Buyers Should Protect Their Investment Prior to Closing

Since January of this year, the Risk Management Advisory Group has been meeting with the NC Society of Surveyors to address citizen concerns and protections. As part of those discussions, the following article has been submitted by Christy Davis, the Executive Director of the NCSS. Please note that they are available to come speak to your Board or office and would welcome opportunities to open dialogue. Please contact Christy at cdavis@ncsurveyors.com to arrange a meeting.

Bank-owned properties make up about 80% of the listings currently on the market in North Carolina. With so many foreclosures still in process, many new related problems are rumbling to the surface.

Measures that were once required to protect the public and the banking industry have fallen away as industry standards have changed, followed by the face of the real estate market and economy. Homeowners that have personal knowledge and the ability to make disclosures are now often out of the picture, as contracts are between third party banking entities and buyers. With so many properties being sold without warranty or repairs, buyers are opting to forgo certain types of inspections. Property surveys are one type of inspection often overlooked, but buyers beware: opting out can be costly!

Below are three scenarios in which property surveys were ignored within our state over the past 12 months.

Scenario One

The subject property was bank owned. Prior to listing the property, the bank requested an inspection to assess repairs necessary to make it eligible for a new mortgage. It was discovered that the well on the property had failed and a new well would be required. The bank reluctantly contracted for a new well to be dug, hooked up water lines and then proceeded to list the property. A contract agreement was reached and the buyer of the property made inspections he felt necessary, but was unable to afford a new survey. The property closed and after the buyer had taken possession, the adjoining neighbor in the subdivision decided to put up a fence and ordered a survey of the adjoined property. The survey revealed that the new well dug by the bank’s contractor had been drilled on the adjoining neighbor’s property. After much deliberation, attorneys were able to reach a settlement in which the neighbor agreed to grant the subject property water rights. The buyer essentially purchased a home without water readily accessible on his property, and the adjoining property was awarded a “free” well.

Scenario Two

A bank-owned property was listed and sold to a buyer in a small subdivision. A new survey was not obtained, but an old subdivision plat was passed on to the buyer representing the land that was being purchased. The old survey did not locate buildings or structures, but merely displayed the area of the land in each lot. The buyer was content to know the size of his lot and see it represented on the plat. The buyer did not opt to purchase a current survey prior to closing. Three months after closing, the adjoining neighbor became concerned about his property line and ordered a survey of the adjoining property. The buyer was shocked to learn that the subject home he just purchased was not constructed within the proper county or subdivision setbacks. In fact, the home encroached the adjoining property line by several feet. To further complicate the matter, the adjoining neighbor had a mortgage on his property making it impossible for him alone to release a portion of the land to settle the dispute. Both parties had to work with their lenders and attorneys at their expense to rectify the encroach- ment. A current property survey would have revealed this title defect prior to closing, saving the buyer money and the aggravation of working through a resolution.

Scenario Three

In this particular example, buyers and seller (bank) entered into a purchase agreement allocating an examination period for which the buyer may inspect the property as wanted, with the understanding that no repairs would be made, and no warranties or disclosures would be available due to the involvement of the third party. The buyer opted to pay for a land survey as part of his inspections process for informational purposes only. However, the survey revealed the adjoining property had two encroachments: a fence which was 17 feet over the property line and a utility shed which was 8 feet over the property line. While the bank had indicated they would not make any repairs, this allocation did not apply to title defects. The bank worked with the adjoining property owner to remedy and resolve the issue at their own expense. The buyer was protected from having to correct this issue after the closing due to his decision to invest in a property survey.

When buyers think about protecting their investment in a home or property purchase, they often do not think about that protection beginning before closing. These scenarios prove the importance of thorough consideration for what is at stake. A current property survey is an important means of protection for a buyer, as it can reveal title defects, easements, right-of-ways, etc, before they become the buyer’s liability. Many buyers do not realize a current survey will also allow their investment to be protected in the event that a title defect arises after closing. Title insurance will not cover the buyer, only the lender for defects that could have been reasonably detected through a property survey. Protect your buyers by educating them on the risks involved when choosing not to have a current property survey. v

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