In Short, title insurance will NOT cover defects that could have been found by obtaining an accurate survey. This was taken from an article written by Richard Courtney for the Nashville City Paper that sums it up perfectly!
Do not buy a house assuming that a land survey is part of the package. That is no longer the case and has not been for nearly a decade. A home buyer wanting a land survey must specifically request one or order it themselves.
The newest nuisance in the home buying process is the evolution of the simultaneous issuance of title insurance coupled with the trend that lenders no longer require mortgage loan surveys. Until the early to mid-’80s, when a home was purchased, the lender received a title insurance policy. This policy insured the lender that there were no liens or encumbrances on the property and provided no exception for boundary disputes and no requirement for a survey.
The insurance is expensive. On a $300,000 home a title insurance policy would cost $1,600. If the owner wanted a policy, the expense was an additional $1,600.
To charge $1,600 for two policies that required the exact same amount of research and insured against the same matters seemed expensive.
The title companies agreed and dropped the price of simultaneous issue to $35. This was well received; the buyers were receiving the benefit of a $1,600 policy for a mere $35.
Only recently has it been discovered that the policies are not the same.
According to Elizabeth Smith, an attorney with Mudter, Miller and Patterson, “the owner’s policy will contain an exception for disputes in boundaries whereas lenders will not accept a policy that contains an exception for survey matters.”
Simply put, if there is a boundary issue, the lender can require the owner to remedy the situation; however, neither the lender nor the title insurance company has any liability or responsibility.
Smith notes that unless there is a “true, staked survey”, the buyer is, in fact, at risk to boundary disputes.
To further complicate matters, in the past two years, lenders no longer require a mortgage loan inspection of the property. The mortgage loan inspection was often misunderstood to be a survey of the property. It was actually only a plot plan of the property citing boundaries, easements, encroachments, the house, driveway and any fences or walls that existed.
In closings, the closing attorney would explain to the buyer that the mortgage loan inspection was not a survey, and a staked survey should be performed prior to construction of fences, walls or home additions.
It was not unusual to see highlighted areas that denoted that a fence currently was on the wrong side of a property line or that a corner of the house was outside the building envelope.
These encroachments were dismissed as standard fare and the buyer went into ownership oblivious to the complications that could ensue.
In one case, a property owner had his lot surveyed with the intentions of building a fence. Upon his return home from work that evening, he noticed a stake in the middle of his neighbor’s backyard.
“You know what that is?” the neighbor asked then answered rhetorically, “Your property line.”
The owner’s lot had been increased by 25 percent, while the neighbor’s lot was reduced by about the same percentage.
In virtually all real estate transactions, the buyer demands a home inspection in order to ensure that all components of the house are functioning properly.
The land is valued at between 25 to 33 percent of the purchase price. It seems that it should be inspected prior to purchase.
If a person purchases a home that has a fence extending two feet over his property line and he is told his neighbor does not have an issue with it, it does not ensure that the next neighbor will feel the same.
If the house next door is sold, the new neighbor could require the owner to remove the fence. It could be a driveway, a patio, deck, or even the corner of the main dwelling.
Title insurance will not cover this, nor will the lender accept responsibility. The homeowner should have a staked survey of the property to ensure that purchase includes the land beneath the improvements — improvements being the home and all that goes along with it.
Richard Courtney is a real estate broker with Fridrich & Clark Realty. He can be reached through his Web site www.richardcourtney.com.
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