Under a Purchase Agreement between the buyer and seller, the seller promises to provide the buyer with “good title,” which is usually accomplished by providing the buyer with a title insurance policy in a form satisfactory to the buyer. The Purchase Agreement is sent to a title company and the title company issues what is called a “title commitment.” The commitment lists the requirements that must be fulfilled before the title company will agree to issue title insurance and also contains a list of exceptions or items the title insurance policy will not cover.

So what are some things a title company requires before they will issue a title insurance policy? Some requirements might be a little more obvious, such as requiring the seller to convey the property to the buyer via a warranty deed. If the buyer or the seller is a business, the title company will likely require evidence that the business is actually a business and in good standing (shown by Articles of Incorporation or Articles of Organization), and that the person purchasing or selling the property on behalf of the business has the authority to do so (shown by Bylaws, Operating Agreement, and resolutions of the governing body). The title company also requires the seller to pay off any taxes owed, outstanding mortgages or utility bills, and liens attached to the property.

Title commitments also contain a list of exceptions. It is important to review not only these exceptions but the documents that support each exception (not all title companies provide you with these documents, but you can always request them). These exceptions include what are referred to as “standard exceptions,” generally liens, easements, encroachments, or other encumbrances that are not part of the public record or recorded with the Register of Deeds. To make sure the buyer is protected against items that could affect buyer’s right to the property but are not yet recorded, many buyers opt to have a title insurance policy that is issued “without standard exceptions,” which would cover items not listed on the public record. The exceptions also exclude certain recorded property restrictions from coverage. For instance, Consumers Energy might have a ten-foot easement across your backyard. This easement might restrict where you can install a vegetable garden or storage shed, and any dispute with Consumers Energy regarding the easement would not be covered by the title insurance policy since the easement was a listed exception. Condominium master deeds/bylaws and subdivision master deed/bylaws and the provisions therein are always excluded from coverage.

The Purchase Agreement specifies how title insurance policies are issued, so if you are purchasing property and want a title insurance policy issued “without standard exceptions,” be sure to require it in the Purchase Agreement. Our attorneys can help you by drafting purchase agreements, reviewing title commitments, and otherwise assisting you with your real estate transaction.

In a land contract transaction, however, there is no bank and there is no mortgage. The Seller essentially serves as the bank and finances the transaction by receiving regular payments (usually monthly) with interest from the Buyer. The Buyer does not receive ‘legal’ title to the property until the contract is paid in full and all other requirements of the land contract have been fulfilled. At that time, the Buyer receives a deed to the property from the Seller. Until the terms of the land contract are fulfilled at which time the Buyer receives a deed to the property, however, the Buyer does not have ‘legal title’ to the property. The Buyer does have ‘equitable’ title to the property, which means the Buyer can use the property as if it were his.

This type of transaction is much easier to complete – all you needs is an attorney to draft the land contract, and from there, the Buyer and Seller simply need to execute it, the Seller turns over possession of the property to the Buyer, and start collecting payments from the Buyer. There are (usually) no real estate agents involved, thus cutting out commission fees, and there is no bank involved, which allows the Seller to earn interest on the payments that the bank would otherwise make.

There are a number of reasons why one would use a land contract rather than a traditional real estate purchase contract and mortgage, including a buyer with poor credit or without enough money for a down payment on a mortgage, an sale from one family member to another, to secure a property in a longer than normal option contract, or to create essentially an annuity for the Seller for things such as retirement.

While there are many available form land contracts on the internet, each and every person seeking to enter into a land contract should do so with the advice of a trusted attorney. Attorneys do cost money, and as a result, most people prefer to avoid them and enter into a land contract based on a simple form. This may work for some in situations where everything goes to plan and there are no hiccups in the process. Everything going according to plan, however, is rare, and when dealing with assets often above and beyond $100,000.00, you shouldn’t roll the dice. If you would like additional information on land contracts, stay tuned to our blog or feel free to call us at 248.406.0620.

First of all, you should ensure that your contractor has a valid Residential Builders License. Under Michigan Law, a person who, on behalf of another individual, constructs a residential structure or who repairs, replaces, or adds to a residential structure is required to have a valid Residential Builder License at the time they enter into a contract and at the time they perform the contract. See MCL 339.601; MCL 339.2401.

You can easily verify whether a contractor has a valid residential builder license by searching their business on a website provided by the Michigan Department of Licensing and Regulatory Affairs, Bureau of Professional Licensing. The link to search for individual companies can be found at: https://www.lara.michigan.gov/colaLicVerify/. Under that link, you can search by name or license number.

Second, once you determine a contractor is properly licensed to perform the work, you should require them to provide you with a valid certificate of insurance. Ensuring the contractor is properly insured to perform the work is another small but vital step to ensue you are protected in the event of an injury on the premises. Further, we recommend you take the additional step of calling the insurance provider to verify that the policy is active. You should also verify that the insurance policy covers (1) the contractor’s workers and (2) you, your family, and any visitors to your home if they are injured as a result of the work site.

Finally, you should make sure any contractor that performs work on your property properly pulls permits for the work with your local municipality. While many contractors will tell you that obtaining permits take additional time and cost more money, every building permit requires a city inspection to take place after the work is performed. This inspection is designed to make sure the work was done properly, and it ultimately exists to protect you and your family. While it may delay the construction and may impose an additional burden on the contractor, any contractor should be willing to take the additional steps to ensure you are protected.

We recommend you have an attorney review contracts prior to execution, especially for larger projects. We understand, however, that attorney review for many small projects is simply not economically feasible. That said, following these three steps will leave you much better off than if you simply hire the first contractor you find. If you have any questions about a construction contract or dispute, please do not hesitate to contact your construction law experts at the Law Offices of Shifman & Carlson today at 248.406.0620.