* Section 9-18: Real Estate Principles: Encumbrances, Easements, Water Rights, and Property Transfer

Restriction Encumbrances

Deed restrictions, also known as restrictive covenants, are use encumbrances placed on properties, typically by grantors such as developers in new housing subdivisions, binding future owners.

Common examples include:

• Restrictions on fence types.

• Restrictions on roof types.

• Restrictions on vehicle types (e.g., RVs not allowed to be parked outside overnight).

Only courts can enforce deed restrictions. Interested parties like neighbors or homeowners associations can bring actions for enforcement. Restrictions based on race, ethnicity, or religion are unenforceable due to rulings by the United States Supreme Court. Deed restrictions are found in public records.

Easements and Encroachment Encumbrances

An easement grants the right of ingress (to enter) and egress (to leave) but is not an estate, meaning it doesn't grant possessory rights. It's a servitude, allowing someone to cross over another's property.

Appurtenant Easement

An appurtenant easement runs with the land. Here's an example of owners A and B, where A is landlocked:

• If A sells their property, the new owner has the same right to cross B's land.

• If B sells their property, the new owner must honor the easement.

Typical examples are shared driveways or easements by necessity (landlocked properties).

• Dominant Tenement: The land benefited by the easement (A's property).

• Servient Tenement: The land burdened by the easement (B's property).

Only the dominant tenement (A) can terminate this easement.

Easement in Gross

An easement in gross is commercial, often used by utility companies (power lines), railroads (rights of way), and for billboard sites. These easements can be sold to others.

Easement by Prescription

An easement by prescription is acquired through continuous, open, and notorious use of someone else's property for a specific time frame. Requirements include:

• Continuous Use: Regular, ongoing use.

• Open Use: Visible and not hidden.

• Notorious Use: Hostile to the owner and without permission.

The time frame varies by state (e.g., 5, 10, or 15 years).

To prevent this, property owners must disrupt the continuous, open, or notorious nature of the use. For example, Rockefeller Center closes to the public one day a year to prevent the public from claiming an easement by prescription.

Creation of Easements

1. Easement Deed: A formal agreement between parties, recorded in public records.

2. Long-Term Use: Acquired through easement by prescription.

3. Necessity: Created when a property is landlocked.

Termination of Easements

1. Abandonment: The easement is no longer used.

2. Purpose No Longer Exists: The easement's original purpose is no longer relevant.

3. Merger of Properties: The dominant and servient tenements merge.

4. Dominant Tenement Release: The dominant tenement releases rights via a quitclaim deed.

License

A license is permission for use and does not encumber title (e.g., permission to drive a car or ballgame tickets). The permission can be withdrawn.

Encroachment

An encroachment is trespassing, where an improvement extends across a property line (e.g., a fence on someone else's property, tree limbs hanging over). Encroachments can lead to easements by prescription if the use is continuous, open, and notorious over time.

If there is an encroachment, the owner who is encroached upon should take steps to stop it to avoid marketability issues.

A survey can reveal encroachments. A stake survey, which marks corners with stakes, is the best for checking encroachments.

Water Rights

Riparian Rights

Riparian rights apply to property owners next to a flowing waterway (river or stream). Riparian owners have reasonable usage of the waterway. If the waterway is non-navigable, owners own underneath to the middle of the waterway.

Reliction

Reliction is when a river dries up and exposes new land, the owner gets to use that land.

Water Table

The water table is the level at which water is found underground. It affects the construction of septic systems, where a percolation test determines soil drainage, which then determines how the septic system is to be constructed.

Environmental Issues

• CERCLA (Comprehensive Environmental Response Compensation and Liability Act): A federal law prohibiting hazardous waste dumping, enforced by the EPA (Environmental Protection Agency).

• Lead-Based Paint: Disclosure is required for residential properties built before 1978. Agents must keep records for three years. Lead-based paint can cause health issues if it becomes friable or airborne.

• Asbestos: Used in the past as an insulating material, it is cancer-causing and must be disclosed. Encapsulation is the best way to deal with asbestos insulation.

• FEMA (Federal Emergency Management Agency): Oversees flood-prone areas. Flood insurance is required for financed properties in these areas.

• Radon Gas: A radioactive gas that can cause cancer.

• Mold: A health problem in humid or wet areas.

• Brownfield: An abandoned commercial property suspected of containing toxic waste.

• Clean Water Act: Enforced by the EPA to regulate water quality and prevent pollution.

• Strict Liability: Current and previous owners may be liable for environmental issues on a property.

Multiple Owner Properties

Cooperative

A cooperative property is owned in severalty. Tenants cooperate, pool their money, and collectively buy the apartment complex.

• There is one deed to the property.

• Members own stock in the cooperative.

• Stockholders receive a proprietary lease.

• Rental payments are made to the cooperative.

• The cooperative pays the mortgage and taxes. A pro rata share can be channeled through to the members for tax benefits.

• A downside is that all could lose if foreclosed upon.

Condominium

A condominium is where a person owns fee simple title to their unit.

• Unit owners pay their own mortgage, taxes, and insurance on their unit.

• Common areas (e.g., swimming pool, hallways, parking lot) are owned as tenants in common which means when a person dies their rights in that property will go to their heirs.

• Unit owners pay homeowners association dues for upkeep and maintenance.

• A master deed or declaration creates the condominium complex under state laws.

• Bylaws and charters list rules and regulations for unit owners.

Timeshares

With a timeshare, one acquires fee simple title to the use of a unit for a certain time period each year. For example, the person can own one week a year in a unit in a condominium in Florida right next to the ocean, while the other fifty one weeks, somebody else owns a right to that unit.

Transfer of Property by Voluntary Alienation

Voluntary alienation means a voluntary transfer of property, such as selling a house.

• A seller transfers title through a deed.

• Grantor: The giver of the real estate (seller).

• Grantee: The receiver of the real property (buyer).

Types of Deeds

1. General Warranty Deed: The most common deed, providing the best protection for the buyer. The seller makes five promises:

   • Covenant of Seisin: The seller owns the property and can sell it.

   • Promise of Quiet Enjoyment: No third-party claims against the property.

   • Against Encumbrances: No hidden encumbrances (liens, deed restrictions, easements). If there is an easement across the property, the seller has disclosed that to the buyer.

   • Further Assurance: The seller will provide future documents if needed to prove ownership.

   • Warranty Forever: A money-back guarantee if the buyer loses the property due to faulty title. If a title company has to pay off on a claim, the title company would like to recover their money from the seller or the seller's title insurance company who had it previously insured.

2. Special Warranty Deed: The seller promises that there have been no problems since the seller has owned it.

3. Bargain and Sale Deed: The seller promises ownership (covenant of seisin) which is ownership to the buyer and that's it.

4. Quitclaim Deed: The seller makes no promises whatsoever to the buyer. Used to quiet a cloud on the title or to correct a misspelled name. These type of deeds do not require any type of court action.

Correcting a Cloudy Title

A quitclaim deed can be used as a correction deed.

The difference in all these four types of deeds is simply in the seller's promises.

Requirements for a Valid Deed

Eight items must be present for a deed to be valid:

1. Grantor: Must be of legal age and sound mind.

2. Grantee: Must be clearly identified but does not have to be of legal age or sound mind.

3. Consideration: Something of value (typically money).

4. Granting Clause: Proper words of conveyance (e.g., "I hereby convey and warrant"). It contains just the words to have and to hold, just like in a marriage ceremony. So the entire granting clause would be as follows. The seller would say to the buyer, I hereby convey and warrant the property to you to have and to hold from this time forward the property at such and such address.

   • Habendum Clause: Contains the words "to have and to hold."

5. Property Description: A legal description.

6. Exceptions and Reservations Clause: Lists all encumbrances (liens, deed restrictions, easements) that the buyer will honor.

7. Signatures of Grantors: Only the grantor signs the deed. Normally it takes one to buy, but it takes two or all owners to sell and sign that deed.

8. Delivery and Acceptance: Title passes when the deed is delivered and accepted, which occurs at closing. It is not the recording of the deed that transfers the title. Possession of the property will also be granted at closing unless stated otherwise.

Recording Documents

Documents are recorded at the county courthouse. Recording is not necessary for the deed to be valid but it is important for enforceability in court. It is still a valid document only between the two parties to the transaction that is the buyer and the seller. The reason that documents like deeds should be recorded on the public record is to establish priority.

Recording establishes priority (e.g., first mortgage, second mortgage). The person who's most interested in getting the deed recorded would be the buyer or the grantee to establish that I am first in line

Even with recording establishing priority, real estate taxes always take priority. Recording on the public record provides constructive notice. Before a deed can be recorded, it must be notarized. The seller's signature on the deed has to be witnessed by a notary public acknowledging that it's a voluntary act and they are the correct person.

Transfer of Property Through a Will

If a person dies, the property transfers through the will.

• To have a valid will, the person must be of legal age and sound mind.

• Testate: Dying with a valid will.

• Intestate: Dying without a valid will.

• Testator: The deceased person who made the will.

• Devise: The transfer of real estate through a will.

• Devisee: The receiver of real estate through the will.

• Bequest: The transfer of personal property through a will.

• Executor: A person named in the will to carry it out. When the executor transfers property over to the heirs, the deed used is an executor's deed.

  • Life Estate: Is noninheritable.

  • Fee Estate: Owners can pass it on to their heirs.

Transfer of Property by Involuntary Alienation

Involuntary alienation means against one's will.

• Descent: Property passes according to descent when a person dies intestate. A probate judge will determine the distribution to the relatives. The court will appoint an administrator to oversee the distribution.

• Adverse Possession: Gaining title by using someone else's property over a certain time frame. Possesion is 9/10ths of the law.

  • Requirements:

    • Continuous use

    • Open use

    • Notorious use (hostile to the owner and without permission)

    • Exclusive use

• Tax Deed or Sheriff's Deed: Done through a court order due to non-payment of real estate taxes or the mortgage. It transfers property to the buyer at a foreclosure sale.

• Transfer by Water or Wind: Erosion is a gradual wearing away of soil where the owner loses title to the land that has been eroded away. Accretion is a gradual buildup of soil, and the person gains title to the land that is built up on the property. Reliction occurs when the river recedes or dries up, and the new land exposed is exposed due to what it is called relection. Avulsion is a sudden transfer (e.g., a river changing course after a flood). Boundary lines do not change with an avulsion because of the suddenness of the change.

• Transfer by the Courts: Cloud on the title makes the title unmarketable. To remove a cloud:

  • One way is through a quit claim deed.

    • Use a quitclaim deed or file a quiet title suit (court action to remove a cloudy title).

Seller's Proof of Ownership

A seller can prove ownership through:

• Abstract: A written history of the property. An abstract will not guarantee clear title.

• Title Insurance Policy: Insures a person's title in case of faulty title.

  • Standard Policy: Covers forged documents, undisclosed heirs, etc.

  • Extended Policy: Covers extra things such as unrecorded liens. New construction is a prime example of where a buyer might want to consider purchasing an extended policy.

  • Schedule of Exceptions: Things not covered in the policy (e.g., zoning restrictions).

The premium is paid one time at closing. The owner's policy covers the buyer, whereas the mortgagee's policy covers the lender.

Subrogation

Once again, a buyer signs over their rights in a claim or a judgment to the title company in return for the money.