Title Issues

November 7, 2019

Potential Problems That Can Delay or Derail Real Estate Closings in California

by Bona Law PC

Real-Estate-Closing-300x200

Author: Staff

Buying and selling real estate in California is a complicated machine with many moving parts. Everything must be in working order before the deal can close. Most problems that arise in the days or weeks leading up to a closing might cause the machine to sputter, but the parties involved in the transaction can set everything back in order. Some issues, though, can cause big enough problems that they delay the closing date—or derail it altogether. This could be a major problem that changes the nature of the deal for the buyer or seller, or it could be a small problem that simply goes unnoticed for too long. For California real estate investors, knowing how to adapt to unforeseen problems is just as important a skill as knowing how to identify and avoid problems in the first place.

Title Problems

In almost any real estate transaction that includes mortgage financing, the lender will require title insurance. The title company will conduct a search of the property’s title history to look for anything that might affect the buyer’s—and therefore the lender’s—interest in the property.

Any defect in title raises the possibility of some third party asserting their own interest in the property. Liens, which give creditors a non-possessory interest in real property, are a common type of title defect. Before a closing may proceed, all title defects must be resolved to the satisfaction of the title insurance company.

March 15, 2019

Sale of Real Property by a Trustee in California, Part 1: Fiduciary Duties and Best Practices

by Bona Law PC

Trustee-that-needs-to-sell-house-300x225

Author: Staff

Creating an estate plan allows a person to direct the distribution of their assets after their death. A will is perhaps the fundamental estate planning document, but it is far from the only way to distribute one’s assets. Creating a “living trust” allows a person to begin the distribution process while they are still alive. The person designated to administer the trust is known as the “trustee.” Living trusts might not be right for everyone’s estate plan, but California real estate investors should carefully consider them. They should also consider who can meet the legal standards for a trustee with regard to selling real property assets.

What Is a Trust?

The term “trust” can refer to a legal document and the entity created by that document. A trust document bears some similarities to a will. When a person dies, their assets become part of a legal entity known as their “estate.” A trust instrument also creates a legal entity, known as a trust.

A trust designates beneficiaries who are entitled to receive something from the assets held by the trust. This could be ongoing income from interest or rent, or proceeds from the sale of trust assets. The person who creates a trust, known as the “trustor” or “settlor,” must designate a trustee in the trust document. In a living trust, the trustor may designate themselves as trustee, but they must also designate a “successor trustee” to take over after the trustor’s death.
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March 7, 2019

Mechanics Liens for California Real Estate Investors

by Bona Law PC

mechanics-lien-california-300x200

Author: Staff

Investing in California real estate often involves renovations or new construction. Unless a real estate investor plans on taking a very do-it-yourself approach, this will require the assistance of contractors, suppliers, and design professionals like architects or structural engineers. You may even want to find a real estate agent with experience in renovations. In the event that someone who worked on a real estate project believes they have not received the contracted payment, California law allows them to file a mechanics lien on the property.

Mechanics liens can be troublesome for California real estate investors. They take priority over other liens, and state law sets a very short timeline for enforcement. Perhaps the most concerning feature for real estate investors is the ability of subcontractors to file a lien when the general contractor does not pay them. In that situation, the property owner is not at fault, but must still deal with the lien.

What Is a Mechanics Lien?

A lien is a legal claim that places a hold on real property, affecting any attempt to sell the property or obtain financing. Perhaps the most common type of lien is the one held by a mortgage lender on the property purchased with the lender’s money. If the property owner defaults on the loan, the lender can foreclose on the property. Foreclosure of a mechanics lien seeks to recover money owed to a person who worked on a real estate project.
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October 9, 2018

Due Diligence Tips for Commercial Property Purchases in California

by Bona Law PC

Author: Staff

Investing in California commercial real estate requires extensive planning and research. A prospective buyer must consider potential legal, financial, structural, and environmental issues. This process of research and review is commonly known as “due diligence.” Since every real estate investment is unique, the precise due diligence process will be different each time. The following is a very general checklist, which may apply to a wide range of properties.

1. Investigate both the property and the seller

Due diligence for a commercial real estate investment is about more than the property itself. An investor should also look into the seller’s reputation and their track record for similar transactions. Even if the property is spotless, an investment might not be worth the risk of an unscrupulous seller.

2. Title and Survey

Inaccurate identification of a property is a common complication. An investor should obtain the full legal description of the property, to compare to official real estate records.
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July 16, 2018

Restrictive Covenants and California Real Estate

by Bona Law PC

Author: Staff

Ownership of real property in California includes various rights, along with a wide range of restrictions. The specific restrictions will vary from one location to another. Property owners may restrict the use of a piece of property by subsequent owners through restrictive covenants, which are included with the documents transferring title. Some restrictive covenants “run with the land,” meaning that they are binding on subsequent owners of the property. In planned residential developments, the covenants, conditions, and restrictions (CC&Rs) enforced by a homeowners’ association (HOA) include restrictive covenants affecting the use of individual properties. In relatively rare cases, the grantor of a property may set restrictions on the use of the property, resulting in loss of title by the grantee if they violate those restrictions. California real estate investors should carefully examine any possible restrictive covenants affecting property.

Public versus Private Restrictions

June 29, 2018

Easements and California Real Estate

by Bona Law PC

Author: Staff

Ownership of real property includes certain exclusive rights. The owner of real property has the right to improve the land, such as by building a house or other structure. They also have the right to exclude other people from the property without permission. But these and other rights are subject to limitations. A property owner can make improvements to the property, provided the improvements do not violate local zoning ordinances. The right to exclude others from one’s property might be limited by easements attached to the property.

What is an Easement?

An easement is a nonpossessory interest in real property. That means that the owner of an easement does not have the right to actual possession of the property. California real estate investors should check the title history of a property carefully to look for easements.

Positive vs. Negative Easements

An easement can either give others the right to access portions of the property for limited purposes, known as a “positive easement;” or restrict certain uses of the property by the owner, known as a “negative easement.”

A positive easement is one that allows the easement owner to use some part of the property for a specific purpose. California law identifies various purposes for which property owners may grant easements, including:
– Passage over their land, known as a right-of-way;
– Hunting, fishing, or other recreation; and
– Obtaining “water, wood, minerals, and other things.”
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June 18, 2018

Common Problems Encountered in California Real Estate Title Searches

by Bona Law PC

Author: Staff

Purchasing real estate in California requires a careful review of the property’s title history to avoid a variety of potential problems. Mortgage lenders usually require title insurance to finance a purchase. Title insurance companies will conduct their own review of the title history, but they do so to protect their own interests, rather than the buyer’s. The title insurer will notify the lender and purchaser of known or potential title defects that they will not cover, meaning that the purchaser could still be liable for some problems. It is in the best interest of every California real estate investor to research and investigate the property’s history. The following is a list of a few issues that might appear in a property’s title history.

Errors and Omissions

Clerical and filing errors can have serious repercussions for real property. A deed that incorrectly identifies the boundaries of a property, such as by leaving some portion of the property out of the legal description, can result in the loss of ownership of that part of the property. Other common errors include misspelled names of grantors or grantees, omission of legally required language in a deed, and misfiling of records.

Unknown or Missing Heirs

The general rule in the U.S., based on English common law, is that a grant of land is intended to be in perpetuity unless a deed specifies otherwise. The language used often states that the property is granted to the grantee “and their heirs.” If a previous owner of real property died, and the executor of their estate failed to locate or notify all of the owner’s heirs, those heirs could have a valid claim to some or all of the property, even years later.
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May 31, 2018

A Quick Guide to Title Insurance for California Real Estate Investors

by Bona Law PC

Author: Staff

Purchasing real property is a major investment, not only of money but also of risk. Even if a California real estate investor has enough cash on hand to pay the full price without a mortgage loan, they are still bound by property taxes, land use restrictions, and market forces. Most purchasers of real estate already know about these risks, though. A lesser-known risk involves defects, omissions, or fraud in the property’s title. This can lead to problems that are difficult to foresee, such as claims to the property by a former owner’s previously unknown heir, or difficulty in establishing ownership because of a defective deed. Title insurance covers many of these potential issues. Lenders often require borrowers to obtain title insurance policies in order to protect their investments. California’s laws and practices regarding title insurance can be rather difficult to understand at first.

What Is Title Insurance?

April 20, 2018

When San Diego Real Estate Investments and Land Use Regulations Collide

by Bona Law PC

Author: Staff

Investing in San Diego real estate offers many great opportunities for returns, but it also poses many potential risks for losses and liabilities. Planning an investment requires researching and investigating risks associated with a particular property. This includes the property’s zoning designation and associated land use restrictions. The Land Development Code (LDC), located in Chapters 11 through 14 of the San Diego Municipal Code, sets forth the zoning regulations and procedures for properties located within the city. Zoning regulations allow certain types of construction and prohibit other types, but it is sometimes possible to get approval from the city to make an exception to the regulations, known as a variance. As a general rule, a variance cannot grant approval to a land use that has already been found to be in violation of the city code. This is why careful research on existing permits affecting a property is so important.

Zones and Regulations in San Diego

January 7, 2018

What is Necessary for a Title Review for a Commercial Real Estate Transaction?

by Bona Law PC

Title Insurance

Author: Alejandro Ramirez.

Alejandro Ramirez, Esq. is the founder of AR | Legal Team. You can read more of his posts at www.arlegalteam.com. He also works with Bona Law on real estate issues.

All too often, investors and business owners fail to give the title review process its due weight when making a major commercial real estate acquisition, and, as a result, they do not fully understand the title risks involved.

Upon receiving the preliminary title report (Preliminary Report) from the title company, parties sometimes fall into the temptation of skimming through the list of exception items without performing a careful review of the underlying exception documents themselves. The failure to fully understand the title risks in a deal leads to mismanaged legal and financial risk.

Here are seven reasons to rethink the importance of title review:

Vesting of title. Ownership needs to be fully ascertained to ensure that all seller parties are properly identified in the Purchase and Sale Agreement (PSA), conveyance deed, and any other ancillary documents. Seems obvious, right? You’d be surprised.
CC&Rs/Restrictive covenants. Covenants, Conditions & Restrictions, commonly called CC&Rs, and other restrictive covenants, should be carefully reviewed to ensure that compliance will not raise any issues for you. Depending on your intended use, a use restriction can make or break a deal.
Options/Right of First Refusals. Occasionally, options and other similar instruments are used to grant parties certain purchase or sale rights. Inadvertently bypassing these rights can cause headaches for all.
Easements. The analysis of easements that will survive closing is crucial. There are many kinds of easements (e.g., access, utility, parking, reciprocal, slope and drainage). An easement may benefit or burden a property. Buyers should determine if they are willing to live with the terms of the easements involved and whether any such easements will interfere with the buyer’s intended use of the property (and potential future uses by subsequent purchasers). Oftentimes, certain types of easements (e.g., utility easements) are mistakenly viewed as standard or innocuous, however, buyers should note that the terms of an easement are negotiable. As a result, the written terms can vary significantly, even as to easements recorded against the same property by the same parties.
There are many forms of encroachments. An encroachment can expose a buyer to possible liability in many ways. For example, an encroachment may violate the terms of an easement agreement, or certain encroaching improvements may be subject to removal by the easement holder. In extreme cases, an encroachment may render title unmarketable.
Maintenance Agreements. The maintenance and repair obligations for an easement shared by several owners may be memorialized in a maintenance agreement and recorded against the subject property. Buyers should determine if they are willing to live with the terms of any applicable maintenance agreements.
Other Unknown or Undisclosed Agreements. Occasionally, pertinent documents may not be provided by the seller. The seller may be unaware of their existence or may have negotiated these documents years ago, but may not remember or think to provide them along with the other due diligence deliverables. However, their existence can sometimes be discovered if the document appears in the Preliminary Report or if it is mentioned in another document appearing in the Preliminary Report.

The above list is not exhaustive. In some instances, depending on the context, a comprehensive title review may reveal issues that may justify a price reduction, especially if the seller understands that the issue would similarly affect a sales transaction with any other prospective buyer. An experienced real estate attorney will also be instrumental in reviewing the title commitment and proforma title policy, and suggesting applicable endorsements.

Tips for Carrying Out an Effective Title Review: