Last week, I posted an article discussing five types of issues affecting ownership of real estate that home purchasers should consider before buying a home. This week, I discuss several steps you can take to prevent or minimize the potential negative consequences arising from these issues.
1. Get the Best Title Guarantee You Can
When you buy a home, the seller conveys legal ownership of the property, or “title,” to you at closing. The seller generally does this through a deed, which is recorded in the land records of the jurisdiction in which the property is located. There are several types of deed that a seller can use to convey title, and each type provides a different level of protection to the buyer.
A “quitclaim deed” provides the least protection. Under a quitclaim deed, the seller conveys whatever title he or she has to the property, but makes no guarantee that the title is free from defects. Under a quitclaim deed, you essentially buy the title “as is,” and cannot hold the seller responsible if problems with the title arise after closing.
A “special warranty deed” provides more protection. Under a special warranty deed, the seller guarantees that there are no problems with the title arising during the time that the seller owned the property. If a title defect comes to light after closing, and the defect originated during the seller’s period of ownership, the seller is responsible for fixing the problem or paying you for the financial loss associated with the defect.
A “general warranty deed” provides the greatest protection. Under a general warranty deed, the seller guarantees the title against all defects, regardless of when they arose.
When buying a home, you should negotiate for the best type of title guarantee you can get from the seller. You should be especially wary of going forward with a sale where the seller will convey title through a quitclaim deed. The less title protection you get from the deed, the more you need to get from other sources, such as title insurance.
2. Purchase Title Insurance
Title insurance is exactly what it sounds like: insurance that protects against losses caused by problems with the title to a piece of real estate. Mortgage lenders almost always require home buyers to purchase title insurance in order to get a mortgage to buy the property. This is called a lender’s policy, and ensures that if the buyer loses the property due to a title defect, the lender will still receive full payment on the mortgage loan. A lender’s policy does not protect you. If you want personal protection against title defects, you should purchase your own title insurance, known as an owner’s policy
3. Get a Survey
The title insurance company conducts a title search as part of the process of issuing a title insurance policy. A title search involves review of the land records for the property. A properly-conducted title search should reveal most types of title defects, such as liens, lis pendens, and attachments, which have to be recorded in the land records to be effective.
But a title search generally does not involve a physical inspection of the property. This means that a title search will probably not reveal encroachments, which occur when a neighboring property owner unlawfully takes possession of a portion of your property. If an encroachment exists for a long enough period of time, then legal title of the affected land can pass to the wrongdoer through a process called “adverse possession.”
A survey is a careful physical measurement of the property. During a survey, the surveyor uses instruments to plot out the exact boundaries of the property and compare them to the land records. A survey should detect any encroachments on the property by neighboring landowners. A survey may also help you avoid committing encroachments or violating zoning regulations in the future, if you decide to put up fencing or do additional construction on the property.
4. Be Aware of Covenants, Conditions and Restrictions (“CC&R’s”)
CC&R’s are a common feature affecting home ownership in planned subdivisions and condominium developments. CC&R’s are binding regulations that impose rules on how you can use your property. CC&R’s may also impose mandatory fees for the upkeep of the “common elements” of the development, which are physical facilities provided for the benefit of all residents. Examples include parks, roads, exercise facilities, or parking lots. CC&R’s vary greatly in their scope. Some cover only a few basic issues, while others are very detailed and restrictive.
There is generally no way to avoid the effect of CC&R’s if a subdivision or condominium has them, other than simply not buying the home. You should examine the CC&R’s carefully and decide whether you can live with their restrictions or not. It is also a good idea to talk to people who already own homes in the development about how the CC&R’s are enforced. If the homeowners’ association members in charge of enforcing the CC&R’s are overzealous—or even worse, use their power to settle personal grudges—even a seemingly-reasonable set of CC&R’s can be difficult to live with.
5. Know Your Local Laws and Regulations
Various laws and government regulations, such a zoning regulations, building codes, and health codes, can potentially affect your right to use your property. The seller has no legal obligation to inform the buyer of many, if not most, such restrictions. You may want to research applicable laws and how they restrict the use of the property, or hire an attorney to do so, in order to get a full picture of the burdens on the use of your property.
In the end, advance preparation is the watchword in buying a home. A relatively small additional investment of time and money before closing may save you a great deal of trouble and expense down the road.
photo credit: garnchristensen.com