Betty Buyer is closing on a property that she intends to flip and sell as soon as possible. Seller Steve had a survey, but the survey was no longer accurate because the seller built a pool after the date on the survey. The Closing Agent ordered a survey that revealed that the screened-in pool enclosure and the pool encroach into a five-foot drainage and utility easement and a ten-foot building setback line. These encroachments cause marketable title issues that are usually not curable within a typical closing period. So, what do you do if a Buyer wants to close on the property and deal with the title defects after closing on a house?
Addressing Title Defects
Two common options are having Betty Buyer and Seller Steve execute an escrow holdback agreement or have Seller Steve offer a credit to Betty Buyer for the estimated cost to cure the title defects after closing on a house. To ensure a smooth closing, confirm with the Closing Agent that they have provided the proper endorsement when financing the purchase. When negotiating an escrow holdback agreement or seller credit, it’s essential to manage the clients’ expectations regarding what will occur after the closing. Several factors will determine the amount of the credit or the appropriate amount to place in the escrow holdback.
Encroachments in Drainage & Utility Easements
Encroachments into a drainage and utility easement dedicated to the county require a plat vacation to clear the encroachment. The escrow holdback agreement should account for enough funds and time to clear the encroachment. The time and money spent are based on the county and the specifics of the encroachment. Depending on county requirements, timelines, and county workload, the process can range from three months to a year. Application fees, surveys, sketches and descriptions, attorney’s fees, and additional fees from the county can range from a total of $7,500 to $9,000. It is important to tell the client there is no guarantee that a plat vacation will be granted. In this case, the encroaching structure may need to be removed.
Handling Building Set Backline Encroachments: HOA Variance Considerations
Building set backline encroachments often require a variance from the HOA. The HOA documents will determine the length of the process. If the HOA documents allow the HOA to grant variances, it will be faster than if the HOA documents do not. Suppose the HOA documents currently do not permit the HOA to grant variances. In that case, it will be necessary to amend the HOA documents to enable them to grant variances before we can grant the variance. Obtaining consent typically requires a supermajority of the owners, which may consume time and does not guarantee approval.
If Betty Buyer wants to sell her investment property within a year, she will need to know prior to closing the realistic timeline for her to be able to sell her property. If you have any questions about how to cure survey defects contact your real estate or land use attorney.
