficiently reduces the boundary uncertainty to induce title companies to protect lenders and buyer/borrowers from some survey related problems.
In the late 1990s, some title companies began issuing survey protection, in limited situations, without requiring even an ILC. This article attempts to explain why an ILC might be valuable, even in situations where the title company will offer survey protection without an ILC. The article also attempts to show why a buyer might benefit from a survey, even in situations where a title company will offer survey protection based merely upon an ILC.
While it is prudent for buyers to obtain ILCs for all purchases, this article is not suggesting that the expense of a survey is necessary for all transactions. The purpose of the article is to allow brokers to educate buyers to make informed decisions about ILCs and surveys.
When we view a developed property, physical improvements (e.g., fences, landscaping, grading and retaining walls) suggest boundary lines. Copnsider diagram I-A below depicting a rectangular house located on a rectangular lot, having a fenced back yard on the north.
The fence suggests boundaries, and more specifically suggests that the house is set back 15 feet from the western property line. If the lot is located in a platted subdivision, then there is a good chance that the title company would issue survey protection without requiring an ILC and that the deal would close without one. The buyer would close with the impression that he had 15 feet between his house and the west boundary as suggested by the fence in diagram I-A.
After closing, the buyer seeks to add an addition on the west side of his house. As part of the building permit process, the buyer obtains an ILC which shows the platted property lines as designated in diagram I-B.
Instead of having a 15 foot setback from the west property line, the buyer only has a 10 foot setback. (The fence was mislocated.) Because the planned addition encroaches into the setback required by the zoning code, the buyer is unable to build the addition without a zoning variance. The buyer would have been able to build the addition if the setback had been the 15 feet measured by the buyer. The title company denies coverage, in spite of the survey protection, arguing that since there is no encroachment, there is no claim.
The example above shows that title insurance survey protection does not protect a buyer from all problems which would have been shown by an accurate ILC. One value of obtaining an ILC (even in situations where the title company does not require one) is that an ILC may avoid post closing surprises for the buyer. Even in situations where the title insurance protects buyers, owners rarely feel that the coverage makes them whole.
See Survey – Part II article wich works through an example showing why a buyer might consider obtaining a survey, even when the title company will accept an ILC to issue survey protection.
A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.