Title insurance question

Started by ScottF5 • 5 replies • 1026 views

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ScottF5 (Arizona)
Posts: 13

Posted:

When a previous homeowner violated the Governing docs by installing anything that is against a documented restriction, but the HOA didn't catch it, will the new buyer be faced with potential fines if not brought into compliance? It was asserted that the title insurance would cover these types of incidents whereby preventing the new owner from using their own funds. Does anybody have any info about this unfortunate assertion?

SheliaH (Indiana)
Posts: 6,964

Posted:

I believe title insurance kicks in when an issue arises as to whether the seller actually had clear title to the house and not CCR violations. CCRs run with the land, so whoever owns the property at the time is usually responsible for any improvements - or violations, in this case.

However....there are other questions that may turn this issue around or back again - what's the violation, how was it discovered, did the buyer ask the seller about this or any other violations before the house changed hands, and so on.

Since this can become an legal issue and we aren't attorneys, you really need to run this by an attorney, especially if you're the new owner. Perhaps there's a way you can take legal action against him or her for not disclosing this was a problem. Prior enforcement may also be an issue - if the HOA didn't enforce this before and only recently started to do so, should the new owner be caught up although it would seem his/her timing was off?

If you're on the board and trying to figure out what to do, run this by the association attorney. I'd also grill the new owner to find out what he/she knew and when (along with proof of the same). Depending on what this is and the association's prior enforcement, you'll have to decide if you're willing to enforce it and see what a judge does or come to a compromise - the owner can keep it, but he/she must get rid if it if the house is ever sold. Put that in writing and have the owner sign it as well. I'd also add language stating it's the owner's responsibility to discuss this information to potential buyers - this way, the association would be able to enforce the rule and the next buyer could go after the seller.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

FredS7 (Arizona)
Posts: 927

Posted:

I would start by carefully reading the "exceptions" part of the title policy.

DouglasK1 (Florida)
Posts: 2,046

Posted:

I don't know if this customary in AZ, but in my area the closing agent (often the title company) typically requests dues and violation status from the association prior to closing so it can be disclosed to the buyer. If this was requested and the association said there were no violations, then I think they'd be on shaky legal ground to claim an existing violation later. If the title company should have asked but didn't that could add more weight to the idea that the insurance should cover.

There is also t legal concept of laches, which asserts that a delay in making a claim can void the claim.

Beyond that I'm not sure about the question of what title insurance covers, but reading the policy would be a good start as they might not all be the same.

If the title insurer doesn't want to help, the owner might want to contact an attorney to discuss their options.

Escaped former treasurer and director of a self managed association.

AbdulS (South Carolina)
Posts: 6

Posted:

Quote:

Posted By SheliaH on 06/07/2018 8:41 AM
I believe title insurance kicks in when an issue arises as to whether the seller actually had clear title to the house and not CCR violations. CCRs run with the land, so whoever owns the property at the time is usually responsible for any improvements - or violations, in this case.

However....there are other questions that may turn this issue around or back again - what's the violation, how was it discovered, did the buyer ask the seller about this or any other violations before the house changed hands, and so on.

Since this can become a legal issue and we aren't attorneys, you really need to run this by an attorney, especially if you're the new owner. Perhaps there's a way you can take legal action against him or her for not disclosing this was a problem. Prior enforcement may also be an issue - if the HOA didn't enforce this before and only recently started to do so, should the new owner be caught up although it would seem his/her timing was off?

If you're on the board and trying to figure out what to do, run this by the association attorney. I'd also grill the new owner to find out what he/she knew and when (along with proof of the same). Depending on what this is and the association's prior enforcement, you'll have to decide if you're willing to enforce it and see what a judge does or come to a compromise - the owner can keep it, but he/she must get rid if it if the house is ever sold. Put that in writing and have the owner sign it as well. I'd also add language stating it's the owner's responsibility to discuss this information to potential buyers - this way, the association would be able to enforce the rule and the next buyer could go after the seller.

I was facing a similar issue and your brief reply help me a lot, thanks

JohnC46 (South Carolina)
Posts: 14,265

Posted:

As an earlier poster said, typically a new owner will get an Estoppel letter form the association stating there are no existing violations. If so, I say any discovered later are null and void.

It is not uncommon for there to be violation(s) which the potential new owner and the Association can make "arrangements/considerations" about how to handle.

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