Taking risks to make a better life for yourself is a trait most Americans admire. When it comes to buying property, risks can be managed and mitigated with the right due diligence and property information. It’s also important to learn from others’ mistakes so buyers and title professionals can avoid a homebuying blunder.
Here are two examples of how relying on assumptions or bad information can lead to unpleasant surprises and devastating consequences.
A Newbie Investor’s Blunder at Auction
$9,100 for a well-maintained South Florida villa sounds like a steal, but one investor found out the hard way that it was a deal too good to be true. After purchasing the property from Broward County during an online auction, he realized that the property in question wasn’t one of the villas pictured. Instead, it was a small strip of grass separating the two units.
Arguing that he was intentionally deceived, the investor demanded his money back, but the county refused, citing that the information to make an informed bid was readily available.
Better Buyer Due Diligence
Don’t let your eyes deceive you or stop you from doing your research. This investor missed three key critical details on the property report:
- The address
- The land use code
- The assessed value
Each of these elements together give a clearer picture of what was being auctioned off. First, you’ll notice that there is no house or unit number listed. This folio number is the only one listed in this neighborhood without a house number. A red flag that something isn’t right.
Second, the land use code is listed as 00. In Broward County, this means it’s vacant residential property. Single-family homes are coded as 01 and townhomes like the villa are coded as 01*.
Finally and most importantly in this case, the land value is listed at $50. Clearly, a two-bedroom, two-bathroom condo located in South Florida would be assessed for far more than that.
In addition to investors doing their own preliminary property title search on a property before placing an auction bid, we highly recommend that everyone obtain a professional title search from a reputable title company or law firm. Ideally, if you plan to start investing frequently, consider working with a real estate attorney to look out for your best interests and provide additional counsel for when unexpected issues arise.
A title search would have revealed the odd piece of land was never attached to either of the neighboring parcels and remained the property of the developer, GHO Tamarac II. The developers eventually went out of business and the land went to auction after the property taxes went unpaid.
A title company’s survey shortcut leads to a suit
Negligence is one of the most common reasons a real estate professional is sued. One title company was taken to court by two property owners for negligently procuring a title policy on a landlocked property and failing to inform the insured.
The property in Wilmington, Delaware was purchased by Mark Fansler and Linda Goldstein in the summer of 2014, and insured by a policy underwritten by North American Title that was issued by its agent, Global Title Inc. Soon after, Fansler and Goldstein realized that the property was landlocked due to survey mistakes. They accused Global of intentionally using the wrong legal description, which included a right of way to write the policy despite knowing that the property was landlocked and no such easement existed. The policy also excluded coverage for losses related to “any discrepancies, conflicts, shortages in area, encroachments, overlaps, boundary line disputes, party walls” or other issues that would have been revealed by an accurate survey.
A lesser survey won’t reveal a boundary issue
The plaintiffs argue that by failing to order an accurate boundary survey and writing a policy that states anything that might have been discovered with an accurate survey was excluded from coverage, Global failed to provide all pertinent information to North American so the right policy could have been underwritten.
In this case, a lesser survey known as a mortgage survey was obtained. Sometimes it’s called an Improvement Location Certificate or Surveyor Location Report. While they may be referred to as a survey in some places, they are not official boundary surveys because they don’t confirm the accuracy of the legal description, you can’t use them for making improvements on the land, and they will not remove title policy exceptions related to boundary issues. These are only used for underwriting purposes and function as a quick check or report to determine if there are any encroachments.
The judge in the case noted that the plaintiffs sought legal advice because they were skeptical about accessibility to the property and were assured by an attorney that the common law easement gave them access. The evidence, stated the judge, of email correspondence demonstrated that the plaintiffs were “blamelessly ignorant and the access issue was inherently unknowable to the plaintiffs because they delegated the duty to find easements to Global and Mr. Longo (the attorney).”
The judge denied Global’s motion for summary judgment but found that factual issues remain in dispute as to whether the coverage for the access issue would have been obtained.
Always order a new survey
Unlike the investor in South Florida, the plaintiffs in this case, Fansler and Goldstein, did their due diligence by hiring a title company, asking questions, and seeking legal counsel for clarification on a complex boundary issue, but it still wasn’t enough. In an ideal world, this title defect would have been resolved or disclosed to the buyers before closing, but even the most careful professionals can make mistakes or rely on faulty information. Without a new boundary survey, Fansler and Goldstein simply couldn’t know the defect existed.
Boundary defects are one of the most common reasons for title insurance claims. That’s why we recommend that homebuyers and investors always order a new boundary survey and request that exceptions to such problems be removed in the title policy.