I AM A HOME BUYER… WHAT DO I NEED TO KNOW? (Continued)


A Bundle of Rights…

It is natural to think of home ownership in concrete terms – the rooms you will furnish and use… the lawn and gardens you will seed and maintain… But for proper due diligence, you must think about ownership in the abstract as well. What you are really buying is a bundle of rights.

Different sized bundles have different names. The largest bundle (and the one applicable to most home purchases) is called “fee simple absolute.” There are several contract contingencies related to your bundle of rights – (i) title matters; (ii) off-record matters; and (iii) covenants.

• Read More About Interests In Real Property

Your owner’s title insurance policy protects your bundle of rights. Though coverage is broad, an owner’s policy has limits. The exceptions (B2) page of your title commitment sets forth limitations to your policy coverage and is generally based on underlying record documents. You will want to review those underlying documents (included with the commitment) and make sure you understand the nature and extent of any limitations.

• Read More About Owner's Title Insurance Policies

Off-record matters relate to information within the purview of the seller that does not show up on your title commitment – for example, unrecorded lease agreements, informal easement agreements, public improvements that have been approved but not installed (e.g., new curbs and gutters that will be funded through property taxes assessed against homeowners benefiting from the improvements). You must be comfortable with terms and conditions of any such matters, as they affect your bundle. Another important off-record matter involves special taxing districts. If your future home is part of such a district, you will want to satisfy yourselfInformation Windowthat the district is adequately funded and that the costs and benefits of special assessments are acceptable.

You can gather information related to special taxing districts by contacting the local taxing authority – the county treasurer and/or assessor.

The home you are buying may be governed by covenants. If so, you will want to carefully review the covenants to make sure all of the terms and conditions are acceptable. You will receive a copy of recorded covenants as part of your title work. In addition, you may want to review board minutes and other documents retained by the association or the management company. These documents can give you information and insight about future plans for the community and its general direction.

I Object…

Each due diligence contingency has a corresponding deadline. On or before that date, you may object to any items that you uncover during your investigation related to that contingency. Generally an objection is a written statement providing the seller with notice of the issue and instructing that it be remedied to your satisfaction.Information WindowFor example, you may discover that the master bedroom has a broken window. An objection notice could instruct the seller to fix the window. Or, you may learn that a prior owner has reserved a mineral interest in the property. An objection notice could instruct the seller to obtain a deed transferring the interest to you, or (most likely) the notice may request that the title company insure against loss or damage related to the reserved interest.

Under the terms of the CREC contract, sellers are afforded the opportunity to cure some objections (e.g., title, off-record or survey matters). Some matters (e.g., satisfactory property insurance) afford you a unilateral and absolute right to terminate the contract.

Not every objection has a remedy. It is unlikely that a seller can effectuate change of subdivision covenants. Alternatively, an objection may have a remedy, but the seller may be unwilling to incur the cost. In such cases, you must either come to terms with your concern and waive your objection or terminate the contract.

 

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