Title Insurance Issues

More Valuable Advice From Pocono Real Estate Attorneys (Part II)

Attorney_advice_short_sale


As I wrote in Part I of this series, the Attorney Panel that gave this year's presentation to us members of the Pocono Mountains Association of REALTORS was excellent. Attorneys William Cramer, Louis Powlette and Jane Roach Maughan enlightened us on many timely topics. It is always interesting to hear about the real estate business from another point of view, and with all of the hot topics boiling around in our business these days, it's even more riveting. Part I of this series addressed Attorney Cramer's presentation about common pitfalls in real estate transactions. This installment will discuss Attorney Powlette's discussion of Title Insurance Issues and Short Sales:

Seller-Paid Title Insurance

It is very common for bank- and relocation company- sellers to offer a paid title policy to a home buyer in a transaction. This seems, at first glance, to be a pretty good deal...it can save a buyer a substantial amount of money if they don't have to pay for title insurance themselves. The catch is that the seller chooses the title company, which is not standard practice. Buyers have the legal right to choose their own title insurance company, and usually do this based on recommendations by their real estate agent and/or their attorney.

Attorney Powlette says, "Accepting a title policy from the seller is not a good idea," and he gave several reasons why a buyer should say 'no thanks' and purchase their own title search and title insurance.

  • These banks and relocation companies buy their title work in bulk and the overburdened companies that are doing the searches and issuing title policies do a sloppy job. Also, these title insurers are almost never local companies and so they are not well versed in the intricacies of the local public records, closing procedures, etc.
  • There are myriad examples of properties being sold with title defects that were overlooked because of shoddy title work. Large real estate liens and previous owners who have not relinquished their claims to properties are some of the things that could threaten a buyer's standing as the true owner of the property after closing. Attorney Powlette cited a specific example where he did title work that revealed a federal tax lien. The prospective purchaser canceled the sale. After the property was put back on the market, a second buyer tried to buy (coincidentally using Powlette too!) and the same lien was still present. The seller was hoping to sell without a buyer questioning their title policy!
  • Another reason to decline the seller's offer of 'free' title insurance is, a real estate purchaser should have some assurance that the title policy underwriter is sound and stable. Should the underwriter ever go out of business, the title insurance policy becomes worthless. This is a great reason for a buyer to retain control of this aspect of the transaction.

Negotiating a Short Sale

These days many sellers are hoping to negotiate a short sale, that is ask their mortgage holder to accept less than what they are owed in order to allow the seller to sell the home at today's prices. Unfortunately, some owners who have their homes listed for sale through the Pocono Mountains Association of REALTORS MLS owe more than what they can currently get in today's market.

Attorney Powlette's recommendation is that a seller facing a short sale situation retain legal counsel to assist with the process. Yes, it sounds a bit self-serving of him to say that, but that's just not Lou's style :)...AND there are good reasons for his advice. A seller who tries to negotiate a short sale on their own, or a real estate agent who does it on the seller's behalf, assumes a lot of risk and liability. There are tax implications to selling short (shortfall can be considered income and therefore is taxed, for instance), and there are many legal issues surrounding the balance of the mortgage and the mortgagors remedies. A seller pursuing a short sale should have proper representation to be sure that their interests are served in the process.

One other caveat from Attorney Powlette: If you must cancel an Agreement of Sale because of unsuccessful short sale negotiations, a seller could be held liable for the buyer's expenses related to the transaction if the documents for the sale are not drafted properly. Always be sure to include the right contingencies when selling a property.

Contact Attorney Powlette at:

Louis D. Powlette Law Office

Stroudsburg, Pennsylvania 18360
Telephone: 570-424-8037
Fax: 570-424-0920
lpowl2@ptd.net


Please Subscribe to the Poconos Real Estate Blog to ensure that you don't miss the rest of this series. Part III will cover Attorney Maughan's inspiring presentation on avoiding foreclosure.

Related Reading:

Valuable Advice From Pocono Real Estate Attorneys (Part I)


Valuable Advice From Pocono Real Estate Attorneys (Part I)

Pocono_attorney_advice

I attended the Pocono Mountains Association of REALTORS' Annual Legal Seminar in February and thought I would pass on the excellent information that was presented by the Attorney Panel, made up of William B. Cramer, Esquire, Louis D. Powlette, Esquire, and Jane Roach Maughan, Esquire, three highly regarded real estate attorneys (and, coincidentally, all Villanova University graduates!) based in Stroudsburg, PA. The Association hosts this seminar every year and inevitably we agents are treated a wealth of timely information to enhance our ability to provide service to our clients, and/or we get the pants scared off of us from hearing about some of the perils and lawsuits going on with regard to real estate. This year was a doozy because we got an earful of both! As you will read, the subject matter was timely, indeed.

Since there is so much information to share, I will split it in to three articles, each of which will cover the presentation by one of the attorneys on the panel. This is the first part of the three part series: Common Pitfalls of the Real Estate Transaction

Attorney Cramer, who I'd like to point out has served as Counsel to the Pocono Mountains Association of REALTORS since the 1980's, gave us an overview of some of the most common issues he observes in working with buyers and sellers in real estate transactions here in the Poconos:

Agreement of Sale & Related Documents

Real estate contracts and related paperwork need to be filled in properly, legibly and with dates, etc that make sense. Time is of the essence in Pennsylvania and transactional difficulties can be largely avoided by paying close attention to the paperwork. (This is a pretty basic Pennsylvania real estate concept, but we hear this every year. I guess it must be an ongoing problem.)

Proof of Property Ownership

Take the stress out of the transaction by getting documentation with regard to property ownership at the time the property is listed for sale. Sellers need to provide Death Certificates, Powers of Attorneys, Articles of Incorporation, etc at the signing of the contract, proving ownership and signing rights for properties owned by Heirs, Estates and Corporations. These documents will be required at the closing so it is best to have them ready and in the file early on. A common scenario here in the Poconos is that an owner of a property lives in New York or some other State. If that owner dies and in order for that property to be sold, you need an authorized signatory for the Estate. If you don't know this ahead of time and wait until it is time to close, you can often be faced with long delays as these details are worked out and the proper paperwork is produced. Ownership Documentation that is recordable, or in other words, legally acceptable as proof of ownership, is necessary for clear title to the property to be conveyed.

Certificates of Occupancy

These are now required in the Borough of East Stroudsburg. A Code Enforcement Inspection must be ordered at least 15 days before closing to ensure that the property complies with eight specific requirements. Be aware of this new law as failure to do so can hold up and even sometimes prevent closings. Things can get a little tricky when the property being conveyed is a foreclosure, as these sales are often done on an 'as-is' basis. The Ordinance does allow for these scenarios, but there are specific conditions to be met. So being well aware ahead of time is in everyone's best interest, whether they are buying or selling the home. Ordinance § 122.14: Download Prop. Ordinance Requiring CO Upon Sale of Property

Contact Attorney Cramer at:

Cramer, Swetz & McManus, PC

711 Sarah Street
Stroudsburg, Pennsylvania 18360-2196
Telephone: 570-421-5568
Fax: 570-421-5720
wcramer@csmlawyer.com


Please Subscribe to the Poconos Real Estate Blog to ensure that you don't miss the rest of this series. Part II will cover Attorney Powlette's eye-opening presentation on title insurance and short sales. Part III will cover Attorney Maughan's inspiring presentation on avoiding foreclosure.


Do I Need To Get A Survey?

From the Desk of:
Richard A Hetzel
Architect (NY) & Home Designer (PA)

Often, home buyers ask “do I need a property survey“? and they get various advice. Frequently, it is decided to use an existing survey, thus apparently saving the cost of a newTypicalsurvey one. If you look at a survey map, it will probably have a note saying “Certified to John and Mary Smith to be correct and accurate”, the Smiths being previous owners of the property, and perhaps the sellers. That statement gives the Smiths some recourse against the surveyor, should a property issue arise in the future. 

When Fred and Norma Jones buy the property from the Smiths, that certification is null and void, and “let the buyer beware” becomes the governing factor. What happens if it turns out that there is an error somewhere in the survey which affects the property size or shape? The answer is that the Joneses are stuck with no recourse, unless they can claim and prove fraud.

What does a surveyor do?

A surveyor will draw what is spelled out in the “metes and bounds” description of the property contained in a deed, a verbal representation of the property boundaries. If you do have a survey map, you should be able to follow the description on the survey. Metes and bounds usually consist of bearings and distances. The bearing is an angle, measured from an arbitrary north, expressed in degrees, minutes and seconds: N 15° 45’ 30” E means “face north, then turn 15 degrees 45 minutes 30 seconds toward the east”. That establishes a direction. The bearing is followed by a distance, such as 155.67 feet, so now your instructions are to turn at the angle given, and proceed 155 and 67/100ths feet. The description may now say “to a point”, or “to an iron pipe”, or to some other property marker. 

When you “arrive” there, the deed description will give you the next instruction, and will keep doing so until you arrive back at “the point or place of beginning”. If you arrive at the exact point of beginning, the description is said to “close”, meaning it describes a geometric shape which has no gaps in its boundaries. A surveyor will make certain that the property boundaries close within a certain very small tolerance. The smaller the property, the smaller that tolerance will be.

What can go wrong?

In one community in the Poconos, almost no one owns what they think they own. Their lots are delineated on subdivision maps filed with the county, but along the way people built houses and driveways and cleared land and, in doing so, established possession of a certain piece of land. This may or may not coincide with the boundaries shown on the subdivision map…unfortunately it often does not. Now what happens? 

If the buyers had retained the services of a land surveyor, the map he produced might have shown two completely different sets of boundaries. One set would coincide with the subdivision map and perhaps also the deed to the property. The other set of boundaries will be marked “as in possession”, and will be based on what land the owner actually appears to possess.

It is not the surveyor’s job to decide which are the proper boundaries, but only to show on a map the boundaries which he found in the field, and in his research into land ownership records, such as deeds and subdivision maps. The differences in boundaries are left to be settled between neighbors, and possibly in court. 

Why does any of this matter? Well, suppose the buyer is planning to add an attached garage to one side of the house, thinking there is just enough room for it between the house and the setback line dictated by local zoning law. Now he begins the construction, and his neighbor claims the garage will be too close to his property line. If there had been no survey, probably both parties would retain surveyors to determine the location of the property line. Let’s say it turns out that the neighbor is correct…now we have a problem. 

Money well spent!

And that’s why it pays to have a survey done and certified to you when you buy property. If there is a problem, it will arise before the sale is finalized, and can be resolved before the closing. Also, if you think you are buying an acre, the surveyor will determine the boundaries and calculate the exact area, and you will know that the acre actually exists. Sometimes, a considerable difference in the area of the property can affect the price. 

Yes, a survey costs money, but it can save horrible headaches later on. Most buyers are making the single biggest investment they will ever make in their lives. Why not be sure that what you are investing in actually exists?


1st Rights of Refusal-What Sellers in Penn Estates Should Know

You may or may not know that the developer of Penn Estates, Cranberry Hill Corp., reserved for themselves, through a Deed Restriction (aka Covenant), the right to purchase properties back at the time they are offered for sale and a buyer is found.  Basically how it works is this:  a seller markets his or her home or lot for sale and finds a buyer.  The buyer and seller negotiate the terms of the Agreement of Sale.  Once all is agreed to and the proper documents are signed, the seller (or their agent or attorney) must advise Cranberry Hill of the terms of the contract.   Cranberry Hill then has 30 days in which to excersise their right to buy the property at the agreed upon terms.  Up until recently, there was a charge imposed for the Release of this Right to be signed, somewhere between $100 & $200, to be paid by the Seller of the property, and no one really thought much of it.

However, not too long ago, Cranberry Hill assigned these Rights of Refusal to another company, Penn Vista Associates.  This company then raised the fee for the signature on the Release to $485, an astronomical amount in my opinion.  Effectively this company seeks to make $40,000+ per year for doing nothing but signing off on 100+ sales a year.  Anyway, I digress.... 

Rougly 2/3 of the homes in our Community are subject to this requirement.  If your lot is part of the original, pre-1989 subdivision plan, you may not be affected.  However, if you plan to sell your home I suggest you find out for sure, before you put your house on the market, if this Covenant exists in your chain of title.  If it does, you will need to discuss this with your agent and your attorney early on in the process.  Obviously, this extra cost can affect your anticipated bottom line when you are calculating your sale expenses, but I do know of some Sellers who have avoided paying the $485 under specific conditions and circumstances.  But, as this can become a legal issue and affect the quality of the title you are conveying, you should discuss this possibility with your attorney to be sure you are properly protected.

   


Know What You're Buying!

I recently had a transaction where a Buyer was purchasing a lot that the Seller purchased at tax sale.  We ran in to problems when the title search came back because the chain of title included a couple of tax sales and several deeds that lacked a legal description of the property.  Now, these things can normally be worked out but they take some time...tracking down previous owners, quiet title actions, etc, are not things that happen in a matter of days, it could take weeks or even months to straighten them out.  Unfortunately, this buyer was anxious to get on with the business of building their home and waiting wasn't an option.

The point I am trying to make here is know what you are buying.  If you are purchasing a property or home that was involved in a tax sale, foreclosure or some such not-your-run-of-the-mill situation, be prepared for stuff like this to come up.  These situations do not always mean there will be title problems, but chances are certainly better that something might come up.  Be prepared for the possiblity by discussing it with your agent, and save yourself alot of stress and heartache.