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Most buyers are diligent about finding a home to buy, negotiating a good price, securing the best mortgage possible and making sure the property is thoroughly inspected. But few buyers pay much attention to title issues that can affect a property. This can have serious consequences.
Most home purchase contracts include a provision that allows the buyers to review the title record before purchasing the property. This provision often provides that the property is to be delivered free of encumbrances and liens other than those that the buyers accept such as CC&R's (Covenants, Conditions and Restrictions) and future property taxes.
Usually, the title provision is a contract contingency. If the buyers discover something in the title report that's objectionable, they can inform the sellers in writing. It's then up to the sellers to correct the objectionable condition. If they are unable or unwilling to do so, the buyers can usually withdraw from the contract without penalty.
For example, buyers who had looked long and hard finally found home to buy. They negotiated an acceptable contract with the seller. They knew that the seller was divorcing and that he was having financial difficulties. But, they had no idea just how bad the situation was until they saw the preliminary title report.
There were more than 20 items that had to be removed from the report in order for the sale to go through. In addition, the property had been subdivided. The seller forgot to reserve a sewer easement for the benefit of the property he was selling. So, the sewer had an illegal hookup on the neighboring property. Surprisingly, through the extraordinary efforts of the seller, the buyer's agent and the escrow officer, all of the items were cleared up and the sale went through.
HOUSE HUNTING TIP:
It's imperative that you obtain a copy of the title report as soon as possible. Then you need to make sure that you understand what the report says. If you don't understand, have your title agent, attorney or real estate agent explain it to you.
The title report will tell you who is the record owner. Make sure that this is the same person who signed your purchase agreement. One buyer discovered that a past owner had not signed the deed granting the property to the current owner. A signature from that person was necessary to close the sale.
In this case, the past owner recognized the error and signed off without requiring any compensation. You can't always count on this kind of cooperation. If the past owner did make a monetary demand, you would want the seller to be responsible for paying this.
Don't assume that the seller is aware of all the title issues affecting his or her property. One seller found out during the sale of his neighbor's property that there was a sewer easement on his property that benefited the neighbor. His 30-year old title report showed no easements on his property. His title company had missed the easement when they conducted their title search 30 years ago.
Make sure you understand how the encumbrances recorded against the property will affect your ownership rights. Planned Unit Developments (PUD), like townhouses and condominiums, have CC&R's. These are usually created to preserve the integrity of the project. In doing so, they dictate what you can and cannot do with your ownership interest. Be sure you understand how your rights will be restricted before you buy.
THE CLOSING:
Some homes that aren't in PUD's have CC&R's. These CC&R's are often benign, including minimal restrictions. But, don't take anything for granted. Read and understand everything.
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