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Traps in Routine Documents: Fiduciary Real Estate Sales

It is never a good idea to sign a document stuck in front of you without reading and fully understanding it simply because it is described to you as “routine and standard.” All kinds of traps await the unwary. Here is one.

You may find yourself serving as trustee or personal representative for the trust or estate of a family member or a friend. It is not at all uncommon for such a trust or estate to own real estate that will need to be sold after a specified death or other triggering event. 

In the Evansville, Indiana community, the standard form of trustee’s deed and personal representative’s deed in use does not call for the trustee or personal representative to warrant title to the property being conveyed. Quite often, as personal representative you will know little about the title to the property you are selling other than that your friend/relative lived there the last few years of his/her life. In these cases, the buyer of the property takes it upon himself to be responsible for assuring that the title he is acquiring is good, because he is not getting a warranty of title from the selling trustee or personal representative. The vehicle that the buyer will use is to acquire title insurance, and that title insurance will pay (according to its terms) damages that may arise from a problem with the title.

A Vendor’s Affidavit is a routine document in real estate closings. It contains recitations such as a representation that there are no environmental hazards on the property, that there has been no recent construction that may result in a mechanic’s lien, and things of that nature. However, the Vendor’s Affidavit will likely also contain a recitation that the seller (trust or estate) has had, together with its predecessors in title, absolute open and adverse possession of the real estate for at least 10 years (coupled with predecessors in title), and that the vendor (trust or estate) has an essentially perfectly clean title to the property subject only to things that are listed in the title insurance policy.

The problem is that as trustee or personal representative, you really have no basis to say that the person whose trust or estate you represent had no adverse possession issues with respect to that property, and you have no ability to say that you have an essentially perfect title to the property.

Title insurance companies do a pretty good job, by and large, in searching titles in determining issues that exist with titles. However, sometimes they miss things. Sometimes unscrupulous people in your chain of title will have forged a deed. Sometimes, an estate will miss an heir, or many other things could happen. If you have signed that standard form of vendor’s affidavit, warranting a near perfect title (and in some forms actually indemnifying the title company), then the estate/trust may continue to be liable to the title insurance company in the event that one of these problems turns up later.

Standard, routine documents are written for standard, routine transactions. If a homeowner is selling the house he has lived in for 20 years, he knows what the neighbor disputes are, where the property line is, whether anyone has been camping out and forming adverse possession rights on the property, and he ought to warrant title. 

A trustee or personal representative sale, though, is not a standard, routine transaction, and the personal representative or trustee does not know any of those details. Rather than simply signing those standard, routine forms that are first presented to the trustee/personal representative at closing, a fiduciary needs to get all of the closing documents ahead of time and have his/her attorney review them. 

The simple insertion of the words “to the best of his knowledge without investigation” in the Vendor’s Affidavit (an insertion that the title insurance companies are usually happy to do) may save the beneficiaries of the estate/trust a lot of time and money down the road.