planning tips - real estate
Our litigation experience has shown that many real estate disputes can be avoided by careful planning and documentation during the initial stages of real estate undertakings. We have seen deals, which appeared to be clear cut and understood by all the parties, fall apart or result in unintended consequences due to miscommunications, poor documenting practices and legal issues.
While Jacobs & Barney does not handle the initial stages of real estate transactions (i.e., negotiating contracts, conducting title searches, issuing title insurance policies, drafting deeds, conducting settlements, etc.), we would be pleased to provide a referral if your issue is not one that we would handle.
Planning tips to help minimize the risk of real estate disputes during the initial stages of a real estate undertaking:
When you are contemplating a real estate transaction, educate yourself regarding the types of contract provisions you are likely to encounter in buying or selling real property before you enter into negotiations to avoid being forced into making hurried and uninformed decisions. Once you enter into a contract, your rights and remedies are often limited and defined by the terms of that contract.
Examples of the types of contract provisions and issues that you may wish to educate yourself about include the following:
The different types of financing contingencies; the timing, deadlines and procedures for submitting financing applications; the type and length of deadlines involved for obtaining approval of financing applications; the definition of what constitutes the failure of a financing contingency; and the procedures and deadlines for terminating or modifying a contract based upon the failure of such a contingency.
The different types of inspection contingencies; definitions of what exactly is to be inspected (i.e., home inspection, lead paint inspection, termite inspection, environmental inspection, etc.); the timing, deadlines, scope and procedures for inspections; the definitions of what constitutes the failure of an inspection contingency; and the procedures and deadlines for terminating or modifying a contract based upon the failure of an inspection contingency.
The meaning and effect of property disclosures and disclaimers; available remedies if a property is sold “as is”; available remedies if a disclosure is later found to be inaccurate or misleading; and available remedies if a known but hidden latent defect is not disclosed.
The different types of attorneys fee provisions, including, for example, a prevailing party fee shifting provision; a fee shifting provision available to only one party to a contract but not the other; a provision with unequal remedies; or a provision requiring the buyer and seller to each pay their own fees in the event of a dispute.
The different types of mediation and arbitration provisions, including for example, mandatory versus voluntary mediation and/or arbitration (such provisions are not mandatory and agreeing to include mandatory as contrasted to voluntary provisions in a contact has significant drawbacks); whether the parties wish to designate an organization to conduct the mediation and/or arbitration versus mutually agreeing upon a private mediator and/or arbitrator; and if a specific organization is designated, what are the required administrative rules, procedures, fees and costs of that organization versus a private mediator and/or arbitrator.
The differences between remedies that are available after a contract is signed but before settlement, and the remedies that are available after settlement (remedies available after settlement may be more limited than remedies available prior to settlement) and which provisions of a contract should be designated in the contract to legally survive settlement.
The remedies available against service providers that are not parties to the real estate contract (i.e., surveyors, appraisers, inspectors, contractors). Remedies against service providers are usually defined by separate contracts between the person engaging such services and the service provider. A breach of such a service contract is unlikely to modify the contractual obligations of a separate real estate contract. For instance, if a buyer discovers that a home inspection was negligently performed, that does not necessarily mean that the buyer has a remedy against a seller.
Title insurance, including the purpose of title insurance, the types of title insurance available and what it protects against. The Maryland Department of Labor, Licensing & Regulation publishes “The Title Insurance Consumer’s Bill of Rights – Real Estate Commission” and the Maryland Insurance Administration publishes a guide to title insurance.
Read through those materials to educate yourself as to potential concerns. Discuss those matters with an attorney to help you figure out how those concerns apply to and impact your particular matter.
Investigate the property and its surroundings before signing a contract. For example:
What are the recorded boundaries of the property and its features, such as driveways, rights-of-way, easements and flood zones? Has the property been surveyed? How clearly and precisely are its boundaries defined by deed, plat and/or contract?
Has the property been subdivided and/or developed? If so, was that subdivision and/or development in accord with Federal, Maryland and local (i.e., county, city or town) requirements? Was the subdivision and/or development approved by the relevant governmental authorities? Does the subdivision limit development of the property?
Have any of the structures on the property, including, for example, buildings, piers and/or mechanical systems, been added, renovated or expanded? If so, was that work properly permitted and finally approved by the relevant governmental authorities?
Have any notices of zoning or building code violations pertaining to the property, its use and/or its structures been issued by governmental authorities? If so, were such notices resolved and final building or zoning certificates issued?
Are there zoning restrictions or critical area limitations regarding the use or occupancy of the property that might impact your intended use of the property as a residence, commercial enterprise, home business, farm or some other purpose?
Has any portion of the property been leased for commercial, farming, hunting or residential purposes? What are the notice deadlines to terminate such leases?
What are the conditions and possible uses of adjoining or neighboring properties? Do those properties have rights pertaining to the property you are considering buying, selling or leasing?
What are the neighbors like? How do they use their property? Does it impact the property you are looking at?
Are there shared rights-of-way or easements? If so, does a written agreement exist defining the rights and obligations of owners with respect to its boundaries, maintenance and scope of use? If an agreement does not exist, should an agreement be developed and/or executed as a part or contingency of the contract?
Are there fences or other features or uses of the property that could give rise to future claims for adverse possession or implied easements? Have you examined all available surveys of the property? Have you had the property surveyed? How long have those features existed and under what conditions?
Consult a real estate attorney to review a proposed contract before signing it if at all possible. Keep in mind the old adage that an ounce of prevention is worth a pound of cure. Agents and realtors are usually excellent resources when buying and selling property. However, when a dispute arises, they are not qualified to provide legal advice. A lawyer has years of training and expertise in the law. Your lawyer will analyze the facts of your particular case and help you obtain the best possible result.
Once you are certain that you are agreeable to all of the terms of a proposed contract, make sure that all of the required signatures, initials and dates are on the document where required and that they are legible. Otherwise, you may find that you do not have a contract when you thought you did; that certain terms were agreed upon when, in fact, they were not or vice versa.
Identify and understand who is the party that must sign the contract. While you may be negotiating with an individual that you believe to be the owner or seller, it may be that a business entity such as a limited liability company or perhaps a trust is the actual party that needs to sign the contract through an authorized representative. Know who you are dealing with and identify the person against whom recourse may later be sought if the transaction goes awry. You may wish to check the status of a business or property with Maryland Department of Assessments and Taxation
The above are just some examples of ways in which you might protect yourself. An attorney will be able to advise you as to additional methods and how best to accomplish your objectives.
If a real estate dispute arises or seems imminent or if you have other questions, consult a dispute resolution firm such as Jacobs & Barney to evaluate your case, advise you as to its strengths and weaknesses, assist you in your decision-making processes to resolve the dispute and work towards a satisfactory and cost-effective resolution to your problem.