By David L. Walker, Jr.
My colleagues and I have written in the past about the doctrine of caveat emptor, which is commonly understood to mean "buyer beware." The term references the legal premise that a buyer of real estate is responsible for inspecting the property and structures that are on it to determine whether there are any defects or other conditions on the property that would interfere with its suitability for the use and needs contemplated by a buyer. Absent some form of fraudulent concealment or active misconduct by a seller, a buyer takes the property "as is" with no remedy for defects in the property.
Most real estate agents and members of the public are generally familiar with this principle; however, their efforts to protect against unforeseen deficiencies are often limited to inspecting the property for potential physical defects. Unfortunately, real estate transactions can be fraught with other perils for an unwary buyer, which are not apparent from viewing the physical property itself.
A parcel of real estate can be encumbered by any number of restrictions, limitations, and other infringements, which can limit a buyer's use of and access to the property. For instance, deeded easements that traverse property lines typically do not expire merely because of non-use. As such, if a parcel of property has a deeded easement running across it that has neither been graded, graveled, or otherwise used, a visual inspection of the property will not reveal that it exists. Notwithstanding, if one buys property that is subservient to a deeded easement without knowing it, he or she may come home one day to find bulldozers running across the front yard and discover it the hard way. Similarly, should a buyer contract to purchase a property with an intended use that, unbeknownst to the buyer, is prohibited by existing zoning ordinances, the seller has no duty to protect the buyer from his or her own ignorance.
The best way to protect against such unpleasant surprises is to obtain a title abstract from a reputable title company and conduct a thorough review of all zoning ordinances and other legal restrictions that may affect the property at issue before consummating a purchase. Generally, this requires executing a purchase contract that provides the buyer with adequate time to conduct such investigations and a right to terminate the contract if such issues are discovered.
A properly assembled title report will reveal all encumbrances of record; however, the report is only as useful as the ability of the person who reads and interprets it. Too many times buyers rely upon their lender or the lender's closing attorney to "protect" them in a real estate transaction through the closing process, but it should be plainly understood that a lender's only duty in a real estate closing is to protect itself. As such, if an encumbrance on property that is revealed in a title report, such as an easement, does not meaningfully reduce the fair market value of the property, then the lender will not be concerned with it. In such an event, it is very unlikely that the lender, real estate agent, or any other party to the transaction will ever bring it to the buyer's attention.
A buyer who is interested in its own self-preservation must take an active role in all aspects of a real estate transaction and investigate all matters of record and law that may affect the property at issue. This includes reviewing title abstracts, researching zoning ordinances, declarations of covenants, and other restrictions that may limit the use of the property, and consulting with professionals before the closing to protect against any unexpected surprises.
David L. Walker, Jr. is a partner with Flint, Connolly & Walker, LLP. He focuses his legal practice to collaborate with business owners, mid-sized and closely held corporations, as well as real estate owners, developers, and contractors.