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BLOG / 11.28.18 /

Don’t rely strictly on a title report for disclosure of recorded zoning declarations affecting real property

A recent decision from the Suffolk County Supreme Court reiterated that zoning ordinances are not “defects” in title covered under policies of title insurance. Purchasers and developers are reminded to do their own due diligence, and go beyond the title report, to understand what existing and recorded zoning limitations might affect their prospective property interest.

In JBGR LLC v. Chicago Title Insurance Company (Sup. Ct. Suf Cty., 11/13/18), a developer purchased 286 acres of land in the Town of Riverhead to build a golf course and residential community. At the time of acquisition, 140 units were already developed and the purchasing party was interested in constructing an additional 55 units. The title report issued to the purchaser did not disclose to the buyer that a declaration limiting development to 140 units had been recorded years earlier. The purchaser relied upon the title report, allegedly to its detriment to the extent that the declaration was not disclosed, and sued the title company.

The court ultimately granted summary judgment in favor of the title company and dismissed the complaint. In essence, policies of title insurance indemnify insured for losses due to the “unmarketability of title” except for those losses which arise from exclusions or exceptions to coverage stated in the policy. Those exclusions typically include existing zoning ordinances which may affect the use of the subject property. Here, the court recognized that the recorded declaration clearly affected the purchaser’s expected use of the property, but held that the declaration did not affect the title to the property. Instead, that declaration set forth a zoning regulation, and therefore was an exclusion from title coverage. The purchaser may have relied upon the title report when it purchased the property, but the fact that the title report did not set forth the recorded declaration did not give rise to a claim against the title company.

A title report is just one component in negotiating and consummating a real estate acquisition, and it should not be the only means for understanding the liens, judgments, encumbrances, and restrictions affecting the subject real property. A better course is to conduct a thorough and complete independent analysis of zoning regulations and recorded instruments affecting the real property, instead of relying exclusively on a title report.