Top 10 mistakes to avoid in real estate transactions

By Roberta M. Gubbins

Legal News

It was standing room only at the recent Ingham County Bar Association Probate Section meeting. The lawyers, bankers and paralegals came to hear Jeffrey C. Hicks, Hicks & Mullett, PLLC explain the top ten mistakes in real estate transactions. The event was held at the State Bar Building in Lansing on Feb. 19.

Easements

The first mistake, Hicks said, is failure to specify whether an easement is exclusive or non-exclusive and who will be responsible for maintenance and upkeep of the easement.

"This problem," said Hicks, "occurred recently when one of our bank's potential borrowers wanted to buy an office complex. There were multiple easements all over the property. They were reciprocal easements so those in the back could cut through and those in the front could also cut back around. The problem was that the easements were not recorded."

The seller, Hicks said, thought it was 'no problem, everyone knows how it works.' The title company, Hicks explained, decided that affidavits could be drafted and signed and all would be well. That didn't work because the "folks that drafted the original easements are no longer around and you've got a different picture."

When the bank suggested that Hicks represent all the owners that were affected by the easements, he declined because each of them had different interests. Eventually the situation was cleared up.

Failing to order title work prior to accepting a deed in lieu of forfeiture or foreclosure

"I'm not sure how it happens, but there are times when there is a tax lien that was not discovered because a search was not ordered."

He recommended that practitioners always order title work before starting legal action on the property even in situations where the client is accepting a deed in lieu of the foreclosure, since the title can come with tax liens, environmental liens, and other problems.

Failing to have all interested parties sign a purchase agreement

"This problem occurs when the husband decides to sell the property and the wife says 'I'm not selling the property.' You have a real problem when all parties haven't signed the agreement."

Often the problem is not found until time for closing. The problem can be solved by determining what the title commitment says and who the parties are.

"And other good and valuable consideration" added in the description of the consideration in a deed

"When the deed says 'grantor conveys Blackacre to grantee for $50,000 and other good and valuable consideration,' it may be returned (by the register of deeds) since the value of the property for transfer tax can not be determined."

His solution is to avoid the use of this stock phrase altogether.

Incorrectly assuming how a party or your client wants to take title to property

The problem is when title companies are preparing the deed and they assume how the husband and wife wish to own the property. Oftentimes clients don't know the differences in the forms of ownership of real property.

The solution, said Hicks, is to explain types of ownership to the client and verify up front how the deed should be prepared. "While a subsequent transfer correcting the mistake could be made, why create a second step."

Failing to follow the recording requirements of MCL 565.201

There are numerous problems that can arise such as no 2.5" margin, text smaller or bigger than 10-point font, or multiple recordable events in one document--all could result in the document being rejected.

Hicks recommends keeping a "'cheat sheet' in your desk with the requirements listed so that the documents will be in a recordable format."

Failure to have a split approved under the Michigan Land Division Act

This can happen when a client is selling off a portion of a larger parcel, which qualifies as a split under the Land Division Act. Unfortunately, no one involved in the transaction received approval for the split prior to closing. Now the assessor's office won't assign a new tax parcel I.D. number and your client is being billed for taxes on the whole parcel.

This becomes a problem for estates where a farm is being sold off in parcels.

Hicks solution is, if you're not sure whether your split is a "split," verify that fact with the municipality long before closing. Often, the split approval process is not a matter of "if' a split will be approved, but rather how long the process will take.

Failure to prepare/require authorizing resolutions and/or verify the status of a buyer/seller that is a trust or a business

This problem arises, he said, when you are faced with a situation where a business is one of the parties and it no longer exists or no one has been authorized to sign the documents.

"This comes up more often than you would think," he said.

His solution is to order a certificate of good standing from the MI Department of Licensing and Regulatory Affairs, require a resolution listing all of the members /shareholders and also appointing an individual to sign the documents.

Failure to remember that taxes are prorated differently in different areas of the state

Your purchase agreement states that "taxes shall be prorated." You later learn that the other party to the transaction understood that they will be prorated according to what is usual and customary for their region, which as it turns out, is both different than what you anticipated and detrimental to your client's bottom line.

The solution is to be sure the purchase agreement states exactly how taxes will be prorated.

Failing to verify ownership of property when drafting a deed for a new client

This problem happens when you are contacted by a potential new client asking you to draft a simple deed. If you do not determine the ownership interest, sometime later they call and say the deed is not valid.

Hicks recommends declining to represent the client if they don't want to pay you to review the title commitment or the chain of title.

"This happens all the time," said Micki Pasteur. The situation arises when clients "want to take it out of the trust or put it back in a trust." She recommends researching the deeds on-line.

Published: Wed, Feb 27, 2013

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