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Why do I need a property survey?

Why do I need a property survey?

Anthony Palumbo lawyer litigation expert

Anthony Palumbo, Esq. apalumbo@mvpclaw.com

One of the most frequent questions I receive from many of my clients who are purchasing a home is, “Why do I need a survey of my property?” Whether it is a first-time homebuyer or not, this question has become more and more common. The reasons why I hear this question asked frequently are usually the same. The mortgage lender does not require a survey for the closing, the buyer wants to avoid the cost for a new survey, and the cost and delays that might arise waiting for the survey to be completed. Despite these reasons, a homebuyer should get a survey done prior to making any purchase of real estate.

What is a Survey?

The process of surveying real property has been around for thousands of years and has been the cornerstone for identifying who owned what parcel of land. Simply put, a survey is defined as a map or plan of a property with detailed descriptions and measurements of the boundaries and any improvements, and restrictions that are contained within those boundaries.

If you are buying a property, the survey company will research the property and prepare a survey map which will show the boundary lines around your home and parcel of land and any improvements on the property and their dimensions and locations, such as: buildings, patios, pools, garages, and driveways. Because most improvements are required to be located a certain distance from other improvements and property lines and filed plans; permits and certificates of occupancy usually limit the size of the improvements. The information contained in a survey is vital for a buyer to determine the legality of such improvements. A survey will also display whether or not any of your improvements might encroach upon your neighbor’s property that may cause legal disputes, and the existence of any easements over said property. Basically, a survey will reveal if the legal description of the parcel of land correctly matches the outline of your property.

If you are selling a property you may have to provide the buyer with an up-to-date survey of your property. This can help provide the buyer confidence in their purchase, verify the size and expanse of their new property, and help avoid later legal snafus that can arise from an inaccurate property description.

So, the answer to the question “Why do I need a survey?” is a resounding YES. A survey is fundamental to the ownership of property. However, as previously mentioned, a client might claim the following reasons for not needing a survey:

“The mortgage lender does not require a survey.”

About twenty years ago, most lenders required that the borrower/ buyer had a survey that was updated within the last ten years, but since then that requirement has waned. Title insurance companies still insure lender’s mortgage priority and other interests, while accepting or excluding the need for the survey. However, that exception to the policy while protecting the lender’s interest doesn’t protect the homebuyer’s interest. Although the lender might not require a survey before closing on the property, if there are any boundary line disputes or issues with the legality of any improvements on the property, they are the buyer’s responsibility. Regardless, if any of these issues exist your mortgage payment will still be due and you also might have a problem selling the property in the future.

“I do not want to spend the money on a new survey.”

The cost for a survey is relative and the purchase of a home is usually one of the biggest investments of a lifetime. The cost of a survey preparation is relatively low in comparison to the issues that can arise when making the investment without a survey.

The average cost of a new survey for most homes in New York and New Jersey is approximately $800.00 to $1,200.00 in 2018. The cost of a survey varies depending on the lot size, detail of the survey, and other factors.

A homebuyer has the option to price and order his own survey. Most attorneys are not going to have the time to make a cost analysis of local surveyors. Typically, a law firm will have two to three local surveyor companies that they recommend working with, or an attorney might just rely on the title company to choose the surveyor. However, a homebuyer has the ability to easily shop for these services online. Keep in mind, as can be with all professionals, especially when looking for services on the Internet, not all surveyors are the same. The homebuyer should at the very least, consider your attorney’s recommendation for a surveyor.

If a homebuyer decides to order his own survey then they should advise their attorney at the beginning of the process to avoid duplicating the buyer’s costs.

“Getting a survey might delay my closing and that delay might cost me additional money.”

Most attorneys do not order a survey until the buyer has a Mortgage Commitment Letter and the title is “clear”. The reason for this is that the cost of survey preparation is not contingent upon anything but the work performed. So, regardless if the buyer actually closes or not, they are still responsible to pay the surveyor for work performed. In order to prevent buyers paying for surveys on homes they do not purchase, attorneys only order the survey when the closing is imminent, the title is clear, and the lender has committed to finance the purchase. Some attorneys collect the survey cost upfront from the buyer and explain to their clients that the cost of the survey may be forfeited in the event that the transaction does not close for a variety of reasons. Note, this can be the same as appraisal fees and inspection costs, and considered as part of the homebuyer’s “due diligence” cost. Other attorneys completely put the
onus on their client to order and pay for their own survey prior to closing.

So if the attorney is waiting for the title to be clear and the lender to issue a commitment letter before ordering a survey, then logic dictates that the survey preparation might delay a closing date. Such a delay might cause the buyer to incur additional costs (e.g. interest rate lock extension fees). Such a delay should typically take two weeks-time, and as the survey is so important to home ownership, the delay and any costs related to it should be considered; but should not be subordinate to getting a survey.

In conclusion, although mortgage lenders, realtors, and loan officers might be advising that a buyer does not need a survey to proceed to closing, attorneys will always advise that a buyer to get the survey regardless of cost, delay, or mortgage company. It is an important component in a homebuyer’s due diligence and when you make such a sizeable investment, the cost or delay is negligible when compared to the benefits a survey provides a landowner.

If you have any questions for Anthony Palumbo, Esq. or the Menicucci Villa PLLC team about the legality of land and home surveys, or purchasing or selling a home in New York, call 718-667-9090 today!

Pitfalls in failing to structure your investment property in an LLC

In commencing a new development project, novice investors will often question the need to place title to their investment property in a corporate entity such as a Limited Liability Corporation (LLC), as opposed to owning the property personally. When advised that corporate ownership could avoid personal liability, the question is often asked: “If I have property insurance, won’t that cover all liability?” Here is a brief discussion as to why investors/developers should protect their investment property by placing it in an LLC or other corporate entity:

One major benefit of corporate ownership of investment property is the avoidance of personal liability. From the moment that a deed transfers legal title, the purchaser may be held legally liable for any claim which occurs thereafter with respect to property – even immediately thereafter. A claim, for example, for negligence or personal injury, can arise at any time – even hours or minutes after property legally changes hand. These claims, if valid, could subject the new property owner to an indeterminate amount of money in damages. Owning the property in a duly formed, proper corporate entity will shield the individual investor/ owner’s assets from liability or seizure resulting from a successful lawsuit, and instead may effectively limit liability to the value of the property, and protect any other separately owned property or assets. Many investors who own several properties will in fact form a new corporate entity for each property they own, so liability on one property cannot extend to other properties, which could occur if the properties were owned by the same entity.

Further, in advance of a purchase of property, an investor should always take steps to ensure that there are no gaps in insurance coverage – in other words, there is no period of time when the seller’s insurance has been terminated, and the investor’s insurance has not yet begun – leaving the property uninsured against loss and liability. Even once insurance is in place, there are typically numerous exclusions in a standard insurance policy, which will not provide coverage for certain events. Some of these exclusions include gross negligence, flood damage, lack of certain kinds of maintenance (e.g., snow removal). In addition, should the subject property be insured, it’s important to note that any recovery in excess of the insurance cap will be the responsibility of the property owner.

For example, an individual seeks monetary damages for a personal injury accident in the amount of $1,500,000.00. If the property owner’s policy covers damages only up to $1,000,000.00, then the property owner will be open to liability for the additional $500,000.00. If the property was owned by a corporate entity – not an individual – then under most circumstances, the entity – and not the individual investor – would be subject to this liability. Thus, it is also important for an investor to make sure that his or her entity is property insured in a sufficient amount to protect the investment property.

If there is more than one investor in a property, using a corporate entity has the additional advantage of using an Operating Agreement, or other corporate governance document, to set the parameters for how the property will be utilized, protected, and sold. For example, if two individuals own a property together, and one wishes to sell, and the other not, the only remedy is expensive litigation by way of a “partition action”. An operating agreement can provide that a property be sold pursuant to a vote of a certain number of ownership interest, avoiding costly litigation. There may also be tax and financial benefits to purchasing or owning an investment property under a corporate entity.

While there are costs to form an LLC or other corporate entity, for the purpose of purchasing real property, the benefits often far outweigh these costs. Simply stated, it’s important not to be penny wise, pound foolish when engaging in investment property ownership. Ownership in a corporate entity, while having minor upfront costs, can help avoid substantial, and expensive, future headaches.

If you have any questions for the Menicucci Villa PLLC team about setting up a Limited Liability Company for your real estate investments in New York call 718-667-9090 today!