TItle & Encumbrances

TITLE & ENCUMBRANCES RISKS & DOCUMENTATION

LOCAL AGENCY COORDINATORS: DAVID NARVAEZ, NORTHWEST REGION, YOUR NAME HERE?, OLYMPIC & SOUTHWEST REGIONS, and TERRI BROWN, SOUTH CENTRAL, NORTH CENTRAL & EASTERN REGIONS February & March, 2020

What is an Encumbrance & Why is it Important?

FOCUS AREAS:

1. Preliminary Title Commitments 2. Encumbrances (Special Exceptions) 3. Clearing Encumbrances 4. Documentation 5. Tools & Resources

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1. Preliminary Title Commitments • Provides property information: – Vesting – Legal Description – Special Exceptions (Encumbrances) & Notes –Parcel Map – Recorded Exceptions • Identifies Restrictions and Defects • Tool to Reduce Risk of Loss *The entire commitment must be in the acquisition file. – Including recorded encumbrances & subject map

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1 TItle & Encumbrances

2. Encumbrances

MAY… • Limit/Restrict Use of Property • Create Financial Burden • Allow Claims from Others (Rights) • Reduce Property Value • Be Complicated (Quiet Title Action) • Be Simple (Payoff)

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2. Encumbrances – Types

Mechanic’s Lien Leasehold Utility Easement Taxes Mortgage Option to Purchase Reservations CC&R Water Rights Mineral Rights Assessments Life Estate Deed of Trust Real Estate Contract Judgments Private Road

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2. Encumbrances – Common

. Easements (temporary & permanent) non-owner right of use . Deed Restrictions/Restrictive Covenants run with land & affect use . Encroachments illegal intrusion onto adjacent property . Liens Collateral claim for payment of a debt

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2. Encumbrances – Risks

Risks Associated with Accepting Encumbrances:  Established Authority Level and Delegation  Written Policy for Accepting Risk  Risk Evaluated as to Impact to Project And Deviation from Standards Documented  Correct Authority Approval Level  What Constitutes Acceptable Risk – Dollars Versus Property Rights  Constructability – Conflicts Must be Resolved

3. Clearing Encumbrances

Clearing Encumbrances Based on Type of Acquisition – Fee, TE, Permanent Easement, Lease, etc.  Fee – under $10,000 usually not cleared unless matters disclosed that would make risk higher  Bankruptcy, judgments, liens, child support, tax liens, foreclosure  TE – any encumbrance that will directly affect the area  Mineral reservations, excavation, gravel reserved  Permanent Easement – any impact to area and same as fee  Lease – depends on circumstances

3. Clearing Encumbrances

Four Simple Steps to Clearing Encumbrances: 1. Locate the Encumbrance • Is it in the acquisition area or not? 2. Determine Action • Does it create a financial burden? • Does is restrict/conflict with agency use? 3. Take Appropriate Action: – clear “delete” (prepare proof of record); OR – accept “subject to” (risk analysis/approval) 4. Documentation – Encumbrance report, diary, correspondence, etc.

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4. Documentation

Document for each encumbrance:

• Location (relationship to acquisition area); • Action to be taken; must clear if conflict with acquisition; A.“Subject to” (accept exception to title) - policy or risk decision B. “Delete” (clear/remove exception from title) - requires proof (of record)

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4. Documentation

… and:

• Explanation for Action – Based on Location? – Based on Risk? – Based on Impact? – Method of Clearance – Include additional documents if needed photos, maps, utility plans, risk analysis/approval, correspondence, etc.

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4. Documentation

If it’s not documented, it didn’t happen!

Sources in the acquisition file include… • Diary: actions, decisions, approvals, etc. • Agent’s Encumbrance Report (approved by agency) • Escrow Agreement • Correspondence: agency staff, lien holders, title specialist, etc. • Title Report & Instruments (with hand written notations) • Utility Plans: showing located utilities

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4. Documentation – Example Preliminary Title Commitment

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4. Documentation – Example Agent’s Encumbrance Report

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4. Documentation – Example Title Insurance Policy

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4. Documentation – Example Title Insurance Policy

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5. Tools & Resources

• WSDOT ROW Manual – Chapter 7 Title – Chapter 8 Encumbrances – Chapter 9 Instruments • 9-11 Miscellaneous Clauses • WSDOT LAG Manual – Chapter 25, Section 25.8 • Title Clearing Checklist (LPA-004) • Request to Accept Encumbrance (LPA-333 and LPA- 333a)

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5. Tools & Resources

• Secretary of State Corporations Search (https://ccfs.sos.wa.gov/#/) • Washington Courts Search (https://dw.courts.wa.gov/) • Dept. of Revenue Business Lookup (https://dor.wa.gov/) • Dept. of Licensing UCC Search (https://fortress.wa.gov/dol/ucc/search.aspx) • Title Company Representative • Utility Plans/Surveyor

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