Title Survey – Learn Why in Certain Situations, It Could Be Your Best Friend

I have seen this issue too many times.  The homeowner of a property builds a rental unit, mother-in-law quarters or other “house” in his back yard.  Very often the water and electric are connected to the front house.  But what happens years later when a new owner sells the fabled “house in the back”?

Rarely has the homeowner built the property with permits.  Even more rarely will he have the property re-zoned so that the back property is legally a separate entity.  Usually he just quit claims it to an unsuspecting buyer and moves away.  This buyer then pays the house in the front for electric and water.  Maybe the house in the front doesn’t even know they are paying for the utilities!

I have also seen this in multi-unit properties where the original owner financed each building as he bought them until he owned three quadplexes.  The three separate lenders then each foreclosed and they were each offered as REOs.  The issue as we went to purchase one is our inspector called to say that there were no electric meters or water meters on the units we were looking at.  He was correct as the electric room was in another unit about 100 feet away which was owned by another bank!

Usually all of these issues are resolvable if the buildings were permitted or can be permitted and brought up to code.  We had one apparent single family home at the far end of a lot which bordered on the next block from the home.  The electric and water were connected.  The electric meter was attached to the original home in the front of the lot and there was only one water meter.

This structure turned out to be built on a “sub-standard lot” as the county called it.  By now the setbacks from the property line on each side were too small to be legal.   What this meant was the County would allow the house to stay where it was but it could never be repaired if it were destroyed or severely damaged by a storm.  The buyer might be able to get a great deal on a property like this and keep it as long as it didn’t need major repairs.

In another case, a Student called me about a double house situation with one in the back yard.  The seller on title for the back house was different than the owner on the front house and they were about 60 feet apart.  The front house had the electric and water meter for both houses.  I explained he had to be very careful because the “front” owner may not be helpful for the new owner of the “back” house.  The property had two folio numbers so it seemed like it could be a deal.

The Student closed and got title insurance when he closed.  Later on though the County said the structure in the rear was illegal and had to be demolished.  What happened was he tried to get an electrical permit to upgrade the electric and install a water meter.  This case is still out about what will happen but the County has remained steadfast that the structure cannot be permitted and must be torn down.  He has a couple of options including suing the County and making a title policy claim.  He would have had a good chance at getting his money back from the title company if he had gotten a title survey done before the closing.

Getting a title survey is rare for investors.  However, whenever you have a “special situation” with a property, such as two structures on it, get a title survey before you close so you are covered by your title insurance policy!

To your limitless success,

Dave Dinkel

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