Whether you are buying a home, a lot on which you hope to build your dream home, an investment property, or land that you hope to develop, the quality of title is probably the most important – and often the most misunderstood and overlooked – aspect of the transaction.
Everyone knows they should get “clear title”. But “clear” of what? Certainly, every buyer wants and expects that her title will be clear of mortgages, judgments, tax liens and other obligations of the seller that may cloud title. Such obligations are typically paid at settlement, and the title insurance company insures the buyer’s title is clear of such liens.
But, virtually every property is subject to other matters of record that affect title, including easements, restrictions, homeowners association documents, and prior recorded plans. When the title company performs a title search and issues its commitment to insure title or title report, such matters are listed in the report. But it is amazing how often – especially in residential purchases – buyers do not review the title report, and how often it is not even given to them until at or immediately prior to settlement.
Easements, restrictions and covenants take many forms, and many do not pose any material concern, like the electric company’s easement for the telephone poles that run along the street in front of the property. But other easements or restrictions can significantly impact what a purchaser plans to do with his or her property. Recorded subdivision plans may restrict building areas, mandate setbacks from property lines greater than zoning, create drainage easements, buffer zones, and the like. Recorded documents may create drainage, access, pipeline and other easements through a property. Old deeds commonly include deed restrictions limiting the types of uses and improvements you may have.
In most cases, these easements and restrictions “run with the land” and are binding on all future owners, even if the new owner is not actually aware of them. Many are perpetual. Most cannot be modified or eliminated, or at least without significant effort and expense. And, since they are listed as exceptions on the title report, title insurance will not protect the buyer against loss that may arise from them.
Every buyer should insure that the Agreement of Sale allows the buyer the opportunity to review the title report and get out of the deal if there are easements, restrictions or similar matters that are unacceptable to the buyer that will interfere with the buyer’s intended use or improvement of the property. A title report should be ordered immediately after the Agreement of Sale is signed, not in the last couple of weeks as settlement approaches. The title company should be asked to provide copies of all recorded matters.
While matters such as the condition of the home, the environmental condition of the property and the like are all important, failure to understand all the matters that affect your title can result in significant disappointment, including the inability to construct the addition, install a swimming pool or make the other improvements that you had in mind for the future when you bought the property.
Our Real Estate lawyers are experienced in reviewing and understanding matters that affect title, and counseling clients on their impact.
For discussion of the importance of surveys, see the companion article “Surveying the Situation”on this site.