31 July 2009

Why do I care what the title report says?-President's message

A couple weeks ago, KSL News aired a story about hidden transfer fees attached to real estate.

KSL reported that some developers are requiring buyers to pay a transfer fee every time the property is sold as part of a covenant attached to the home's deed. The covenants generally require current and future buyers to pay a certain percentage of the sales price to the developer, and the requirement often lasts for as long as 99 years.

 While the situation isn't extremely common in Utah, it serves as a valuable reminder to home buyers that they need to thoroughly inspect any real estate they are considering purchasing, including reviewing the property's title and documents attached to the title. The practice is valuable not only to avoid learning about a private transfer fee in the eleventh hour, but to make sure you know and understand any restrictions associated with the property.

After you and the seller agree to the terms of the sale, you will receive a preliminary title report that will detail any title defects that will not be covered by title insurance. Make sure to carefully review this document as it will list facts about the property you are buying, including information on easements, rights of way, restrictions of use, liens and judgments, and obligations of ownership. While some of the defects (like the seller's mortgage) will be removed before the title is transferred, other issues will remain intact (like easements and homeowners association obligations).

The report will also reference any recorded documents attached to the property's deed, such as covenants, conditions and restrictions (CC&Rs). Often associated with homes located in subdivisions and other residential developments,  these CC&Rs may restrict homeowners from painting their homes certain colors, may prevent RVs and boats from being parked in the driveway, or may prohibit ownership of pets. Make sure you know beforehand what these restrictions are so you can determine if you are willing to comply with them.

Along the same lines, the title report may reveal that you have additional financial obligations that come with owning the property. Maybe it's monthly homeowners association dues for maintenance or snow removal, or maybe it's an obligation to help pay for the upkeep of community roads.

Another issue is easements. While nearly all properties have easements that give other people the right to use the property in certain circumstances, it's beneficial to know what these are before you make a purchase. If the title report reveals a utility easement that prevents the owner from building on a certain section of the property, the buyer will want to know beforehand, especially if he had planned on building a swimming pool on that spot.

Although not reflected in the title report, another item to research before buying is zoning ordinances. Like an easement, the city laws might also prevent you from building a pool or rental unit on the property. Know beforehand what you can and can't do.

 While restrictions are common in town home and condo developments, single-family home buyers shouldn't make the mistake of ignoring the title report and associated documents. Private transfer fees and CC&Rs are also commonly attached to detached houses, so it's still crucial for single-family buyers to understand if there are any restrictions and obligations associated with the property.

If you do find serious issues in your review of the title documents, talk to your attorney and your Realtor. You may be able to negotiate a solution with the seller, or you may need to cancel your purchase agreement according to the terms of the contract. Keep in mind though that you only have a limited amount of time to review this document, so talk with a real estate attorney, the title company or your Realtor if you have questions.

For more information and tips for purchasing Utah real estate, call your local Realtor.

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