Legal-Ease: Two big pitfalls in real estate deals

There are two big pitfalls of which buyers and sellers of real estate should be especially aware.

First, buyers of real estate sometimes do not do sufficient research on the property’s ownership and lien history.

Before closing on the purchase of real estate, a buyer should always have a title examination, sometimes called a “title search”, undertaken. Attorneys are the only professionals who can issue opinions, sometimes called certificates, based upon those title examinations, stating that the property is free of liens and confirming the actual ownership of the property.

The biggest downside of an attorney opinion of title is that there is a rather short statute of limitations during which to bring claims against the attorney if the attorney made a mistake.

Related, attorney opinions of title cannot guarantee the lack of fraud or the authority of people who may have signed prior deeds for the property on behalf of entities or trusts.

Thus, the most prudent route is to purchase title insurance, which provides maximum guarantees of “good title/ownership” at the time of purchase, which guarantees can be relied upon by the buyer as long as the buyer owns the property.

People sometimes skip out on title examinations and insurance and later find that a typo on a deed from 30 years ago makes the property’s ownership questionable—even if the property was in the same family for generations. In such a circumstance, the issue may not be uncovered until after the seller and the seller’s family have all died or moved away. Without title insurance, the buyer may face an insurmountable obstacle to using the property for collateral or selling the property.

Second, people sometimes agree to “side deals”. Unless side deals that take effect after the closing are written either in the deed or in a separate document that literally states that that separate, written document’s terms “do not merge with the deed” — which means that those terms will be enforced as if those terms are written in the deed — those side deals, intended to have effect after closing, are unenforceable.

For instance, a property seller may retain ownership of property adjacent to the property being sold. The adjacent owner/seller may tell the buyer that the buyer can use the seller’s property for access to the buyer’s property after the buyer makes the purchase.

However, the seller might change the seller’s mind. Unless the side deal or access agreement is in the deed or another document that states that that other document will not merge with the deed, the adjacent owner/seller can deny the buyer access to the adjacent property.

Public policy that real estate rights be certain or determinable by the public records is what motivates the law that is breached by the second real estate pitfall: if a “side deal” is not written in the deed or in another document that literally states that the side deal “will not merge with the deed,” the side deal will be unenforceable if either party gives up on the side deal.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.