My earlier post explored various real estate strategies frequently used in hospital M&A transactions.  Each of those different approaches – using real estate assets to secure acquisition financing, increasing existing lines of credit, or monetizing the real estate assets through divestiture – reflect different objectives and opportunities.  But, real estate is more than "location, location, location" and "strategy, strategy, strategy"—there must also be "value, value, value".  The real estate market itself is the lynchpin to establishing the value of individual properties, but the value of hospital properties is frequently affected by dynamics somewhat unique to hospitals. Often, a hospital will expand its footprint by purchasing multiple smaller parcels over the years.  And, for many older hospitals, that can mean almost a century.  Due to the multitude of smaller parcels and the lengthy time-span over which the properties may have been acquired, you may frequently find older title encumbrances that potentially affect the value of the hospital properties and, in turn, cause insurability concerns for many title companies.  We see several re-occurring title issues in hospital M&A transactions.

Old loan documents which have not been released of record usually cause the most concern for lenders wanting to make sure they have lien priority over all other financings.  Since the title company would be insuring the lender's superiority, the title company will normally expect recorded releases for all prior financings.  For more recent loans, the solution may involve obtaining additional release documents although with the recent spate of bank mergers, closures, and take-overs, sometimes even recent loans may prove to be a challenge.  As you would expect, the older loan documentation is more difficult due to mergers over the years, and frequently the successor bank only possesses information about active loans.  In some instances, the successor bank may be hesitant to execute releases for loans it did not service.  Bond financings sometimes present similar challenges even after the bonds have been satisfied and defeased.  The recorded releases are normally pretty clear that the mortgage or deed of trust has been satisfied but ignore other recorded bond documents—such as leasebacks, security agreements, and assignment of leases—which should have also been released.  If the issuing authority still exists, obtaining the additional releases is normally not problematic; however, in a number of bond transactions, the issuing authority was dissolved after the bonds were satisfied so no entity exists to provide the additional releases.  In such circumstances, hospitals typically must go through old records to provide documentation about the loan as well as record affidavits to the satisfaction of the title company.

Properties purchased by a hospital years ago are frequently encumbered by recorded restrictions which either limit the use of the property or impose certain requirements on the property.  In many ways, it is easier to deal with much older restrictions—such as those which limit the number of carriage houses on the property and those that require former farm properties to store manure on a certain side of the property.  Title companies will frequently make the underwriting decision to insure over such restrictions, given the slim likelihood of anyone being able to enforce those restrictions today.  Slightly more problematic restrictions include restrictions that limit occupancy to a single family of related individuals or that limit the square footage of any structure to be constructed on that parcel.  Dealing with these kinds of restrictions is often fact-specific and require further inquiry.  But, perhaps the most problematic of older restrictions are those that limit use of the property to individuals of certain races, religions, etc.  Although such restrictions have been declared unconstitutional from a legal perspective, these restrictions remain as an encumbrance to title, and title companies understandably do not typically insure over those restrictions.  Depending on the wording of the restriction and whether it specifies which parties may be entitled to seek enforcement, it may be possible in some instances to devise a way to have such restrictions released of record.

While not unique to hospital properties, there are often a number of vague easements that encumber the hospital property.  However, due to the number of smaller parcels that frequently comprise the overall property, you may encounter a large number of those easements to address.   Typically, easements that serve the hospital property are not too problematic since the hospital, as the end-user, will have some degree of flexibility if a problem arises.  Transmission line, drainage line, and other easements serving multiple properties, including some not owned by the hospital, must be analyzed with care to determine whether the easement locations can be relocated if necessary, whether third parties have the right to enter onto the hospital property to make installations and repairs, which parties may have the rights to enforce the easements, and so forth.  In many instances, the title company may be able to provide some coverage for the lender—and possibly the owner—for the forced removal of any structures from the easement area.

Although common to transactions, title issues should be addressed—and resolved, if possible—in order to preserve the marketability—and value—of the properties.  Hospital transactions tend to have both more and older title issues than many commercial transactions so it is important manage the real estate due diligence from the outset.  Otherwise, you may encounter last-minute problems or delays in closing in order to cure title issues to the satisfaction of the buyer, lender, and title company.

Back to Health Law Advisor Blog

Search This Blog

Blog Editors

Related Services



Jump to Page


Sign up to receive an email notification when new Health Law Advisor posts are published:

Privacy Preference Center

When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about you, your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalized web experience. Because we respect your right to privacy, you can choose not to allow some types of cookies. Click on the different category headings to find out more and change our default settings. However, blocking some types of cookies may impact your experience of the site and the services we are able to offer.

Strictly Necessary Cookies

These cookies are necessary for the website to function and cannot be switched off in our systems. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms. You can set your browser to block or alert you about these cookies, but some parts of the site will not then work. These cookies do not store any personally identifiable information.

Performance Cookies

These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site. All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we will not know when you have visited our site, and will not be able to monitor its performance.