The general public does not seem to be aware that purchase, transfer, ownership and/or sale of real estate are often fraught with problems which are created by people taking legal shortcuts or failing to conduct due diligence, which means investigation and assessment into the quality and validity of the purchase, transfer, ownership and/or sale of real estate. As a result, many people find themselves in real estate situations which are confusing, expensive, and, often, regrettable. This doesn’t have to be the case if certain steps are taken. As the axiom goes — “an ounce of prevention is worth a pound of cure.”
The buyer alone bears responsibility for due diligence. So, buyer be beware of:
Purchase, Title or Transfer Issues:
Buyer Beware #1: Do NOT transfer title to a property into your name or into the name of an entity controlled by you without having an insured title search conducted by a reputable title company, and an insured title report provided to you as the prospective buyer. Liens and judgments, even in the names of prior owners, or even in incorrect names, can attach themselves to the property, and once the title has been transferred to a new buyer/owner, they become the obligation of the new owner. Any liens, judgments or issues which are attached to the property must be cleared prior to purchase of the property, and the method of payment and computation of amount due are at the discretion of the lienholder., If an agreement cannot be reached regarding liens, judgements or issues prior to purchase, settlement needs to be delayed until agreements are reached, or an action may be required in court to clear title. A court action in some counties must proceed through an entire trial, even if the matter is unopposed, which can cost thousands of dollars. If proper title insurance and clear title cannot be provided, if the next buyer/owner does seek a title report, title may often not be able to be legally transferred due to some prior legal problem. People often say they KNOW that the title is clear because their relative or friend told them so, or paid their bills on time, but that is not sufficient.
Buyer Beware #2: A power of attorney in Pennsylvania may require specific language in order to transfer a house or other parcel of land, condo or co-op shares, so it is a good idea to consult an attorney to determine if the power of attorney one wants to use is valid or has the current language required under the law. These concerns extend not just to description of an asset being transferred, but who is to receive the transfer, since if it is a gift, specific language is required. As the law regarding durable powers of attorney has changed over the last few years, any power of attorney should be reviewed and updated to take into account current laws.
Buyer Beware #1: Do not assume that a deed which is maintained at home or in a safety deposit box, or even filed with a government office, is the most recent deed on file. Fraud or forgery may have occurred, especially in Philadelphia, or numerous and conflicting deeds may be on file, or could have been executed before death and then filed post death. A government office will usually file any document and does not check its legitimacy or have the legal responsibility to do so. That is the reason that a formal title search is required.
Title or Title Insurance Issues:
Buyer Beware #1: When you buy or transfer a property, purchase formal title insurance to insure the search and transfer. Although a lender requires such insurance, in private sales or other instances title insurance is not required, but should still be purchased to protect the new buyer/owner. A reputable title company will represent you if litigation arises, and will take the time to solve any title or escrow issues that may arise. A reputable title insurance company may also agree to resolve or waive some issues regarding satisfaction of prior debts or liens, judgments or debts which are not legitimately on the report.
Real Estate Tax Issues:
Buyer Beware #1: DO NOT pay real estate taxes, or make an agreement to pay real estate taxes with a local government authority or its agent without first determining if you are the legal owner of the property. These entities will accept tax payments or make agreements with anyone, and they do not determine who is the legal owner of the property, and can’t be relied upon to protect your interest. People often assume that because they have been left the house via a will or inherit the property by law, they can transfer the title into their name without undertaking the required probate process. That is not correct. We have also encountered people who are paying taxes on property foreclosed upon by mortgage lenders or which has been sold at sheriff’s sale, and is no longer their property or their family’s property.
Buyer Beware #1: Just because you took care of an owner of the house does not automatically entitle you to more of a share of the house than any other heirs, when that owner dies. A family member is presumed to provide services out of love and affection and not for compensation absent an explicit written agreement addressing the scope of services and method of compensation.
Buyer Beware #2: Just because your name or one or both of your parent’s names are on a deed, does not mean that you automatically inherit the property as there may be faulty language in the deed stating that the parties are tenants in common and not joint tenants with the right of survivorship. If the deed language states “tenants in common” the deceased’s owners share passes to their estate and not to the other named person/people on the deed. Also, if one or more of the parties’ names in a deed are incapacitated or deceased, etc., a new deed cannot automatically be drafted. Similarly, if the deed was owned as a husband and wife, and there was a divorce, but there is no agreement or order dividing the property, it is automatically owned by each ex-spouse 50/50 and each 50% share passes to the respective spouse’s estate. This may create complex inheritance issues, so even if divorce counsel was retained for the divorce, an estate planning and real estate attorney should review the situation.
Buyer Beware #3: Inheritance tax may be due on a property that one inherits, if it bears a Pennsylvania address. Non-payment or late payment of inheritance tax can lead to interest and penalties, tax liens, and possible action by the Department of Revenue in removing the administrator/executor of the estate and other actions, and the inability to sell or transfer a property at a later date if the inheritance tax is not paid. Inheritance tax is different from other types of taxes, and people sometimes confuse them. Inheritance tax can also have deductions taken against the amount owed, and the amount owed may depend on a different property value than originally assumed, so it is a good idea to consult an attorney before paying inheritance tax.
Buyer Beware #4: If a deceased real estate owner was in a nursing home or received care at home paid for by a grant from the Department of Human Services under Medical Assistance or Medicaid, before his/her death, the property would likely have to be sold to reimburse the state for some payment, with some exceptions. An attorney should be consulted prior to signing any documents with a government entity for care of a relative or friend.
Buyer Beware #5: If you decide not to open an estate and just live in a house which you believe is yours, problems may arise with:
- Inheritance tax still being due and, if not paid, accruing interest and penalties or possible action by the Department of Revenue.
- An heir does not have the right to live in a house rent free for more than the first 6 months of someone’s death, which is subject to court review and changes in case law.
- Any improvements or repairs to the property may be considered gifts to co-heirs although they aren’t residing or supporting or improving the property.
- If more than 21 years pass and an estate must be opened, court approval is required.
- If one of the heirs of a house owner dies after the house owner dies, an estate needs to be opened for the deceased heir as well as the deceased house owner.
So, buyer beware. It is highly recommended that an ounce of prevention be taken by consulting an attorney.
Faye Riva Cohen, Esquire, President of the Law Office of Faye Riva Cohen, P.C., focuses her practice on labor, employment, civil rights, real estate and elder law. You can learn more about her firm here: www.fayerivacohen.com.
Faye thanks Adam S. Bernick, Esquire, for his contributions to this Blog post.