by Daniel J. Beck |
The goal of an ALTA/NSPS Survey (2016 Standards) is to discover critical information that would not be revealed in a title report, which includes boundary line encroachments, unrecorded easements or other encumbrances, contiguity, access, and other matters. In addition to the standard survey request made by borrowers, Table A is an optional list of requests that may be made to the surveyor. Many lenders don’t have a strong understanding of what items should be requested in a commercial real estate transaction and why they should be requested. Below is a quick explanation of the Table A optional items and when they should be included.
- Monuments – the purpose of this item is to set the boundary for the survey, see whether existing monuments are accurate, and whether new monuments should be placed. The surveyor should be identifying monuments as part of its field work. The cost of this item should be minimal, but it doesn’t provide that much protection to the lender.
- Address of the Surveyed Property – again, this is something the surveyor is going to confirm regardless of whether this item is checked, so it should be included.
- Flood Zone Classification – this is standard and should always be requested. It will determine whether the property needs flood insurance.
- Gross Land Area – will include the land area and other areas of the property, including square footage, if requested. It may be important to include this item to see if any zoning requirements will affect the use of the property. It is a commonly checked item, but not always necessary from a lender’s perspective.
- Vertical Relief – this will provide topographic information and is usually not used unless needed for construction purposes.
- Zoning – 6(a) and 6(b) require the borrower to provide zoning information to the surveyor, which information should usually be obtained as part of a lender’s due diligence. Section 6(b) will require the surveyor to graphically incorporate building setback requirements. Both are commonly requested.
- Dimensions – 7(a) and 7(b)(1) will show the dimensions and square footage of the exterior of the building being mortgaged and are standard. Item 7(b)(2) allows the borrower to request additional areas to be measured for square footage. It can be helpful if the lender needs to be certain about the square footage of the interior of the building for valuation purposes, or if there are zoning issues. Item 7(c) measures height of the building and would be necessary if you need to confirm that the property meets certain zoning requirements.
- Substantial Features – will identify other features of the property outside of the main building, such as parking lots, billboards, signs, swimming pools, landscaped areas, and substantial areas of refuse. This item is typically requested.
- Parking – if requested, the surveyor will include the number and types of parking spaces. Usually needed to ensure it complies with zoning requirements and is typically requested in a commercial loan.
- Party Walls – this item will only be used if the borrower’s property shares walls with adjoining properties. This is typical in urban areas or in older downtown areas where the buildings are connected.
- Location of Utilities – this should be included in any request. It would be important to know, for example, that utility lines run underneath a building that is being mortgaged and that in the event the lines need to be fixed it could result in the local utility ripping up the floor of the borrower’s property.
- Government Related Survey Requirements – this item is not needed in most commercial loans, but may arise if the loan is being financed through HUD or affects federal property.
- Names of Adjoiners – this is not always requested, but the surveyor is usually going to find out who the adjoining land owners are in its research so this should not be much of an additional costs to include.
- Distance to the Nearest Intersecting Street – this item is used to ensure the property meets zoning requirements regarding distances to intersecting streets, and is standard.
- This item is usually not needed. If selected, the borrower can specify other ways it wants the property measured. It is typically selected when you are dealing with large land masses.
- Evidence of Recent Earth Moving Work – this item is necessary and the surveyor should be certifying the same to satisfy the title requirement that no construction has started.
- Proposed Changes in Street Rights-Of-Way – a change in the street right-of-way could be significant to the borrower and should be included in the survey report.
- Wetlands – this item shows if the property is subject to a wetland restriction. It is not typical for most commercial transactions, but will depend on the location of the property.
- Offsite Easements or Servitudes – surveyors are required to show easements on the property and plot them when required. However, selecting this item means the easements become subject to the minimum standards. This may require additional work from the surveyor so the borrower should discuss this item with the surveyor before selecting.
- Professional Liability Insurance – this is a standard item, and the typical coverage is $1,000,000.00 per occurrence, but you can ask the surveyor what their coverage is and fill in the blank.
- This section is left blank and allows the borrower to request additional items.
It’s helpful to try to understand the purpose of the survey and its components. There are often significant items that may be overlooked by a borrower who is racing to get a project completed while having several other deals in the hopper. Often a borrower will order a survey without coordinating with the lender. Try to make it clear that you need to see the survey request before it is made, and ask for the appropriate items to be checked. I suggest incorporating the requirements into the loan agreement if possible. Finally, always make sure that the survey is certified to the borrower, the lender, and the title insurer. It is common for a lender to review a survey, but never follow up and make sure the surveyor has actually certified the survey to the lender. This allows the lender to have recourse against the surveyor in the event a mistake is made. Hopefully your commercial borrower is sophisticated and has a strong understanding of surveys and why they are important, but if the borrower is not, the commercial lender must be knowledgeable of surveys to protect the bank.
For more information, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.
Note: The above is an article that appeared in the Fall 2017 issue of the Arkansas Community Banker. Click the link below to read the actual publication.