Do You Really Own Your Home? 5 Reasons Why the Answer May be “No”

Do You Really Own Your Home? 5 Reasons Why the Answer May be “No”

Buying a home may be one of the biggest investments you make in your lifetime. When you purchase a home, you begin putting money into an asset that you own, and which is likely to significantly increase in value over the years. You may also regard the purchase of your first home as a rite of passage, a transition into stable, responsible maturity.

But do you truly and completely “own” the home you buy? There are a number of issues affecting ownership that you should keep in mind when buying a home. Some of these issues may actually cast doubt on your ownership of the property, i.e. your “title.” Some only affect the ways you can use your property. Both can have significant effects on your ownership of the property and whether you want to go forward with the purchase.

This article explains some of the common issues affecting ownership. Here is a compantion article explaining some of the steps you can take to protect yourself from them.

1.         Encroachments

An encroachment is when a neighboring landowner builds on or otherwise exercises control over a portion of your property. A common example is when a neighbor builds a fence over the property line, enclosing part of your lot. Encroachments are among the most important title issues to watch out for when buying, because they may not come to light during a pre-closing title search. If there is an encroachment on your property, you can either sue to have it removed (and pay an attorney) or remove the encroachment yourself (and run the risk of having to pay damages if it turns out you were wrong). If an encroachment stays in place for several years—the time varies from state to state by statute—then title to the affected portion of your property may permanently pass to the offender, in a process known as “adverse possession.” If this occurs before you purchase the property, you will end up owning less real estate than you bargained for.

2.        Liens, Attachments, and Lis Pendens

Liens and attachments occur when the seller owes money to a third party, who claims an interest in the property as security for the debt. Examples of liens include mortgages, liens for unpaid taxes, mechanic’s liens (held by a contractor who performed work on the property), and judgment liens. A judgment lien is a lien held by someone who successfully sued the seller for damages in court. It may or may not have any direct relationship to the property. For example, a credit card company might get a judgment against the seller for unpaid debt, and place a lien on the seller’s house to ensure payment.

An attachment occurs when someone sues the seller, and the court orders that the property cannot be sold until the case is over.

A lis pendens (Latin for “litigation pending”), is similar to an attachment. It is a document filed in the land records by the plaintiff in a lawsuit, giving notice that an interest is being claimed in the property. A lis pendens does not prevent the seller from selling the property, but it puts potential buyers on notice that if the plaintiff wins the lawsuit, the plaintiff may be able to take the property back.

Liens, attachments, and lis pendens should all be recorded in the land records of the jurisdiction where the property is located, and should be revealed as part of a pre-closing title search. Most home sales contracts automatically require a title search, but you should make sure yours does before signing it.

The existence of one or more liens on the property should not automatically scare you away from purchasing the home. For example, it is quite common for a seller to sell a home that has an existing mortgage on it. As long as any liens are covered in the sales contract and will be paid off no later than closing (usually using the money you are paying for the home), there should be no problem with your title.

3.        Easements

An easement is a right held by a third party to use property in some way. Examples include rights-of-way (the right to travel over the property to get to another piece of land), water easements (the right to draw water from the property to another piece of land), and utility easements (the right of a public utility to construct and maintain infrastructure on the property, such as power lines or sewer pipes). Easements do not affect your title to the property, but they do prevent you from using the property in a way that would interfere with the easement. For example, you could not construct a fence across a right-of-way that would prevent the easement holder from traveling over the property, or do construction that would cut into sewer lines.

Most easements are either explicitly recorded in the land records, or can be discerned by carefully looking at the records for the property you are buying, along with records for surrounding properties. Thus, they should be revealed in a pre-closing title search.

A prescriptive easement is different. It is similar to an encroachment, except that it involves an unlawful use of the property, rather than unlawful possession. A common example would be a neighboring landowner regularly trespassing across your property to get to his property. If the injured landowner does nothing to stop the unlawful behavior for several years—again the specific amount of time varies from state to state—the offender gains the legal right to continue the activity for as long as he wants. Prescriptive easements may be impossible to detect through a title search, or even a survey.

4.        Covenants, Conditions and Restrictions (“CC&R’s”)

CC&R’s are agreements affecting real estate developments containing multiple homes, such as planned subdivisions and condominiums. CC&R’s may limit your use of the property, such as by preventing you from constructing outbuildings or placing signs on your lawn.  CC&R’s may also require you to take affirmative actions, such as keeping your grass clipped to a certain height or keeping leaves raked off your lawn. Violation of CC&R provisions may subject the offending homeowner to fines or other negative consequences.

5.        Government Restrictions

Your use of your property may be affected by laws and government regulations. Most of these are at the local level, such as zoning ordinances, building codes, and health codes. But state and federal regulations may impose restrictions as well, such as conservation requirements or requirements to purchase flood insurance. Depending on the nature of the regulation and the laws of your state, the seller may or may not be required to inform you of governmental restrictions as part of the sale process.

 

photo credit: garnchristensen.com