Parties in Possession: There’s No Party in PIP

 

By Lydia Blair
Special Contributor

I’d like to say there is no party in a PIP. But that’s not exactly true. Let’s just say there usually isn’t a fun party in a PIP.

In real estate, a PIP refers to Parties in Possession. And we’re not talking about a holiday party or drug possession. These kinds of parties in possession can be more agonizing than a New Year’s hangover.

Parties in Possession – as described in the Texas Basic Manual of Title Insurance – refers to “one or more persons who are themselves actually physically occupying the property or a portion thereof under a claim of right adverse to the record owner of the property as shown in Schedule A of the policy.” This refers to someone using the property who doesn’t have legal ownership, like a squatter. But it could also include associations, corporations, estates, etc.

According to Bruce L. Goldston, Vice President and Regional Counsel at WFG National Title Insurance Company, a PIP could also include something more unusual, like a deer blind being used on a ranch for hunting. Or a roadway or grave on a property. Yikes.

So as a typical Dallas buyer or seller, why would this effect you?

“Title companies work off of written records. While they are insuring the title to the property, they don’t visit the property being sold. Some risks are not uncovered in a title search and that can only be discovered by visiting the property. Like if there is a tenant or squatter in the property,” says Goldston.

In order to cover those risks, the title company will require a buyer to sign a Waiver of Inspection at closing. This allows the title company to include an exception in the title insurance policy so that they don’t cover issues regarding Parties in Possession. Basically, the title company lets the buyer know that they didn’t inspect the property and can’t be held responsible for the condition or any PIPs.

But wait, you say? You don’t want to sign that paper and let the title company off the hook for any PIPs? There’s a solution to that. But remember what I said about it being painful? Here comes the financially painful part.

If a buyer declines to sign the waiver, the title company will likely need to inspect the property in order to issue title insurance (and in order for a mortgage company to issue a loan). “If you put the inspection responsibility on the title company, they will see the job of inspecting as an added risk,” says Goldston. “Any extra property inspection fees are not included in the standard title policy. In their self-interest, the title company may hire a qualified, independent third party to give a written inspection.”

Open your wallet, Mr. or Ms. Buyer. An inspection for a PIP could include not only looking for evidence of squatters or tenants, but also comparing the property to the survey to check for easements or encroachments, checking for code violations, etc.  Obviously, this isn’t something that can be handled while you’re sitting at the closing table.

As a buyer, you can refuse to sign the inspection waiver that removes the title company’s responsibility to ensure there are no PIPS. And you can expect to pay the price of adding that obligation to the title company. Now that’s a party pooper for everyone.

To party or to pay, the choice is yours.