Thinking about buying or selling real estate? The explanations of terms and definitions below will help you better understate some important aspect that you may come across when you are buying or selling a property.
TITLE: A title is a legal document listing the history of ownership of a property, whether a home, ranch, farm or land. After a property is under contract (the buyer and seller have reached mutual acceptance), an attorney or title company will provide a preliminary title report which will reveal any problems that might prevent the property from being legally sold. The results are written up for the buyer to review in a preliminary title report.
PRELIMINARY TITLE REPORT: The preliminary title report will indicate if anyone other than the seller has ownership or a legal claim on the property, as well as any liens, easements or encroachments on the property which could put a cloud on the title. Your real estate broker, attorney or the title company should be able to answer questions or provide information on your report.
DUE DILIGENCE: In nutshell, due diligence is doing your homework before making a purchase. When purchasing a ranch, it is essential that an in-depth investigation is done in order to ensure that you know exactly what you are purchasing. While this is true for any real estate transaction, it is extremely important when it comes to buying a ranch, farm or recreational tract of land. Whether it is an agricultural farm or ranch in Montana or Utah or a recreational hunting ranch in Wyoming, there are checklists and protocols that should be followed in order to cover all of your bases and eliminate surprises after the purchase. Although every property is different, there are several items that should not be overlooked. Some of this information can be found in the title commitment, however it is always good to double check to confirm that the information provided is correct. Other items will need to be research on your own, through your real estate broker or through an attorney.
LIEN: A lien, or encumbrance, is a legal claim of ownership listed on the title of a property. Upon obtaining a mortgage, your lender will have a lien on your property until your mortgage is paid off. A lien can be filed on a property by anyone, be it a utility company, a contractor, etc., that is owed money by a owner of a property. This lien could show up on a preliminary title report if you are in the process of buying a home, farm, ranch or land.
EASEMENT: An easement is a right to use or cross another person’s land for a specific purpose. Although this grants the legal right to use the property, the legal title to the land remains with the owner of the property. For example, a neighbor may be granted an easement to cross adjoining land to access the road. Although they can not build or plant on the land, they may be required to help maintain the road or easement land. Easements are also granted to utility companies for the placement of utility poles, water lines and sewer lines. Buyers should be aware that easements can restrict what the buyer is allowed to do with a property.
ENCROACHMENT: An encroachment happens when a neighbor builds on an adjoining property without permission or an easement. Upon occasion, especially on a farm or ranch, a fence line will be built on a neighboring property, often due to an incorrect survey or an owner not knowing exactly where a property boundary line is located. Buildings or roads can also encroach on a property. An encroachment should show up on a title report.