Nonmarketable title and encroachment

10 Replies

Hey BP universe! I got an opportunity for a buy and hold rehab for a REO, but found out there is an encroachment claim/ issue on the property by a neighbor. Right now I'm in the process of running it by my title company to see what they find with title. The GIS maps (can't find the plat on file) show that the parcel boundaries according to tax map and the parcel boundaries map appear to be fully in the clear for the driveway, house and 2 car garage shown below. It looks like the neighbor might be delusioned about encroachment, but I know a formal survey would settle it for expense. Neighbor is not cooperating with encroachment issue so assume they won't help. Seller (bank) states that they were unable to find title company to write title insurance because of the encroachment issue but obviously are still marketing it for sale.

I am not yet under contract, but deciding on how to proceed with due diligence. If this were your situation, how would you order your due diligence to minimize expense and explore the deal and see if I could get clear title and clear up doubt on the encroachment issue? I would want title insurance. Not asking for armchair surveyers, just some friendly advice on due diligence steps, preferred order:)

Listing Agent states the property line is within 5 feet of the house. This means a couple of things:

1. The driveway and garage are not on the property at all.

2. The house is within 5 feet of the property line, so there is a setback issue.

Below looks positive to show that the boundaries are not encroached, but i realize that they are not the actual plats and final say...

You can't answer most of these questions without a current survey. Title insurers don't rely upon maps like the ones you've included; and the plat would not be particularly helpful.

Since you already know of an existing title issue the seller would need to resolve it, you could plan for dealing with it in your offer, or you could ignore it and take title subject to the problem... and yes you could get title insurance. However, if you choose the latter, the encroachment and any other matters that a proper survey would disclose would be excluded from coverage. 

Originally posted by @Tom Gimer :

You can't answer most of these questions without a current survey. Title insurers don't rely upon maps like the ones you've included; and the plat would not be particularly helpful.

Since you already know of an existing title issue the seller would need to resolve it, you could plan for dealing with it in your offer, or you could ignore it and take title subject to the problem... and yes you could get title insurance. However, if you choose the latter, the encroachment and any other matters that a proper survey would disclose would be excluded from coverage. 

 Tom, Thanks so much for your feedback! Lucky for us, I received a screenshot of the recent survey from the last buyer that backed out. You wouldn't believe how much the parcel changed from the county/tax map records!!! The driveway and garage are definitely off the parcel. The seller had tried to work with the neighbor to get a boundary adjustment and they were originally going to sign-off, but then went dark and stopped communicating. Doesn't appear they are disputing the land, but they aren't cooperating either.

What do you think based on below? Walk away or sign contract pending boundary adjustment and see what I or seller can work out based on knowing there is a valid offer? I'm still hoping for an opportunity but maybe this one is too far gone to recover.. Just trying to see all of the angles now that we know how bad the parcel issue is... 

Sorry in advance for the low res image. you can right click and download and zoom in for better view... What you are seeing is the garage and driveway outside of the red lines on the top and the house is RIGHT up against the property line....

Here is zoomed in image link:

https://imgur.com/a/3Ivgs

First figure out how long the fence -- that is a fence, right? -- on the northern boundary line has been there. 

The bank almost certainly will NOT go out of pocket to resolve this so it will be up to you to estimate the cost and adjust your offer accordingly. Neighbor may have tried to squeeze the last buyer for more money and if so that obviously backfired. Perhaps they will jump at another chance for a few bucks. In the meantime the use of the fenced in area would appear to remain hostile and notorious. 

Updated 5 months ago

I said northern boundary line but I meant what appears to be markings of a fence to the north of the driveway.

Originally posted by @Tom Gimer :

First figure out how long the fence -- that is a fence, right? -- on the northern boundary line has been there. 

The bank almost certainly will NOT go out of pocket to resolve this so it will be up to you to estimate the cost and adjust your offer accordingly. Neighbor may have tried to squeeze the last buyer for more money and if so that obviously backfired. Perhaps they will jump at another chance for a few bucks. In the meantime the use of the fenced in area would appear to remain hostile and notorious. 

 Good eye. Yea that is a fence separating the neighbors property on the northern side. I'll talk to my title to ask them about the fence. believe it or not the listing agent was already working with a surveying company to request a boundary adjustment if the buyer were to cooperate. They put that effort on hold because the buyer stopped comms. I could try mailing or calling the neighbor and see what they want to resolve the boundary issue. The last buyer was the one to do the survey, and it seems like they backed out as soon as they found the boundary issue. Not clear if its been under contract with anyone else to negotiate with them... It just seems like the realtor has better things to do than continually following up with a neighbor in order to get clear title and get her side of the commission.

put the property into contract your not out anything.. but then no one else snags it why you negotiate.

I just had one like this were 5 feet of the house were actually over the line..

Buyer is just knocking 5 feet off the house and doing a full remodel.. the neighbor thought he had us over the barrel.. but I did not to discount for this..

so maybe with that one.. not knowing the topo.. just build a new driveway if its a rental your tenants don't care.. low ball the bank and you got a good cash flower.

@Jay Hinrichs Totally agree. OP has a seller who is not willing to correct a known title issue and therefore this is ripe for a big discount. 

Meanwhile the buyer may have several options for negating the title issue completely.

Boundary line issues can take time to clear up.  There are several ways to work through the problem, but all of them will take a survey of both the subject and the encroaching property.  To fully cure the encroachment, you will likely have to file a new legal description for both properties and reset the boundary lines, or create new parcels with the encroached areas.

All of this can be dealt with - but it's going to take time & money and most importantly, cooperation between all the parties.  If one party is being a stickler about it you might have to file a lawsuit and force the issue.  Kinda sucks.

@Blair Poelman We're talking about ignoring the boundary issue and getting value out of it without cooperation from anyone. This is an REO and the neighbor went dark.

Originally posted by @Tom Gimer :

@Jay Hinrichs Totally agree. OP has a seller who is not willing to correct a known title issue and therefore this is ripe for a big discount. 

Meanwhile the buyer may have several options for negating the title issue completely.

 Thanks Tom and Jay. I liked the idea of proposing relocating a driveway for renters on the other side of the house, which is easy to do and just abandon use of the other driveway and garage (though the 2 car garage would be a sweet bonus). That is an especially good negotiation piece: I could just tell the neighbor that they could help with the boundary adjustment or I'll just build a new driveway on the other side and abandon the garage/ driveway on the other side. No sweat. But ultimately I can restart discussions and see if we could get seller to pay for boundary adjustment, but worst case is I could try to get insured title on the house and new parcel, then work on the boundary over time with the neighbor still having a very marketable and cashflowing property. Can also hint that I might consider adverse possession with the white fence likely being 20+ years old as grounds for him working with me the preferred way.

ARV is about 180, been on market since 2016 for originally 103, now a bit less. Repairs are 36k or likely 45k if I have to convert from well water to county water (I'm noticing that the well is on the edge of the rear boundary, which could be a problem in future). I think 50k is reasonable offer. Would that be a good discount you'd expect accounting for title issues (95k all in on a 180k ARV is still 50%)? I like to be under 100k for my investments to include rehab anyway... Or should I be more aggressive with the discount? I know there will be additional surveying and boundary adjustment expenses if I don't resolve with seller prior to settlement.. just dont know what they will cost me..

I was told there would be no math.

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