The Executory Period is known by several different names. Lawyers will often refer to this time and process as the Due Diligence Period. Ultimately, these two alternative terms do nicely in clarifying exactly what the Executory Period really is, a time during which a proposed buyer of a piece of property diligently inspects a wide variety of aspects of the property to be sold.
There are many things that can be inspected during the Executory Period. Generally, the two major categories are property records and the physical condition of the property. The buyer has the duty to perform any inspections that it may so desire. The buyer can perform these inspections themselves, or they can hire professionals such as title companies, attorneys, and property inspectors to perform the inspections on their behalf. Most buyers choose to employ others to perform their desired inspections if for no other reason than the fact that the findings and conclusions from inspections performed by professionals like the aforementioned are usually backed by some kind of guarantee or insurance.
The most common way that property records are investigated during the Executory Period is through the purchase of a title insurance policy. Many mortgage lenders will actually require the buyer to purchase a title insurance policy in order to receive the mortgage. As such, title companies are usually responsible for performing most of the investigations into the property records of a piece of real estate.
When it performs its inspection, the title company will look to several things. First and foremost, the agent performing the investigation will look at the various deeds that have been given on the property in question. They look at the deeds in order to make sure that the seller is actually the owner of the property. So, they will look at the most recent deed to see that the seller received title to the property and who they purchased the property from. Then, they will look at the deed that gave title to the person or entity that sold the property to the seller, and so on down the line until the very first deed, which usually comes from the state or U.S. government, is found.
This process is called investigating the chain of title, and the title company performing the investigation wants to make sure that there are no breaks in the chain. For example, if buyer B wants to purchase a piece of property from seller S, the title company will investigate S’s chain of title. First, they will take the property address or legal description and find the most recent deed which should give title to S. Once the investigator finds that deed it will likely say that S received the property from R. The investigator will then look to the previous deed to see that R received the property, for instance from Q, and so on down the line until the investigator reaches the original sale of the property from the U.S. government or the state of Minnesota. Once the first deed is established, the title investigator will then research forward in time from the first deed to make sure that there are no problems with the chain of title.
Believe it or not, there have been plenty of occurrences where the chain of title was broken and even where one chain turned into two chains or more. Such an example may be when the investigator tries to find the deed giving R title to the property they actually find that there is no such deed. This would be an example of a break in the chain of title. An example of multiple chains of title may appear as the investigator is researching forward in time from the original sale of the property. For instances, the first deed may say from the state of Minnesota to O. The next deed may say from O to P, but following that deed the investigator may find that there are two deeds from P to two different buyers, one deed from P to Q and one from P to R.
The individual investigating the chain of title will also be careful to investigate exactly what is sold to each buyer. That is to say, the title investigator will make sure that the property being sold is what it is supposed to be. For example, many properties often have Easements on them that can significantly limit the use or value of the property in question. Also, deeds do not always list the correct property. While it is rare to find out that the property contained in the deed is not the property that is purportedly being sold, it is not so rare to find out that a driveway for the property, fences surrounding the property, and sometimes even portions of the house or building itself are not actually located on the property being sold. For this reason, investigations into the title of the property may also include a survey of the property to determine exactly what all is a part of the property and whether or not the deed properly reflects this.
Other investigations that are performed during the Executory Period are inspections into the physical condition of the property itself. If there is a building or home on the property, an inspector will look at the building and sometimes even appliances to determine whether or not everything is in working order, up to code, and without major problems like mold, rot, and infestation. Certain properties, especially commercial properties, will also need to have an environmental inspection performed in order to determine whether and to what extent there is any contamination on the property or threat of contamination from things that are to remain on the property. For example, if the property being purchased is an industrial property or an old gas station it is highly possible that various underground storage tanks may still exist on the property, or even that chemicals were improperly disposed of years ago when such matters were carried out in less than prudent fashion.
Certain buyers may also want to inspect the city code and zoning ordinances in order to determine whether or not they can use the property in the manner that they intended to. For instance, a buyer hoping to build a convenience store on a piece of raw land may find through an inspection of the zoning records that the property is zoned strictly for residential properties like single family homes and duplexes. If this is the case, another activity commonly undertaken during the Executory Period can come into play, and this is negotiating with the city to get a variance or to get zoning approval and building permits.
Ultimately, the Executory Period is one of the most important steps in the Purchase and Sale of Real Estate. This statement is true whether the property in question is Commercial Real Estate or Residential Real Estate. Because this step is so important, it is crucial that you or your business have a thorough understanding of what must take place, what is actually going to take place, and how best to protect the interests of you or your business. We at the Gabriel Law Office PLLC have the knowledge and experience to help you or your business make sure that your interests are properly protected. Let us help make sure that legal issues are not an issue for you or your business.