Top 8 Mistakes That Lead to Disputes in Real Estate Transactions and How to Avoid Them

Real estate transactions are complex and can often involve disputes. Although many can be resolved through negotiation, some lead to litigation. Understanding why disputes arise and taking preventive steps is imperative when the stakes are high. By working with an experienced real estate attorney from the outset, you can help avoid these types of disputes and costly litigation.

Notably, when parties have disputes in a real estate transaction, they most often have made the following mistakes:

1. Buyers and sellers did not work with an experienced real estate attorney to ensure that they clearly understood the terms and conditions of a Sales Contract or Purchase Agreement and that the terms and conditions were legally enforceable.

Disputes involving real estate contracts and agreements are some of the most frequent issues in real estate transactions that lead to litigation. When deciding to purchase or sell a house, it is always advisable to have an attorney draft the sales contract and review it with you so you fully understand the terms of the document. This can also ensure that the document complies with the law and custom in your area.

Also, it’s important to be aware that real estate documents typically contain legalese and “boilerplate” language that may not be clear to the average buyer or seller. Most real estate forms used by real estate agents and title companies advise that an attorney should review the sales contract or purchase agreement before signing or, at the very least, provide a time period contingency for attorney review and approval after signing.

Disputes in sales contracts can be avoided by having an experienced attorney review the document before it becomes legally binding.

2. The seller of real estate did not provide a prospective buyer with a properly completed Seller’s Disclosure Statement and Lead Based Disclosure Statement before a sales contract/purchase agreement was signed by all parties.

Michigan and Federal law require that a seller of residential property must provide written disclosures about the condition of property they are intending to sell. Under Michigan’s Seller Disclosure Act (MCL 565.951 et seq.), a seller must provide a signed Seller’s Disclosure Statement to a prospective buyer. A seller’s failure to fully and accurately complete the disclosure statement can have serious consequences, including cancellation of the sale or legal claims brought against the seller after completion of the sale.

It should also be noted that for homes built before 1978, the federal government requires that a seller must also provide a buyer with a Lead Based Paint Disclosure form regarding the presence of possible lead-based paint hazards in the property. After closing, if the buyer discovers that the Disclosure Statements were not properly completed or contained material errors, omissions, or inaccuracies about the condition of the property that were known or hidden by the seller, the buyer may have a civil cause of action against the seller for fraud and misrepresentation.

3. The buyer did not obtain an attorney’s approval of the owner’s policy of title insurance for the property.

An attorney approved owner’s policy of title insurance is a critical requirement for every purchase of real estate. Consequently, an attorney review of the policy should be included as a condition in the sales contract. The initial title insurance policy commitment, which a title company usually provides a week or two following the approval of a sales contract, is a description of the title insurance coverage provided to a buyer. It also includes important information about mortgages, liens, easements, building and use restrictions, condominium and homeowners’ associations, taxes, and other matters that apply to the property.

As a buyer, you should have a clear understanding of the owner’s title policy commitment along with any recorded documents relating to the property that will affect your ownership and use of the property. As a seller, a title insurance policy commitment will show that you are disclosing all recorded information to the buyer about restrictions and other matters affecting title to the property. In addition, it will show all the requirements for issuing the title insurance policy.

With the help of an attorney, a title policy can be issued that will protect a buyer from claims of easements not shown by the public records, encroachments, boundary line disputes, and construction liens that are recorded on the property after closing. A real estate attorney can interpret the title insurance policy commitment and ensure not only that a buyer understands the policy and its coverage but also that the requirements for issuing the policy are complied with.

4. The purchaser did not follow up with additional inspections of the property after an initial general inspection.

Most all sales contracts include a contingency for a standard home inspection covering issues relating to the general construction of the home along with the mechanical, electrical and plumbing systems. However, there may be other issues to address in a residential property, particularly if it is an older home. Depending on the circumstances, additional inspections may be needed for radon, mold, asbestos and the condition of the sewer line. For example, many homes constructed in the 1950s through the early ‘70s in Ann Arbor had Orangeburg tile for sewer lines which have deteriorated over time. If a home is suspected of having Orangeburg tile, the sewer line should always be inspected. Likewise, if there is evidence of water damage additional tests may be required for mold and air quality.

5. The buyer failed to obtain a survey to verify the boundaries of a property and determine if there were any encroachments on the property or boundary issues.

Although a survey is not required with a home purchase, it is a good idea for a buyer to obtain one, especially if there are no clearly defined boundary lines. A survey can also be useful when there are fences, driveways, or structures on or near boundary lines. A survey will show if others have the right to use your property for access, parking and utilities.

A survey may be the only way to tell if a third party has a claim to part of the property because of improvements, such as a garage, fence, or swimming pool, that are on the property. It is important to note that instead of an expensive stake survey, a relatively inexpensive mortgage survey, sometimes referred to as a mortgage report, will provide a good indication where the boundaries are in relation to the structures on the property and if there are any encroachments from adjoining properties or issues with building setback restrictions.

6. The purchaser of a property in a condominium or Homeowner’s Association failed to work with an experienced real estate attorney to ensure that they clearly understood the master deed, bylaws, restrictions and financials of the association.

Condominium and homeowners' associations have rules and restrictions to comply with that impact a person’s ownership of the property. A prospective purchaser should work with an experienced real estate attorney to fully understand the governing documents of the association and ensure that they can agree to the rules and restrictions as part of their ownership of the property.

Many associations have restrictions for pets, parking, maintenance, repairs, fences and other matters that are related to home ownership. A prospective buyer of a condominium or a property in a home owners association should not assume that they will be able to move into their home with unrestricted ownership, particularly if they have pets or want to erect a fence or build an out building on the property. An attorney review of all documents associated with the association should be a contingency in a sales contract. Those documents should include the master deed, bylaws, minutes from the most recent annual meeting, current financial statement that shows the current funds held in reserve, annual budget and disclosure of all fees that are due for payment to the association at the time of sale.

Talk With an Experienced Ann Arbor Real Estate Attorney

Bill Ager at Ager Law Office assists both buyers and sellers with real estate transactions. For a reasonable flat fee, he assists clients through the process from start to finish, including preparation and review of the documents and forms required by law. He also assists clients with both for sale by owner (FSBO) transactions and transactions with real estate agents.

From his Ann Arbor office, Bill serves clients throughout Washtenaw County. For a free consultation call (734) 649-0784, send an email to bill@agerlawoffice.com, or contact us online.