DEAR BERNICE: We recently purchased an acre of property that has a mobile home on it, with plans to build a custom home on the property within the next few years. At the back of our lot we have some high-tension power lines, and the utility company has an easement for use. We cannot build in this area nor can we plant any trees.
When we first looked at the property our agent explained that there was a utility easement. Since we were planning on building, she told us to have the property surveyed. She made our approval of the survey a contingency in the transaction. We now know exactly where the easement is and we can still build the house we want.
The lot next door to us, which also has a mobile home on it, has the power lines running right through the middle of that property. A couple from Sweden recently sold the property to a couple who plan to build in the middle of the easement. They don’t seem to have any idea that they cannot build there.
If we had met the buyers before they closed we would have told them to have the property surveyed like we did. Shouldn’t their agent have told them to do this? Can they do anything about the problem now that they have closed on the property? –Susan F.
DEAR SUSAN: Although the process for purchasing varies dramatically from state to state, almost all transactions include a title insurance policy. The primary purpose of title insurance is to insure the chain of title. In cases where the buyer is obtaining a loan, there is usually a second policy that insures the lender. Lender policies are designed to "make the lender whole" in the event there is a title problem after closing.
While your question isn’t exactly about the chain of title, it has everything to do with the legal description that is also included in the title report. Virtually all buyers receive a "preliminary title report" or "title survey" as part of their title approval process. This report outlines all the "exceptions" that have to do with the title. This can include utility easements, as in the case you describe, but it can also include deed restrictions and a host of other types of items. The normal process is for this report to be sent to the buyers. The buyers are supposed to read the report and approve it before the transaction closes. …CONTINUED
While reading the report sounds like a simple matter, understanding the exact location of an easement can be quite confusing. The reason is that the easements are normally described using a "metes and bounds" description. Surveyors write these descriptions using carefully measured distances, angles and directions. This contrasts with street address descriptions or lot and parcel descriptions (i.e., Lot 29, Tract 247, in Sunnydale Acres).
Unless the surveyor has staked out the exact location of the easement, it’s almost impossible to tell where it is located based upon these descriptions. Because of the complexity of the language, most buyers assume the utility easements are no big deal and pay little attention to them. This can be a huge mistake, as the situation you describe so clearly illustrates.
Your neighbors will probably find out fairly quickly that a major part of their lot is not buildable. In terms of whether they have any recourse, it’s hard to say.
The first issue to determine is whether the easement was listed in the title documentation. It would be extremely rare for something of this magnitude not to be included.
The second point would be whether the buyers approved any documentation referencing the easement. If they approved documentation describing the easement, their signature may invalidate their claim.
The third issue is what was disclosed in writing by the sellers (and, if required in your state, the listing agent). Was full disclosure made about the existence of the easement? Many states require disclosures about any easements that can limit the owner’s use of the land.
If the agent knew that the owners were planning to build on the property, it would have been smart for the agent to recommend ordering a survey. Whether the agent had a duty to know about the easement and to disclose it is subject to local real estate law. In your case, you were lucky that your agent was experienced enough to make that suggestion.
If your neighbors decide they can’t build the house they want due to the easement, they should consult a real estate attorney. If the sellers are living outside the U.S., collecting on any claim against the sellers may be virtually impossible.
They may, however, have recourse against the agent for failure to disclose. Whether they do will be contingent upon local real estate law, what the exact disclosure requirements are, as well as the documentation that both parties signed. Again, their best bet will be to speak with a real estate attorney.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.
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