The Residential Real Estate Contract in New Jersey, part 3 of 7

4. Title to the Property

Owning a property is having title to it. There are different states of title.

Perfect title is title without exception. There is almost no perfect title. Usually a buyer requires marketable title or insurable title. As a practical matter, title is acceptable if a challenge to usual or defined expected use would not be expected to be successful - that is marketable title. A title subject to easements for utilities that are limited to providing service to the property is usually acceptable to buyers, although it may not technically be ''marketable title." If the edge of the property along a road is subject to easements to serve that and neighboring property, title is usually considered acceptable. The agreement should make title subject to such easements.

Insurable title means little without detail of exceptions to title and an informed understanding of the exceptions that can only be gotten from your own lawyer.

Title described as "subject to easements and agreements and restrictions of record" is a definition of title that invites trouble. It is not acceptable as phrased. Exceptions to marketable title should be set out in detail so they can be evaluated.

For example, an easement through a large backyard for a gas pipeline may not be acceptable to some buyers, but might not bother others. If the easement prevents the building of a swimming pool, and a swimming pool is important to a buyer, then that easement is clearly not acceptable to that buyer. A restriction that prevents the keeping of more than one domestic pet is not acceptable to a buyer who raises dogs as a hobby.

A restriction against any business use on a particular property, even though a zoning ordinance allows a home occupation, will prevent, for example, the teaching of music or the conducting of a tax-consulting business. Such restriction may reduce a property's value, or eliminate its usefulness, to certain prospective buyers. It would also affect value on resale.

Easements may allow persons or companies other than the owner to use the property. That use may be for a path or passage to another property. It may be to maintain a utility line through the property. It may prevent building in certain areas of the property. It may allow bike or horse paths that could interfere with the owner's privacy.

The title that is acceptable to the buyer should be defined in the agreement. The seller will want to sell what he has and not more. The buyer must describe clearly his expectations of what he is buying in the agreement.

The statement in some agreements that "title is marketable" and the further reference that "title is subject to easements and restrictions of record," are conflicting statements. They should not both be contained in an agreement, without modification.

An agreement should have attached a copy of the title opinion or title policy issued when the seller bought, or last placed a financing lien on, the property.

The agreement should contain a reference to the attached title information. It should represent that the state of title hasn't changed since the policy was issued. If the title has changed, the details of the change should be specified.

5. Location and Survey of the Property

The title search, and the opinion based on that search, tells the parties what they are dealing with. The survey locates the property and shows certain physical conditions on the property. "Clear and marketable title" doesn't mean the property is where the buyer thinks it is. The property is located by reference to adjoining properties and to established monuments, and by reference to intersections of streets and roads.

The opinion of a surveyor, expressed in a drawing certified to the parties, the lenders, the title company, and the lawyers for the parties, is the common way to find and confirm the location of property. The survey should also show any easements that affect title, and where they are on the property.

Besides identifying property boundaries, the survey should reveal overlaps of property, encroachments of one property on its neighbor, setbacks of buildings from streets and adjoining property, and the relation of buildings to the allowable building envelope. If a neighbor has erected a fence or a building that crosses over the line, the condition should show on a survey. The parties can then focus on the problem. Should the encroachment be removed, or should there be an agreement to continue the encroachment? And under what conditions? These are important issues to be worked out by the parties before a closing takes place.

Common language in agreements require the buyer to accept title "subject to such conditions as a survey wouldshow." Such language is not acceptable unless a survey drawing is made part of the agreement and can be understood by the buyer. Attorney review is often delayed waiting for such information. (to be continued)