Encroachments onto a neighbor's property - A question of marketability of title
One of the issues that we look for is whether there are any encroachments of improvements either onto the subject real property or onto the neighbor’s real property – i.e., things that are over the property lines.
Let’s take an example of a property in Maryland under contract to be sold where the improvements consist of a house with a front porch, a brick patio on the right side, and an asphalt driveway on the left side. And let’s say that the survey that comes back after the parties are under contract (but prior to settlement) shows that the entire patio is located on the right-side neighbor’s land, and a portion of the driveway is located on the left-side neighbor’s land. What are the rights and remedies of the buyer and seller under the contract?
This discussion will focus on situations where the neighbors are private parties, not municipalities. And let’s assume that the neighbors have not granted easements for the encroachments and that the encroachments have not existed long enough to raise the possibility that the seller has acquired the encroached-upon property by adverse possession, which, in Maryland, is 20 years.
Paragraph 16 of the GCAAR regional contract provides: “Title is to be good and marketable, and insurable by a licensed title insurance company with no additional risk premium. Title may be subject to commonly acceptable easements, covenants, conditions and restrictions of record, if any; otherwise, Purchaser may declare this Contract void, unless the defects are of such character that they may be remedied within 30 Days beyond the Settlement Date.” (Emphasis added.)
From a title company perspective, the main question when an encroachment issue arises is whether the title is uninsurable. In most cases, even where there are encroachment issues, the title is insurable, including in the above hypothetical. As is customary, the final owner’s title insurance policy would take exception the two encroachments.
From the buyer and seller’s perspective, the main question in evaluating an encroachment issue is whether the title is rendered unmarketable by the encroachment. Under the GCAAR contract, if the title is not marketable, the buyer has the right to declare the contract void unless the seller can remedy the defects within 30 days of settlement.
Whether title to a property is marketable is a question of law for the court, and Maryland, like other states, has a body of case law that analyzes this issue. The basic framework for determining whether title is marketable has been stated as follows:
A marketable title is a title free from encumbrances and any reasonable doubt as to its validity. No specific rule can be laid down as to what doubts will be sufficient to make a title unmarketable. The general rule is that that the purchaser is entitled to a deed which will enable him to hold the land in peace and, if he wishes to sell it, to be reasonably certain that no flaw will appear to disturb its market value. However, a title, in order to be marketable, need not be free from every conceivable technical criticism. It is not every possibility of defect or even threat of suit that will be sufficient to make a title unmarketable. Objections based on frivolous and captious niceties are not sufficient. In other words, a marketable title is one which a reasonable purchaser, who is well informed as to the facts and their legal bearings, and ready and willing to perform his contract, would be willing to accept in the exercise of that prudence which business men ordinarily use in such transactions. Zulver Realty Co. v. Snyder, 191 Md. 374, 384, 62 A. 2d 276, 280-81 (1948).
There are several Maryland cases that look at marketability specifically in the context of encroachments of improvements onto a neighbor’s property. There is no per se rule that such an encroachment makes title unmarketable. Instead, each case is decided on its own particular set of facts.
In Azat v. Farruggio, a building encroached onto an adjacent lot by a depth of two and a half feet, for a length of fifty-five feet. 162 Md. App. 539, 875 A.2d 778 (1995). There the trial court concluded that the title was unmarketable, considering a number of factors, such as the fact that the adjacent landowner was demanding $15,000 to grant a temporary easement for the encroachment.
Another case where the title was found to be unmarketable due to an encroachment was Klavens v. Siegel, 256 Md. 476, 260 A.2d 637 (1970). In that case a driveway encroached on an adjoining lot. The encroachment was 4.9 feet wide at one end; extended for a length of 28 feet; and gradually narrowed in width. After a trial, the jury concluded that the encroachment rendered the title unmarketable.
Because of a procedural issue, the court was unable to review the jury’s verdict, but the court noted that there was evidence from which the jury probably found that the driveway was the only means of vehicular access to the house and that if the neighbor had denied the use of the encroaching part of the driveway, the remaining driveway width would have been too narrow for the purchaser’s cars.
On the other hand, consider the case of Senick v. Lucas, where the issue was that several inches of an inexpensive tool shed encroached onto a neighbor’s property. In that case, the court held that the purchaser was not entitled to rescind the contract based on the tool shed’s encroachment, but that he was entitled to an abatement of the purchase price in the amount of the value of that portion of the tool shed used as a tool shed. 234 Md. 373, 381, 1999 A.2d 375 (1964). The court looked at the value of the tool shed at issue compared with value of the entire property and the fact that the tool shed was still usable even after the seller had taken matters into his own hands and resolved the encroachment by having the offending portion sawed off.
However, it is important to note that in this case, the court was not analyzing marketability of title, because there was no provision in the sale contract such as that contained in paragraph 16 of the GCAAR contract. The court was instead analyzing the general contract law principle of whether the partial failure to comply with the terms of the contract defeated the object of the contract so as to entitle the purchaser to rescind the contract.
Going back to our hypothetical situation, it seems to me that a purchaser would be able to reasonably argue that the title was unmarketable based upon the encroachments and resulting risk of potential litigation with the neighbors and/or forced removal of the improvements. He or she would therefore be able to void the contract or possibly negotiate with the seller to get a reduction in the purchase price of the property.