Legal Issues

 

When you buy a home or piece of land you are buying not only a physical entity but a legal entity. Almost universally, you buy into a set of restrictions on the use of the property that emanate from both governmental and nongovernmental sources. You also buy into a set of obligations to other parties such as the obligation to pay taxes, road maintenance fees, or home owner association fees.

One of the empowering aspects of owning your own home is that you no longer have to ask the landlord whether you can paint the interior, use a barbecue grill on the back porch or put a hammock on the balcony. For many first time buyers, the concept that you can do what you want with property that you own is deeply ingrained. However, while you generally do have much more control as an owner, there may be many restrictions on your use of the property, depending both on the property and on legal jurisdiction. Most such restrictions stem from subdivision covenants, local ordinances and zoning regulations, and state statutes and regulatory practices.

Even more problematic for many home owners than these limitations on your rights to use your property is the fact that other people often have limited rights to use the property that you are buying.

Subdivision Covenants

Subdivision covenants are probably the easiest limitation on the owner’s use rights for a potential home buyer to evaluate. Most subdivisions or condominium complexes developed since World War II have some form of restrictive use covenants. These are a set of agreements recorded with the county that govern the owners’ use of the properties within the subdivision. Most condominium and town home complexes, and some subdivisions of single family homes that have home owner associations, have unrecorded rules and regulations in addition to the recorded covenants.  Generally, these covenants and rules are enforceable either by an association or by other owners within the subdivision. In older subdivisions, restrictions will generally be relatively limited. They may forbid using the property for commercial purposes or for mining and livestock grazing. In newer subdivisions, however, covenants may forbid parking your RVs in the driveway, place limits on the type and location of fencing you can install, or specify the color that you can paint your house. Recorded covenants should be listed in the “schedule of  exceptions” in the title commitment (see the discussion of title insurance in our section Under Contract).The home buyer needs to carefully review these covenants, and any other rules and regulations that govern the subdivision, to make sure that they can live within them. You also need to confirm that existing decks or fences don’t already violate the restrictions the covenants have placed on the property.

Zoning

Reviewing local zoning regulations is also comparatively easy. Visit to the local planning or zoning office to find out what the zoning is for the property that you’re interested in and get a copy of the use restrictions that govern that zoning type. Zoning regulations are most likely to become a major issue in your property search if you have a special use in mind, if you want to board dogs or run a commercial greenhouse of example. However, residential zoning restrictions can put limitations on other types of home businesses or on renting out rooms. If you plan anything other than simply living in the home with your family, you should probably take a good look at zoning regulations.  And if you don’t want to be located in an area where your neighbor can open a commercial dog kennel, you better make sure the right restrictions are in  place.

Statutes and Regulatory Practices

The trickiest restrictions on property usage emanate from more general city, county and state regulations.  They are tricky precisely because they are more general, because they are not  “attached” to the specific property that you are looking at. As a consequence, you will probably receive no specific notification of these  restrictions during the home buying process.

For example, many city and county ordinances restrict the number of dogs that a homeowner can have on a  residential property or the number of unrelated individuals who can share a  home. If you have five dogs or five good friends who will be moving in with you, there is no established process to notify you that you may be buying a problem. An example more specific to our market: State law in Colorado has long restricted subdividing land into parcels under 35 acres unless the landowner obtains the approval from the local governing jurisdiction, that is, the county or city in which the land is located. In Boulder County, that approval has generally been denied for the past 30 years. If you and your extended family move from Vermont and buy a large house on 69 acres, thinking that later you  will build three more houses on the property so that everyone can have their own place, you’ll be in for a shock when you discover that only one home can be built on the 69 acres. It’s too small to divide into two 35 acre parcels. Your only protection against these surprises is to review the specific plans you have for using a property with city and county planners, with local real estate attorneys, and/or with local real estate agents before you buy the property.

Obligations of Ownership

Not only are there restrictions on the use of virtually any property you buy, but by buying the property you will be assuming certain obligations. Real estate taxes are the most obvious of these. Home buyers are rarely surprised to learn that they are assuming an obligation to  pay property taxes when they buy real estate. There are provisions (Section 8.4) within the standard Colorado purchase contract that allow the home buyer to review tax issues.

For those buying condominiums or townhomes, the responsibility of association fees is equally obvious, though buyers of single family homes in newer subdivisions must also be aware that association fees are quite common. Similar obligations arise for home buyers in rural or mountain areas where a number of property owners may have established contractual agreements to build and maintain a shared resource, most commonly an access road or a well. Buyers need to be aware that the nice graveled road leading to their home may not be maintained by county taxes but by $1000 yearly assessments to the homeowners on the road. The title company should alert the  home buyer to any of these issues during the purchase process. The critical question is whether the buyers learns about their obligations while they still have time to back out of the contract.

Occasionally, buyers may encounter more substantial, hidden obligations associated with property they are purchasing. Several years ago, we found that a road easement passing through a  mountain property carried an obligation to contribute to the construction of a road that extended several miles beyond the property boundary. This created a potential financial obligation ranging anywhere from $10,000 to $50,000.  Nothing in the title search made this obvious. The language was buried on the 10th page of the description of an easement.

The other major source of  financial obligations that a home buyer could inadvertently assume through a property purchase involves liens. If the previous homeowner has failed to pay taxes, association dues, assessments from the homeowners association or the city, or bills for work that contractors have done on the home, liens can be  recorded against the property. Generally, existing liens will be discovered by the title company, which will require that they be paid before closing. But if  the title company makes a mistake, or if a contractor files a lien after closing, you may be held financially responsible. This is one reason we strongly recommend certain types of title insurance to our clients (see the discussion of title insurance in our section Under Contract).

Rights of Others

In most cases, other parties will have certain  limited use rights on any property that you purchase. For example, nearly every lot in residential subdivisions will have easements for utilities and may have drainage easements as well. An easement provides parties other than the property owner rights to use the property (usually a precisely specified portion of the property) for specific purposes. Utility easements give the city and other utility providers the right to use portions of each lot, often the 8-10 feet along the front and back lot lines, to run water, sewer, electric, gas, and cable lines through the property. These easements also allow utility providers access to the property for repair and replacement of their equipment, including  rights to remove landscaping or improvements that interfere with their access to the easement. Drainage easements prohibit the homeowner from installing  landscaping or building structures that interfere with ground water drainage through the subdivision.In rural and mountain areas, road easements, which allow adjoining property owners the right to build, maintain, and travel across your property, are very common.

There are few limits to the use rights that can be granted through easements. Several years ago, a client of ours granted the owner of the property he purchased the right to bury his late wife’s ashes in an aspen grove on his property. This easement included rights for the husband and the children to visit the site. Most easements are recorded, so you should learn about them by reviewing the “schedule of exceptions” in your title commitment (see the discussion of title insurance in our section Under Contract).

However, since easements do not have to be recorded to be legally binding, there is a clause (Section 8.2) in the standard Colorado purchase contract that requires the  seller to notify the buyer of unrecorded rights that might affect title.

Two other use rights that are a common part of our real estate practice involve leases and mineral rights. As a home buyer, it is important to understand that you take ownership of any property subject to existing leases on the property.  If you buy a home or condo that the owner has leased to another party, you are now a landlord under the terms of the existing lease. The standard contract requires (Section 8.2) that the seller disclose any existing leases to you. Also, because mining was such an important part of our history in this area, the mineral rights for much of the property in the area are owned by parties other than the person who owns the land or the home on the land. This is a particularly troubling issue for owners of rural and mountain properties with larger lots. Here, the ownership of mineral  rights may give mining or oil/gas companies the right to enter onto the  property, and to build access roads and other facilities, in order to exploit minerals on the property. Again, mineral rights that have been “severed” from the property should be listed in the “schedule of exceptions” in the title commitment (see the discussion of title insurance in our section Under Contract).  If someone else owns the mineral rights on your property, you  need to consult an expert to determine whether this has any real implications for you as owner of the property.