Real Estate Law

WHAT IS GOOD AND MARKETABLE TITLE, AND WHY IS IT IMPORTANT FOR THE PURCHASER OF REAL ESTATE?

• When a buyer purchases real estate and a lender loans part of the purchase price secured by a mortgage on the property, what is the buyer and lender entitled to receive by way of title?
  Assurance of good title is an important part of the preparations that a Closing Attorney representing the lender and buyer makes before allowing a purchase and sale to close. Good title means that the owner owns all of the rights to the property spelled out in the contract of sale and the deed conveying the property free of other claims. Regarding title, one court held that "the buyer was entitled to receive a good and marketable title, that is a title free from encumbrances beyond a reasonable doubt. He had no right to demand a title free from the possibility or suspicion of a defect". In another case, the court held that a seller/plaintiff seeking specific performance, a court order to enforce the sale, could not expect the buyer/defendant to accept a title... ...if it appears to be subject to adverse claims... of a nature as may reasonably be expected to expose the purchasers to controversy to maintain his title or rights incident to it." In other words, the buyer does not have to buy a lawsuit. There is a difference between a good title and a good record title. While a title might be good, say because of adverse possession for twenty years, but it would still be insufficient as a matter of record. Thus it is important that the word "record" be included in the phrase "good and clear record title". Without the word "record," clear title means the same as marketable title, i.e. it may be shown by oral or other evidence outside of the official records to be marketable beyond any reasonable doubt. A marketable title is the title that the next prudent and reasonable convincing attorney will pass upon as good. Thus a parcel of land might have good record title but not good marketable title. Perhaps there is a right of way down the middle of the parcel that has been used for many years as a shortcut to property at the rear of the subject parcel. There is nothing shown about it at the Registry of Deeds, but the title is not marketable even though there is good record title. Thus a marketable title must be good of record and good in factual terms.
  
  
• What are Some Common Title Defects or Problems?
  The obvious defects such as liens, attachments, unpaid or undischarged mortgages, restrictions, and life estates may in some cases be cured by the passage of time. Easements, however, are not readily extinguished or deemed abandoned. Sometimes there are defects in the description in the property. Thus, for a number of years, it has been required that a plan of land prepared by a registered land surveyor, describing the property, be on record and be referred to in deed descriptions.
  
  
• How Does a Conveyancing Attorney Assure That the Buyer is Receiving Good and Marketable Title?
  A title search at the Registry of Deeds is undertaken, going back fifty years or in some cases longer. The title examiner makes an abstract of all instruments of record and a report of all record transfers and other legal actions and documents affecting the property. The conveyancing attorney reviews the title report to assure a continuous record of ownership and to examine the record for any liens, encumbrances, mortgages, or easements or the like of record. The conveyancing attorney will render an opinion of good and marketable title, noting any exceptions. In most transactions today, title insurance, written by a title insurance company, is required by lenders and is a highly advisable for buyers. Since title defects might not arise for a number of years after the purchase of the property, usually coming to light when a property is to be resold, title insurance is excellent protection. For the one-time title insurance premium, the owner and lender are insured for the amount of their interest in the property, usually with an inflation rider. The insurance company insures over for the cost of defending title, and any loss caused by covered title defects, or errors with regard to the conveyancing attorney. Since the title insurance company may have perpetual existence, it is worthwhile to buy such insurance. While a buyer may also have a negligence claim against the conveyancing attorney on his certification of title, the attorney may no longer be around or have professional liability insurance.
  
  
• What Other Sources of Potential Restrictions Are They Affecting the Transfer and Use of Real Estate Found Outside the Registry of Deeds?
  The following is a partial list of non-Registry records that should be checked prior to completing the transfer of title: 1. reported hazardous waste sites. 2. The Massachusetts Historic Register. 3. The Department of Environmental Protection Wetlands Restrictions. 4. Zoning variances and special permits. 5. Orders of conditions issued by local conservation commissions. And in the Case of transactions involving a corporation or limited partnership, a corporate excise tax lien waver, a certificate of legal existence, certified copies of the articles of incorporation and amendments, list of officers and directors, and uniform commercial codes filings at the Secretary of States office and local town or city clerk.

WHAT IS INVOLVED IN A CONTRACT FOR THE PURCHASE AND SALE OF A RESIDENCE AND WHAT ISSUES SHOULD IT ADDRESS FROM THE SELLERS' SIDE?

• What is Involved in a Contract for the Purchase and Sale of a Residence?
  The process of purchasing or selling a residence for many involves the single largest investment that they may make or have made. It is important to involve an attorney at the earliest possible stage. This is because the initial part of such a transaction, sometimes the signing of an offer agreement or "binder" often prepared by a real estate broker or a more complete "purchase and sale agreement," "P & S Agreement," governs the later rights and duties of the parties. Given the amount at stake and the importance of the written contract in assuring the parties that they have the "deal" they expect, careful representation at this stage is crucial. Many brokers and thus

  A saving clause should be added to any offer to define whether it is to be a binding contract or whether the parties will negotiate a more complete purchase and sale agreement.

  many sellers and buyers mistakenly believe that an accepted offer to purchase is merely a "binder" and that an enforceable contract only results once a purchase and sale agreement has been signed. Because the Statute of Frauds requires that agreements for the sale of land be in writing and because most of the form binders contain all the essential contract terms: parties, price, title condition and closing date, the signing of a form binder will create a legally binding contract. It fails to contain the numerous and important clauses found in a full-blown purchase and sale agreement or the additional clauses negotiated by experienced attorneys representing sellers or buyers. The 1999 case of McCarthy vs. Tobin found that an offer to purchase in our state is a binding contract even with language "Subject to a Purchase and Sale Agreement satisfactory to Buyer and Seller." A saving clause should be added to any offer to define whether it is to be a binding contract or whether the parties will negotiate a more complete purchase and sale agreement.

• What are some of the issues that need to be resolved to minimize later problems to seller and to minimize the possibility of litigation that can tie up property for a long time?
  Sellers need make no disclosure of problems with the property, except for lead paint and urea formaldehyde insulation, but if a seller is asked or makes any statements about the property, either to potential buyers or to the brokers as in a Sellers’ Statement of Property Condition, they must be truthful and not incomplete so as to be misleading. In a P & S agreement, a complete description of the property to be conveyed is a must. Items that are attached to the house such as a furnace, built in air conditioning, attached bookshelves, etc. are considered fixtures, part of the property, and are automatically included. A list of personal property that is to be included in the sale should receive careful attention. What warranties and representations does the buyer, and should the seller, wish to avoid or limit? For homes with septic systems, an inspection and report is required by the State’s Title 5 regulations. There are significant financial risks whether to a buyer of purchasing a failed septic system or to a seller of losing a sale so carefully crafted clauses are needed. The seller' s attorney should obtain mortgage pay off information. A municipal lien certificate should be ordered early on by the bank’s attorney, usually, or seller’s, if time is short, for taxes, water and sewer, and municipal lighting, if any. The seller' s attorney prepares the proposed deed. While the broker often will make the arrangements, such as for a smoke detector certificate, the attorney should be sure that final readings and/or proof of payment of final bills are done concerning water and sewer, oil, gas, electric, telephone, and sewer. Keys, etc. need to be exchanged at closing.
  
  
• What special clauses should a seller have an attorney include in a Purchase & Sale Agreement?
  The commonly used printed form P & S Agreements have clauses mostly favoring Sellers, but additional protective clauses are advisable. If the Seller needs funds the same week for a house purchase, Buyer should be required to pay with a certified or bank check drawn on a Boston area bank and payable to Seller only. Seller might need a 30 to 60 day extension of time to make things right if an unexpected title defect is found or other difficulty, such as damage to the property, occurs. A dollar limit on what seller must spend to cure defects is wise. A broker under the listing agreement will be entitled to a commission if an able and willing buyer is found, so a smart seller will have language stating that the broker’s commission is payable only when and if the closing and recording are completed. The broker must sign the P & S or a separate agreement to that effect. An inspection contingency clause to favor seller may specify reasons buyer may back out and require the inspection report. In the mortgage contingency clause, Seller may require buyer to apply to two lending institutions and avoid limiting terms. Lead paint liability may be avoided with proper language in addition to the required notice given by the Broker or Seller if no broker is involved. Care at the beginning of negotiations may be an ounce of prevention.