The Contract is signed; the earnest money paid; and the title agent selected. What do we do now? Well of course we start the due diligence, which begins with procuring a title search of the property. Seems like simple stuff, right? Not so fast, however. The purpose of the title search is to determine the state of the title (i.e., does the seller have clear title to convey). Notwithstanding the best and most complete title examination in the world, occasions arise where a defect in title is discovered after closing that was not readily discernible at or prior to closing. Part and parcel to concluding that title is free and clear of liens and encumbrances is a determination that municipal liens and matters that would be disclosed in a survey of the property do not pose a problem. A title search will only detect recorded liens affecting the property – a title search will not detect municipal charges which can become an unrecorded lien if not addressed prior to closing. Not all real estate professionals are knowledgeable about the potential hazards of municipal liens. The same is true for unresolved code violations, building permits which have not been closed out, or unpermitted structures. Few people are aware that title agents are not required to conduct a municipal lien search, check on open permits, or have a boundary survey drawn. So, in the interests of saving a few dollars, title agents are often instructed not to perform these tasks.
A boundary survey depicts the exact boundary of what is being purchased; shows easements for utilities; identifies overlaps, gaps or encroachments that may exist; and can identify possible boundary disputes. A title search does not encompass any of these items. The way these matters are protected against is to procure a separate municipal lien search and a boundary survey. In the absence of these two indispensable components, the title insurance policy will be diluted by excepting these matters from coverage (i.e.,taken out of the policy). Generally speaking, the cost of a municipal lien search is typically less than $150; the cost of a survey (depending on many factors too numerous to describe here), is typically less than $500. When evaluating the importance and value of these additional components, one must ask: “how often do I spend $100,000, or $200,000, or $300,000 (or more), on something without full and complete exhaustion of all appropriate and necessary due diligence”? This dilemma most often arises in the context of cash transactions (that is to say transactions without mortgage financing); that’s because there is no one to say: “you must have a boundary survey and a municipal lien search,” as is the practice and policy of virtually all institutional lenders.
Don’t be penny wise and pound foolish. The cost of a municipal lien search and a boundary survey is minuscule in comparison to the cost of the property and the protections they provide. The last thing a buyer wants is having to remedy a defect or claim after the property is acquired. “An ounce of prevention is worth a pound of cure.” – Benjamin Franklin. As always, should you have any questions regarding the foregoing, please consult with your real estate attorney.
Berlin Patten Ebling, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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