The Title Objection Letter - tlta.com · The Title Objection Letter December 3-4, 2009 Hyatt Regency Hill Country Resort & Spa San Antonio Mr. Acie C. McAda Acie C. McAda, Attorney

19h Annual Robert C. Sneed

TEXAS LAND TITLE INSTITUTE

The Title Objection Letter

December 3-4, 2009 Hyatt Regency Hill Country Resort & Spa

San Antonio

Mr. Acie C. McAda Acie C. McAda, Attorney At Law P. O. Box 311734 267 W. Mill Street 78130 New Braunfels, TX 78131 [email protected] 830.629.0724

Mr. Paul McNutt, Jr. Title Resources Guaranty Company 8111 LBJ Fwy Ste 1200 Dallas, TX 75251-1313 [email protected] 800.526.8018

Acie C. McAda Attorney at Law

267 West Mill Street New Braunfels, TX 78130

Ph: 830-629-0724 Fax: 830-620-1544

Email: [email protected] Education: Texas Tech University J.D. 1986

Texas Tech University MS 1986 (Agricultural Economics)

Texas A & M University BS 1983 (Animal Science) Professional: I have practiced law in New Braunfels since 1988 and at different times in my career handled all levels of criminal defense, family law, business and general civil litigation

I have been a fee attorney for First American Title since 2003 with offices in New

Braunfels, Seguin, and Canyon Lake. My current practice includes representing all participants in real estate transactions, lender counsel and civil litigation involving real estate disputes. In addition, I serve as city attorney for two small South Texas cities. I gratefully acknowledge the help and input of my wife, Janine, who as an escrow officer, has been in the trenches of real estate transactions and at some point in time has probably already seen it and done it.

INSTRUCTOR PROFILE

PAUL MCNUTT Company: Executive Vice President and General Counsel

Title Resources Guaranty Company Dallas, Texas

Title Industry Background: Current position 19 years. Prior experience as commercial escrow

officer in Houston, Texas with several companies and as underwriting counsel.

Educational Background: B.B.A., University of Texas - 1963 L.L.B., University of Texas - 1966

Dale Carnegie, Effective Speaking and Human Relations, 1989 Previous Teaching Experience: Speaker, TLTA Regional Seminar

2007 – Marital Rights 2007 – Foreclosures 2008 – Surveys

Speaker, Texas Land Title Institute 2000 – Optimizing Policy Coverages 2002 – Illegal Subdivisions: Not Just a Platting Issue 2003 – Powers of Attorney: How and When to Use 2004 – Closing the Construction Project 2005 – Maximizing Your Premium Dollar 2006 – Commitments and Binders 2007 – Access: Physical vs. Legal 2008 – Frequently Asked Questions Resulting from Rule Changes

Speaker, State Bar of Texas Advanced Real Estate Course 2005 – Premium Saving Tricks-Strategies Speaker for numerous training classes on commitments, rates and

rules, ethics, current issues of the title industry, and for real estate agents

Recipient: Peggy Hayes Teaching Excellence Award, 2000 from the Texas Land Title Association

Industry Associations: State Bar of Texas Dallas Bar Association

Texas Land Title Association - Director – 2000/2001 Texas Real Estate Commission Certified Instructor –

Legal Update MCE and Ethics MCE

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Resolving Attorney Title Objections:Dudley Do-Right’s Point of View

Paul McNutt, Jr.Title Resources Guaranty Company

Dudley Do-Right, Underwriter of Title InsuranceAnswers the Objection Letter of Wyly Slimebaugh, Esq. Attorney at Law

2009 TEXAS LAND TITLE INSTITUTE

Answer to Objection 1Effective Date. A Commitment date is effective through the date a title plant is posted completely, and that has to always be a few days earlier than the commitment is issued. The difference in that date is not material at closing, as the gap is insured at closing to the Purchaser from the latest updated title commitment used at the closing, through the filing of the title documents. However, any matter filed after the effective date of the title commitment, and before closing, will not be covered if added before closing and disclosed to the buyer and attorney for the buyer before closing.

2


Answer to Objection 2

Request to add reciprocal easements to insurance policy. Agreed, as they benefit the property. With the addition of stating in Sch. A. #2 that these will be “easement estate”tracts instead of fee simple estate tracts.


Answer to Objection 3Item 2 Schedule B. To agree to delete the survey exception down to “shortages in area” as requested we must be furnished an acceptable survey that has been reviewed and approved by our examiners. We may not delete in the commitment the language of the promulgated commitment wording. But we may place in Sch. C. a statement that when then a survey is reviewed and approved we will agree to delete in the Owner’s title policy to be issued the exception as requested,. Further, if we have approved the survey, we may also state in Sch. C we have approved deletion of the survey exception as requested when the Owner’s title policy is issued.



Item 4 Schedule B is promulgated by the Texas Department of Insurance as coverage not allowed to be insured in the Owner’s title policy in Texas, therefore the commitment may never be altered to remove this exception. The exact exception appears in the Owner’s title policy.

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Answer to Objection 5Item 5 Schedule B. Upon payment of the 2008 taxes this exception may be changed to read “2009”, as requested. But, for the Owner’s title policy it is not allowed to delete the exception for possible roll back taxes, described by the phrase, “…and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership,…”. The risk of possible roll back taxes is always borne by the parties and the contract must be examined to determine who will carry forward the risk, if any roll back taxes could occur.



Item 6 Schedule B This will not appear in the Owner’s title policy, but any exceptions taken in the documents presented at closing will be added to the policy. Therefore this exception puts the parties on notice to review the documents presented and be aware any matters in the documents that make reservations or restrictions will be added to the Owner’s title policy to be issued.



Item 7, Schedule B. Agreed that it will not appear in the Owner’s title policy, but it cannot be deleted from the commitment, which clearly states it does not apply to the Owner’s title policy. The attorney should remember that the title commitment is issued to multiple parties in one format, so certain portions only apply to lenders while others to owners.

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Item 8 and 9 Schedule B. Same answer as #7 above.



Item 10 a Schedule B. If the parties have furnished a list of existing leases in the contract, or provided for one, then upon being furnished the list each lease may be excepted to instead of the general exception to unrecorded leases, as requested.



Item 10 c Schedule B. Request to delete this exception for reciprocal easements, as being an insured tract under the revised commitment. While as to the Tract 3, now added easement estate this is correct, the easements are still a burden to the Tracts 1 and 2 fee simple estates, therefore must be listed as applying to those tracts.

5


Answer to Objection 11Items 10 e and f. Oil and gas leases. As to e, the 1951 lease, with a properly documented affidavit of non-production, this lease may be removed. As to the item f, 2006 lease, the term may have not expired, therefore this exception must remain unless released by the holder of the lease. Coverage for T-19.1 as to damage to buildings only may be given if the tracts insured meet the underwriter criteria for allowing this affirmative coverage. Generally, if the City of San Antonio has a no drilling ordinance that would prohibit drilling on the tracts insured, the coverage requested under T-19.1 may be given. P-39a express coverage for this risk is prohibited as to the matters that may be insured with the T-19.1 endorsement. The request to require an assignment of the seller’s interest is a contract matter that is between the parties.


Answer to Objection 12Item 10 g. Blanket easement request to remove. The best evidence that can be obtained by the surveyor, owner, and examiner should be utilized to see if any easement exists on any part of the larger tract this easement was granted across. Also, research should determine the present ownership of the easement and if the entity can be contacted, direct information as to the existence, or location of the easement should be obtained. If satisfactory evidence of no easement affecting this tract is obtained the easement may be removed. If inconclusive evidence is offered the coverage under T-19.1 does provide against damages to buildings.


Answer to Objection 13Item 10 j Protrusion of building into adjacent lot at the southern-most portion of the East boundary line. Request to eliminate. This exception states a fact that must have an exception. The adjoining owner rights must be evaluated, and if material intrusion exists of the building, deletion of coverage for this exception from T-19.1 should be made.Alternatively, easement or purchase agreement from adjoining land owner for portion of land encroached on by building should be obtained and added to description of insured tract and then T-19.1 can be given without deletion for this exception.

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Answer to Objection 14Items 10 k. Deletion request for all matters. As to factual matters that could require removal, such as of masonry wall into 10’ TXU easement, underwriter would evaluate the degree of interference with the use of the easement, and if minor might agree to give express coverage under P-39 a to the policy. As to Northeast corner of one-story retail building extends over/into 10 foot utility easement, T-19.1 coverage could be given for this exception if only a small encroachment that would not interfere with the utility serving the property is involved. Possible request to obtain a consent to encroach from the utility may be made if a material encroachment is shown. As to sanitary sewer manholes water valves, cleanouts and inlets, if only used for service to the property by the utility involved the exception can be removed. If located in utility easements can be removed.



Eliminate all Schedule C items before closing. Agreed.



Insufficient survey certificate, want purchaser covered. Agreed.

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Answer to Objection 17Provide for T-19.1 Endorsement in Owner’s title policy without exception. Depends on answers obtained earlier. Provide for T-23 Access endorsement. Requires names of streets and surveyor certificate to include access to street requested.Provide for T-25 Contiguity Endorsement. Requires certificate of surveyor to assure the contiguity between Tract 1 and Tract 2.

Thank You for Your Attention!

SUMMARY OF TRANSACTION This is a sale of an apartment complex for $8,665,000.00 located on Tract 1,

together with an adjoining unimproved Tract 2 that maintains an agricultural exemption.

Seller has an existing survey from 2001. Seller does not own 100% of the minerals and

has two oil & gas leases (one old and one new). The examination shows both an old

blanket easement and new designated easement. The survey reveals both major (building

across a property line) and minor (protrusion in the utility easements) issues.

Title Insurance Corporation Page 1

COMMITMENT FOR TITLE INSURANCE

SCHEDULE A Effective Date: November 1, 2009, 8:00 am G.F. No. or File No. TLTA Commitment No. _______________________ issued: November10, 2009 (if applicable) 1. The policy or policies to be issued are:

(a) OWNER'S POLICY OF TITLE INSURANCE (Form T-1) (Not applicable for improved one-to-four family residential real estate)

Policy Amount: $8,665,000.00 PROPOSED INSURED: James D. Smith and Judy L. Jones

(b) TEXAS RESIDENTIAL OWNER POLICY OF TITLE INSURANCE - ONE-TO-FOUR FAMILY RESIDENCES (Form T-1R)

Policy Amount: PROPOSED INSURED:

(c) LOAN POLICY OF TITLE INSURANCE (Form T-2) Policy Amount: $5,900,000.00 PROPOSED INSURED: Pacific Capital Bank Proposed Borrower: James D. Smith and Judy L. Jones

(d) TEXAS SHORT FORM RESIDENTIAL MORTGAGEE POLICY OF TITLE INSURANCE (Form T-2R)Policy Amount: PROPOSED INSURED: Proposed Borrower:

(e) MORTGAGEE TITLE POLICY BINDER ON INTERIM CONSTRUCTION LOAN (Form T-13) Binder Amount: PROPOSED INSURED: Proposed Borrower:

(f) OTHER Policy Amount: PROPOSED INSURED:

2. The interest in the land covered by this Commitment is: Fee Simple

3. Record title to the land on the Effective Date appears to be vested in: TRACT 1: RETAIL PROPERTIES II, L.P., a Texas limited partnership and RETAIL PROPERTIES III, L.P., a Texas limited partnership TRACT 2: RETAIL PROPERTIES III, L.P., a Texas limited partnership

4. Legal description of the land: SEE ATTACHED EXHIBIT "A"

Continuation of Schedule A G.F. No. TLTA


EXHIBIT "A" TRACT 1: Lot 2A, Block A, RETAIL CORNERS ADDITION, an Addition to the City of San Antonio, Bexar County, Texas, accordingto the map or plat thereof recorded in Volume 2008, Page 309, of the Map Records of Bexar County, Texas. TRACT 2; Los 6, Block A, RETAIL CORNERS ADDITION, an Addition to the City of San Antonio, Bexar County, Texas, accordingto the map or plat thereof recorded in Volume 2006, Page 508, of the Map Records of Bexar County, Texas.



SCHEDULE B

EXCEPTIONS FROM COVERAGE In addition to the Exclusions and Conditions and Stipulations, your Policy will not cover loss, costs, attorneys' fees, and expenses resulting from: 1. The following restrictive covenants of record itemized below (We must either insert specific recording data or delete this

exception): Volume 6032, Page 2295; County Clerk's No. 20070618000826010; County Clerk's No. 20080110000038020; all of the Real Property Records of Bexar County, Texas, but omitting any covenant or restriction based on race, color, religion, sex, handicap, familial status, or national origin.

2. Any discrepancies, conflicts, or shortages in area or boundary lines, or any encroachments or protrusions, or any overlapping of improvements. Company has approved the current land title survey and upon request, and payment of any promulgated premium, this item will be amended in the policy(ies) to be issued to read: 'shortages in area'.

3. Homestead or community property or survivorship rights, if any, of any spouse of any insured. (Applies to the Owner Policy only).

4. Any titles or rights asserted by anyone, including, but not limited to, persons, the public, corporations, governments or other entities,

a. to tidelands, or lands comprising the shores or beds of navigable or perennial rivers and streams, lakes, bays, gulfs or oceans, or

b. to lands beyond the line of harbor or bulkhead lines as established or changed by any government, or

c. to filled-in lands, or artificial islands, or

d. to statutory water rights, including riparian rights, or

e. to the area extending from the line of mean low tide to the line of vegetation, or the rights of access to that area or easement along and across that area.

(Applies to the Owner Policy only.)

5. Standby fees, taxes and assessments by any taxing authority for the year 2009, and subsequent years; and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership, but not those taxes or assessments for prior years because of an exemption granted to a previous owner of the property under Section 11.13, Texas Tax Code, or because of improvements not assessed for a previous tax year. (If Texas Short Form Residential Mortgagee Policy (T-2R) is issued, that policy will substitute "which become due and payable subsequent to Date of Policy" in lieu of "for the year _____ and subsequent years.")

6. The terms and conditions of the documents creating your interest in the land.

7. Materials furnished or labor performed in connection with planned construction before signing and delivering the lien document described in Schedule A, if the land is part of the homestead of the owner. (Applies to the Mortgagee Title Policy Binder on Interim Construction Loan only, and may be deleted if satisfactory evidence is furnished to us before a binder is issued.)

8. Liens and leases that affect the title to the land, but that are subordinate to the lien of the insured mortgage. (Applies to

Continuation of Schedule B G.F. No. TLTA


Loan Policy (T-2) only.)

9. The Exceptions from Coverage and Express Insurance in Schedule B of the Texas Short Form Residential Mortgagee Policy (T-2R). (Applies to Texas Short Form Residential Mortgagee Policy (T-2R) only. Separate exceptions 1 through 8 of this Schedule B do not apply to the Texas Short Form Residential Mortgagee Policy (T-2R).

10. The following matters and all terms of the documents creating or offering evidence of the matters (We must insert matters

or delete this exception.):

THE FOLLOWING AFFECT ALL TRACTS:

a. Rights of tenants in possession under unrecorded written leases or rental agreements.

b. Easement executed by Retail Properties II, LP, to TXU Electric Delivery Company, dated September 14, 2005, filed October 14, 2005, recorded in Volume 6024, Page 11 of the Real Property Records of Bexar County, Texas, and as shown on survey by David Jones, R. P. L. S. No. 0000, dated April 18, 2009, last revised June 18, 2009.

c. Terms, provisions, conditions and easements contained in Reciprocal Easement Agreement and Declaration of

Covenants and Restrictions filed October 26, 2005, recorded in/under Volume 6032, Page 2295 of the Real Property Records of Bexar County, Texas; Amended and Restated by County Clerk's No. 20070618000826010 and First Amendment in County Clerk's No. 20080110000038020 of the Real Property Records of Bexar County, Texas, and as noted on survey by David Jones, R. P. L. S. No. 0000, dated April 18, 2009, last revised June 18, 2008.

d. One-fourth of all the oil, gas and other minerals, the royalties, bonuses, rentals, and all other rights in connection

with the same are excepted herefrom, as set forth in instrument recorded in Volume 259, Page 519, Deed Records, Bexar County, Texas.

e. Oil and gas lease between Morris G. Lord and Marie Lord, as lessor and Geo. S. Berry, Jr., as lessee, dated May

19, 1951, recorded in Volume 369, Page 288, Deed Records of Bexar County, Texas.

f. Oil and gas lease by and between Shale Drilling Company, as lessor and Madison Runs LP, as lessee, dated June 1, 2007, recorded under Instrument No. 20070120000083019 of the Real Property Records of Bexar County, Texas.

g. Easement executed by William and Beth Smart to Texas Rural Electric Department dated June 2, 1939, filed June

2, 1939, recorded in Volume 1, Page 3, Real Property Records of Bexar County, Texas. (Noted as Blanket on survey by David Jones, R.P.L.S. No. 0000, dated April 18, 2009, last revised June 18, 2009.)

h. All leases, grants, exceptions or reservations of coal, lignite, oil, gas and other minerals, together with all rights,

privileges, and immunities relating thereto, appearing in the Public Records whether listed in Schedule B or not. There may be leases, grants, exceptions or reservations of mineral interest that are not listed.

THE FOLLOWING AFFECTS TRACT 2:

i. Easement executed by Madison Runs LP, to TXU Electric Delivery Company, dated November 20, 2006, filed April 27, 2007, recorded under County Clerk's No. 20070427000568330 of the Real Property Records of Bexar County, Texas, and as shown on survey by David Jones, R. P. L. S. No. 0000, dated April 18, 2009, last revised June 18, 2009.

j. Easements created in Amended and Restated Reciprocal Easement Agreement and Declaration of Covenants and

Restrictions filed June 18, 2007, recorded under County Clerk's No. 20070618000826010 and First Amendment



filed January 10, 2008, recorded under County Clerk's No. 20080110000038020 of the Real Property Records of Bexar County, Texas.

THE FOLLOWING AFFECTS TRACT 1:

k. The following, all according to plat recorded in Volume 2008, Page 309, of the Map Records of Bexar County, Texas:

o Forty (40) foot building line along the South property line;

o 10 foot water easements along the South, North, West and East property lines;

o 30 foot pedestrian easement along the South property line;

o 10 foot utility easement along the East and North property lines;

o 24 foot firelane and mutual access easement along the East property line;

o 26 foot mutual access easement along the South property line;

o Variable width water and drainage easement along the West property line;

o 15 foot x 15 foot utility easement along the North property line;

o 23 foot firelane and mutual access easement along the North property line;

o 25 foot sanitary sewer, water and drainage easement along the North property line;

o Variable width mutual firelane and access easement along the West property line;

o 40 foot firelane and mutual access easement along the East property line; and

l. The following as shown on survey by David Jones, R. P. L. S. No. 0000, dated April 18, 2009, last revised June 18,

2009:

o Protrusion of building into adjacent lot at the southern-most portion of the East boundary line. o Protrusion of concrete sidewalk along the Southeast corner of subject property;

o Trash dumpsters extend over/into the 10 foot TXU Easement in the Northwest and Northeast corners;

o Masonry wall extends over/into the 10 foot TXU Easement along the North property line;

o Northeast corner of one-story retail building extends over/into 10 foot utility easement; and

o Sanitary Sewer manholes, water valves, cleanouts and inlets over and across the subject property.

THE FOLLOWING AFFECT TRACT 2:

m. The following, all according to plat recorded in Volume 2006, Page 508, of the Map Records of Bexar County, Texas, and as shown on survey by David Jones, R. P. L. S. No. 0000, dated April 18, 2009, last revised June 18, 2009:

o Forty (40) foot building line along the South property line(s) - Lot 3C;



o 30 foot pedestrian easement along the South property line(s) - Lot 3C;

o 10 foot water easement along the South and North property line(s) - Lot 3C;

o Variable width water easement along the West property line(s) - Lot 3C;

o Variable width firelane and mutual access easement along the West property line(s) - Lot 3C;

o 25 foot sanitary sewer, water and drainage easement along the Northwest property line(s) - Lot 3C;

o 24 foot firelane, water, sanitary sewer and mutual access easement along the North property line(s) - Lot

3C;

o 10 foot utility easement along the North property line(s) - Lot 3C;

o 26 foot firelane and mutual access easement along the South property line(s) - Lot 3C;

o 24 foot firelane, water, sanitary sewer and mutual access easement along the North property line(s) - Lot 6;

o 10 foot sanitary sewer easement along the North property line(s) - Lot 6;

o 10 foot utility easement along the North property line(s) - Lot 6;

o 10 foot drainage easement along the East property line(s) - Lot 6;

o 30 foot pedestrian easement along the South property line(s) - Lot 6;

o 10 foot water easement along the South property line(s) - Lot 6;

o 24 foot mutual access easement along the East property line(s) - Lot 6;

o 26 foot firelane and mutual access easement along the South property line(s) - Lot 6; and

o Forty (40) foot building line along the South property line(s) - Lot 6.

n. The following as shown on survey by David Jones, R. P. L. S. No. 0000, dated April 18, 2009, last revised June 18, 2009, as to Lot 6:

o sign extends over/into 10 foot sanitary sewer easement;

o trash dumpster extends over/into 10 foot utility easement and 10 foot water easement; and

o water valves, sanitary sewer manholes, and cleanout valves over and across subject property.


SCHEDULE C Your Policy will not cover loss, costs, attorneys' fees, and expenses resulting from the following requirements that will appear as Exceptions in Schedule B of the Policy, unless you dispose of these matters to our satisfaction, before the date the Policy is issued: 1. Documents creating your title or interest must be approved by us and must be signed, notarized and filed for record.

2. Satisfactory evidence must be provided that:

a. no person occupying the land claims any interest in that land against the persons named in paragraph 3 of Schedule

A,

b. all standby fees, taxes, assessments and charges against the property have been paid,

c. all improvements or repairs to the property are completed and accepted by the owner, and that all contractors, subcontractors, laborers and suppliers have been fully paid, and that no mechanic's, laborer's or materialmen's liens have attached to the property,

d. there is legal right of access to and from the land,

e. (on a Loan Policy only) restrictions have not been and will not be violated that affect the validity and priority of the insured mortgage.

3. You must pay the seller or borrower the agreed amount for your property or interest.

4. Any defect, lien or other matter that may affect title to the land or interest insured, that arises or is filed after the effective date of this Commitment.

AS TO TRACT 1: 5. COMPANY REQUIRES PAYMENT OF AND RELEASE OF LIEN FOR: Vendor’s Lien retained in Deed, executed by Big

Guy 37, L.P., a Texas limited partnership to Retail Properties II, L.P., dated December 30, 2003, filed January 2, 2004, recorded in Volume 5576, Page 2050 of the Real Property Records of Bexar County, Texas, securing Last Standing Bank, SSB in the payment of one note in the principal sum of Four Million Two Hundred Fifty Thousand and 00/100 ($4,250,000.00), due and payable and bearing interest as therein provided; said Note being additionally secured by Deed of Trust to Robert K. Power, Trustee, recorded in Volume 5576, Page 2056 of the Real Property Records of Bexar County, Texas; and all the terms, conditions and stipulations contained therein, including, but not limited to, any additional indebtedness, if any, secured by said instrument.

Said lien has been modified by instrument dated January 31, 2006, filed February 7, 2006, recorded under County Clerk's No. 20060207000165600 of the Real Property Records of Bexar County, Texas.

Said lien has been modified by instrument dated May 19, 2006, filed June 5, 2006, recorded under County Clerk's No. 20060605000757150 of the Real Property Records of Bexar County, Texas.

Said lien has been modified by instrument dated May 2, 2007, filed June 4, 2007, recorded under County Clerk's No. 20070604000748020 of the Real Property Records of Bexar County, Texas.

6. UCC-1 Financing Statement executed by My Family, Inc., Debtor, to Bank of Grace, Secured Party, filed May 5, 2005,

recorded in Volume 5912, Page 2232 of the Real Property Records of Bexar County, Texas. (Affects tenant fixtures)

Continuation of Summary Page G.F. No. TLTA

AS TO TRACT 2: 7. COMPANY REQUIRES PAYMENT OF AND RELEASE OF LIEN FOR: Vendor’s Lien retained in Deed, executed by

Retail Properties II, L.P., a Texas limited partnership to Retail Properties III, L.P., a Texas limited partnership, dated June 6, 2006, filed June 8, 2006, recorded under County Clerk's No. 20060608000781010 of the Real Property Records of Bexar County, Texas, securing Big Texas Bank, N.A. in the payment of one note in the principal sum of Two Million Four Hundred Forty Seven Thousand and 00/100 ($2,447,000.00), due and payable and bearing interest as therein provided; said Note being additionally secured by Deed of Trust to John C. Smug, Trustee, recorded under County Clerk's No. 20060608000781020 of the Real Property Records of Bexar County, Texas; and all the terms, conditions and stipulations contained therein, including, but not limited to, any additional indebtedness, if any, secured by said instrument.

8. UCC-1 Financing Statement executed by Retail Properties III, LP, Debtor, to Big Texas Bank, N.A., Secured Party, filed June

8, 2006, recorded under County Clerk's No. 20060608000781030 of the Real Property Records of Bexar County, Texas. AS TO ALL TRACTS: 9. COMPANY REQUIRES Warranty Deed conveying record title of all tracts from record owners shown on Schedule A hereof

to vest title in proposed Borrower, be recorded prior to any mortgage documents being recorded which establish the lien to be insured in this transaction.

10. COMPANY REQUIRES THE FOLLOWING FROM RECORD OWNER PRIOR TO AND/OR AT CLOSING:

- Copy of signed limited partnership agreement; - Copy of Certificate of Limited Partnership issued by Secretary of State; - Copy of general partner entity documents with appropriate certificates from Secretary of State evidencing filing; - Corporate Resolution of general partner ratifying and affirming Contract, listing officers of corporation, providing specific

authority for officer(s) executing documents on its behalf in its capacity as general partner of limited partnership; - Affidavit as to Debts & Liens; - Section 1445 Non-Foreign Affidavit; - Tax Proration Agreement; - Federal Tax Identification Number of limited partnership; - Substitute Form 1099S. Company reserves the right to make further requirements based upon its receipt and review of entity documents and authority evidence.

11. COMPANY REQUIRES THE FOLLOWING FROM PROPOSED INSURED OWNER/BORROWER PRIOR TO AND/OR AT CLOSING:

- Tax Proration Agreement; - Waiver of Rights of Parties in Possession.

Wyly Slimebaugh, Esq. Attorney at Law

1000 Alamo Avenue San Antonio, Texas 78216

November 15, 2009

Retail Properties II, L.P. and Retail Properties III, L.P. 100 Coyote Trail, Suite 201 San Antonio, TX 78252 Major Title Company 845 Big Deal Blvd. San Antonio, TX 78253

Re: Agreement of Sale and Purchase (“Contract”) by and between Retail Properties II, L.P. and Retail Properties III, L.P. (“Seller”) and James D. Smith and Judy L. Jones (“Purchaser”) for property in Retail Corner Addition, San Antonio, Texas.

Dear Addressees:

Our firm represents Purchaser in connection with the referenced Contract.

We have received and reviewed the Commitment for Title Insurance issued by Major Title Company, on GF # TLTA, on November 10, 2009 with an Effective date of November 1, 2009 (“Commitment”) and copy of survey, prepared by David Jones, Registered Professional Land Surveyor, No. 0000, dated April 18, 2009, last revised June 18, 2009 ("Survey").

Based upon our review of the Commitment and Survey, we have the following

objections, requirements and observations:

1. Items 3 and 4, Schedule A of the Commitment do not include the Reciprocal Easement Agreement and Declaration of Covenants and Restrictions recorded in Volume 6032, Page 2295, Real Property records of Bexar County, Texas, as Amended and Restated under County Clerk's No. 20070618000826010 and First Amendment under County Clerk's No. 20080110000038020, both of the Real Property Records of Bexar County, Texas. The rights granted by these instruments must be insured to Purchaser in the owner's policy to be issued in this transaction.

2. Item 2, Schedule B of the Commitment should be revised to read “shortages in area” in the owner’s title policy to be issued in this transaction.

3. Item 5, Schedule B, of the Commitment should be amended to read in its

entirety as follows: “Standby fees, taxes and assessments by any taxing authority for the year 2010, and subsequent years.” Purchaser requires the payment of all ad valorem taxes and assessments for all prior years, up to and including the year 2009.

4. Item 10. a, Schedule B of the Commitment should be deleted from the

owner’s policy to be issued in this transaction or replaced with an itemized listing of existing tenants and the term of each of their leases.

5. Item 10. c., Schedule B of the Commitment should be deleted from the

owner’s policy to be issued in this transaction because the easements described therein constitute a part of the property to be insured in this transaction.

6. Items 10. e. and f., Schedule B of the Commitment should be deleted from

the owner’s policy to be issued in this transaction or the Purchaser must be insured against the exercise by the respective lessees of the surface rights associated with the sub-surface mineral rights. With regard to this item, Purchaser shall require an assignment of Seller's interest in the lease(s) if either or both of the leases has not expired.

7. Item 10.g., of Schedule B of the Commitment must either be deleted or the

Survey revised to include the location of the Easement on the Property insured in Schedule A of the Commitment and owner’s policy to be issued in this transaction.

8. Item 10.h., Schedule B of the Commitment: Buyer objects to the general

exception for minerals. 9. Item 10.j, Schedule B of the Commitment lists a protrusion of building

over the East property line. This item should be deleted from the owner’s policy to be issued in this transaction.

10. Item 10. k., Schedule B of the Commitment, Purchaser objects to each

matter listed therein and all should be deleted from the owner’s policy to be issues in this transaction.

11. All items in Schedule C of the Commitment must be satisfied and deleted

at or before the closing of the Contract.

12. The certificate on the Survey is not addressed to Purchaser and does not certify that the survey was made in accordance with the Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys. Purchaser will require a revised certificate, which meets these objections.

13. Upon payment of the applicable premium at closing, we will require the

issuance of a T-19.1 Endorsement, a T-23 Access Endorsement and a T-25 Contiguity Endorsement. We will not accept any deletion of any coverage provided by the promulgated from each of these endorsements.

We reserve the right to make additional objections following receipt and review

of any revisions that may be made to the Commitment or Survey. If you should have any questions, please do not hesitate to contact the undersigned.

Sincerely, ______________________________ Wyly Slimebaugh, Esq.

cc: Seller’s Attorney

Dudley Do-Right, Underwriter of Title Insurance Underwriter Answers to the Objection Letter of Wyly Slimebaugh, Esq. Attorney at Law 1. Request to add reciprocal easements to insurance policy. Agreed, as they benefit the

property. With the addition of stating in Sch. A. #2 that these will be “easement estate” tracts instead of fee simple estate tracts.

2. Item 2 Schedule B. To agree to delete the survey exception down to “shortages in area”

as requested we must be furnished an acceptable survey that has been reviewed and approved by our examiners. We may not delete in the commitment the language of the promulgated commitment wording. But we may place in Sch. C. a statement that when then a survey is reviewed and approved we will agree to delete in the Owner’s title policy to be issued the exception as requested,. Further, if we have approved the survey, we may also state in Sch. C we have approved deletion of the survey exception as requested when the Owner’s title policy is issued.

3. Item 5 Schedule B. Upon payment of the 2009 taxes this exception may be changed to

read “2010”, as requested. But, for the Owner’s title policy it is not allowed to delete the exception for possible roll back taxes, described by the phrase, “…and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership,…”. The risk of possible roll back taxes is always borne by the parties and the contract must be examined to determine who will carry forward the risk, if any roll back taxes could occur.

4. Item 10 a Schedule B. If the parties have furnished a list of existing leases in the contract,

or provided for one, then upon being furnished the list each lease may be excepted to instead of the general exception to unrecorded leases, as requested.

5. Item 10 c Schedule B. Request to delete this exception for reciprocal easements, as being

an insured tract under the revised commitment. While as to the Tract 3, now added easement estate this is correct, the easements are still a burden to the Tracts 1 and 2 fee simple estates, therefore must be listed as applying to those tracts.

6. Items 10 e and f. Oil and gas leases. As to e, the 1951 lease, with a properly documented

affidavit of non-production, this lease may be removed. As to the Item f, 2008 lease, the term may have not expired, therefore this exception must remain unless released by the holder of the lease. Coverage for T-19.1 as to damage to buildings only may be given if the tracts insured meet the underwriter criteria for allowing this affirmative coverage. Generally, if the City of San Antonio has a no drilling ordinance that would prohibit drilling on the tracts insured, the coverage requested under T-19.1 may be given. P-39a express coverage for this risk is prohibited as to the matters that may be insured with the T-19.1 endorsement. The request to require an assignment of the seller’s interest is a contract matter that is between the parties.

7. Item 10. g. Blanket easement request to remove. The best evidence that can be obtained by the surveyor, owner, and examiner should be utilized to see if any easement exists on any part of the larger tract this easement was granted across. Also, research should determine the present ownership of the easement and if the entity can be contacted, direct information as to the existence, or location of the easement should be obtained. If satisfactory evidence of no easement affecting this tract is obtained the easement may be removed. If inconclusive evidence is offered the coverage under T-19.1 does provide against damages to buildings.

8. Item 10.h., General Mineral Exclusion: Effective November 1,2009, the exception that

has been added is permissible for a title agent to add to any title commitment. However, when this exception has been added it entitles the buyer and their lender to request, under the new Procedural Rule 5.1, and the agent will be required when requested, that the title company issue them either the new T-19.2 or T-19.3 endorsements, for each tract of land being insured, depending on the exact type of property and use of each tract.

As this exception was for all tracts we would be required to give, upon request, for a Premium of $50 each, under Rate Rule 29, the new endorsements entitled Minerals and Surface Damage Endorsement, for each T-19.2 or T-19.3 endorsement issued. In this case, as tract 1 is a developed tract, with multi-family apartments, we would be required to give the owner and lender, upon request, the new T-19.2 endorsement. It would protect against damage to the “…improvements (excluding lawn shrubbery or trees)…” by anyone outside of the owner who has rights at the time the policy is issued and later damages the “improvements” because they drill for oil and gas, or develop the land for coal or lignite. The Procedural Rule 50.1 definition of the types of properties entitled to the T-19.2 states: 1. As to real property of one acre or less improved or intended to be improved for one to

four family residential use; and 2. As to real property improved or intended to be improved for office, industrial, retail,

mixed use retail/residential, or multifamily purposes…”. Therefore the apartments qualify for this endorsement for Tract 1.

The T-19.3 endorsement is given for “other real property…”.

As to Tract Number 2, this being an undeveloped tract of land, we would be required, upon request by the buyer or lender, to issue the T-19.3 endorsement, and it’s protection is limited to damages to “permanent improvements” (excluding lawn shrubbery or trees) on the property, both now and later. In addition, the buyer may request for both tracts the T-19.1 endorsement that has other protections, but as to parties having a right “…to use the Land for the Extraction or development of minerals “ for any damage “…to improvements (excluding lawns, shrubbery or trees)…”. Note, this may be a greater coverage, as the T-19.3 was only for damage to “permanent buildings”.

9. Item 10. k, Protrusion of building into adjacent lot at the southern-most portion of the

East boundary line. Request to eliminate. This exception states a fact that must have an exception. The adjoining owner rights must be evaluated, and if material intrusion exists of the building, deletion of coverage for this exception from T-19.1 should be made.

Alternatively, easement or purchase agreement from adjoining land owner for portion of

land encroached on by building should be obtained and added to description of insured tract and then T-19.1 can be given without deletion for this exception.

10. Items 10. l. Deletion request for all matters. As to factual matters that could require

removal, such as of masonry wall into 10’ TXU easement, underwriter would evaluate the degree of interference with the use of the easement, and if minor might agree to give express coverage under P-39 a to the policy. As to Northeast corner of one-story retail building extends over/into 10 foot utility easement, T-19.1 coverage could be given for this exception if only a small Encroachment that would not interfere with the utility serving the property is involved. Possible request to obtain a consent to encroach from the utility May be made if a material encroachment is shown. As to sanitary sewer manholes water valves, cleanouts and inlets, if only used for service to the property by the utility involved the exception can be removed. If located in utility easements can be removed.

11. Eliminate all Sch. C items before closing. Agreed. 12. Insufficient survey certificate, want purchaser covered. Agreed. Also, we will not

generally accept a former survey from 2001 for a commercial transaction, even though Procedural Rule 2 allows, with a T-47 affidavit of someone with knowledge, use of a prior survey.

13. Provide for T-19.1 Endorsement in Owner’s title policy without exception. Depends on

answers obtained earlier. Provide for T-23 Access endorsement. Requires names of streets and surveyor Certificate

to include access to street requested. This is only available by rule for improved properties, therefore only available to Tract 1 in this transaction.

Provide for T-25 Contiguity Endorsement. Requires certificate of surveyor to assure the

contiguity between Tract 1 and Tract 2. In Texas we are limited in insuring with this endorsement to only the facts presented in this case, where both tracts are insured.