Encroachments onto a neighbor's property - A question of marketability of title

At Federal Title, we order location surveys for all purchases except for condominiums and cooperatives. When the survey is received, it is reviewed to determine whether there are any potential issues. If a potential issue is identified, that issue is communicated to the purchaser and his or her agent. 

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.

Agents can define 'settlement costs' in sales contract to protect clients

A closing at Federal Title last week resulted in a dispute between the buyer and seller over the definition of "settlement costs" that could have been avoided had the GCAAR Regional Sales Contract better defined the term.

I'll get to the language in just a moment real estate agents, but first let me tell you what the dispute was all about so your clients can avoid a similar situation at the settlement table.

In this case the seller had agreed to give the buyer a credit of $20,000 toward the buyer's settlement costs as per the GCAAR Addendum of Clauses paragraph #1. The contract provision read as follows:

"In addition to any other amount(s) the Seller has agreed to pay under other provisions of this Contract, the Seller shall credit the Buyer at the time of Settlement with the sum of $20,000 toward Purchaser’s settlement costs. It is the Buyer’s responsibility to confirm with his Lender, if applicable, that the entire credit provided for herein may be utilized. If Lender prohibits the Seller from payment of any portion of this credit, then said credit shall be reduced to the amount allowed by Lender."

Specifically, the 6-month Montgomery County, MD tax bill of $3,700 was itemized as a charge to the buyer on the HUD-1 Settlement Statement. This tax bill was required to be collected and paid at the time of closing as a requirement for recording the deed with the Montgomery County, MD clerk’s office. Further, this tax bill covered future taxes to the benefit of the buyer, covering the tax period of January 1-June 30, 2013.

In most cases, a lender will not allow any prepaid items (i.e., taxes, escrows, etc.) to be counted as settlement costs against the seller credit. However, in this case the lender allowed all settlement costs, including prepaid items, to be counted against the seller credit.

The seller argued that the $3,700 tax bill was not a "settlement cost" and thus, the credit should be reduced to $16,300. The buyer, on the other hand, argued that all items appearing on the HUD-1 Settlement Statement should be defined as "settlement costs" and that definition should include the prepaid taxes in this case since the payment of the taxes was a condition of closing – the taxes had to be collected by Federal Title and paid to Montgomery County, MD clerk’s office in order to record the deed.

Since "settlement costs" are not defined in the GCAAR Regional Sales Contract, the parties languished for a good length of time over the meaning and whether prepaid taxes should count against the seller credit.

How can real estate agents protect their homebuyers?

Agents would be well-advised in representing their client’s best interest to add their own definition of the term "settlement costs" to the GCAAR Regional Sales Contract. For example, if you are acting as a buyer agent where a seller credit exists, I would recommend adding an addendum or additional provision to the contract that reads:

"The parties understand and agree that "settlement costs," as the term is used throughout this entire contract of sale, shall mean all charges itemized and charged to the buyer on the HUD-1 Settlement Statement, including, but not limited to, prepaid and pro-rated taxes, escrow reserves, and prepaid interest, and as allowed by the buyer’s lender."

Who owns the fence?

A boundary fence (also known as a division or partition fence) is that which runs along a property boundary line separating two lots or parcels and used by adjoining landowners.

While neither the District of Columbia nor Maryland have specific laws defining or regulating boundary fences, Virginia law (Va. Code Ann. §55-317) makes boundary fences an obligation of adjoining landowners.

Nonetheless, most properties in the Washington DC metro area have boundary fences.

When it comes to reviewing the location drawing (survey) at the real estate closing, the most common question I get from homebuyers is "Who owns it?"

The simple answer: She who uses it.

That is, the common law provides that, unless agreed otherwise, boundary line fences are owned by both property owners when both owners are using the fence. A fence built and used solely by the builder of the fence is owned by the builder of the fence and is not a boundary line fence at all. It only becomes a boundary line fence when both property owners use the fence.

So what does "use" of a fence mean? Well, here is where I could really make your head pop off if I were to present all the definitions of "use" as defined among and across the jurisprudential landscape. I’ll save you the pain and give it to you in its most basic form.

If you as a landowner join, connect, or "hook-up" to a fence built on the boundary by your neighbor to create some form of enclosure to your property, you are said to be "using" this fence, and thus, it becomes a "boundary line fence."

As noted above, a boundary line fence is owned by both property owners and thus, you are now a co-owner of the fence. In this instance, with the exception of local regulations, you probably owe your neighbor some money but we’ll save this discussion for later.

In most instances, adjoining landowners take ownership to their respective properties with existing fences built and "used" by prior owners. In this case, the adjoining landowners are co-owners of the boundary line fence and share the duty of maintenance.

If you have questions beyond mere ownership of a fence, you can visit various government websites for more information on building and permitting, including the Maryland municipal codes, DC's Department of Consumer & Regulatory affairs permits page and the Virginia municipal codes.

Homeowners should follow 2 golden rules when it comes to tree law

While trees provide shade and beauty to our homes, they can also wreak havoc when not properly maintained or cared for. As a homeowner, it's important to understand your responsibilities when it comes to tree care and the law.

By following these two golden rules, homeowners can maintain harmony with their neighbors.

The Self-help Rule

The Self-Help Rule permits and prohibits the following acts of a property owner:

  • May cut or prune threatening tree limbs from a neighbor’s tree only up to and vertical to the boundary line
  • Without permission, may not enter neighbor’s property to cut or prune unless the limbs threaten to cause imminent or grave harm
  • May not cut or prune the tree to the extent the act may injure the tree (i.e., kill or alter its aesthetic appearance)
  • May not cut down the tree itself

The Duty of Care vs. Act of God Rule

A tree owner may be liable for the damages caused to his neighbor’s property if the fallen tree limbs could have been reasonably anticipated and something one could protect against. That is, if the tree owner had knowledge, either by self-observance or prior notice by the damaged neighbor, of rot or decay of the tree, then the tree owner would have likely breached his Duty of Care.

A tree owner may not be liable for the damages caused to his neighbor’s property if the fallen tree limbs were caused by a heavy wind storm. That is, if the tree was healthy, then it would most likely be considered an Act of God and the tree owner would not be liable for damages.

Homeowner's guide to surface water law

What if you are suffering flooding and damage to your property from water running off from your neighbor’s property? Is your neighbor liable? Must your neighbor take action to avert the water runoff?

In the District of Columbia, the neighbor is most likely not liable. This is because the District of Columbia follows a modified version of the "Common Enemy" rule.

The Common Enemy rule holds that excessive rainwater is a "common enemy" impacting property at random and you are expected to take measures to protect your own property from coursing water; even if the higher ground neighbor diverted water to prevent flooding and deposited the water onto your land.

The modified version of this rule recognized in the District of Columbia provides an exception such that your neighbor may repel or deflect water to prevent flooding on his own property only to the extent that the deflection is of ordinary use. That is, your neighbor may not deflect or divert the water with the use of drainage piping, ditches, man-made channels, or extraordinary construction.

However, in the case of "extraordinary construction," a DC appellate court (see Ballard v. Ace Wrecking Company, 289 A.2d 888 (D.C. Ct. App. 1972)) ruled against the flood-damaged neighbor after the neighboring property improvements had been demolished and graded. The court stated that because the work was not unusual or extraordinary, the neighbor could not be held liable.

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