The Standard Forms 2-T and 12-T Offers to Purchase and Contracts used in North Carolina describe what duties the seller has with regards to the title conveyed with closing. That information is contained in Section 8(g) of Form 2-T and 6(g) of Form 12-T, both of which contain the same language. There are a handful of different topics that could be discussed from this section, but I’ll be focusing on material defects to title. Those sections state Seller shall execute and deliver a deed conveying title “free of other encumbrances or defects that would materially affect the value of the Property, including those which would be revealed by a current and accurate survey of the Property.” (emphasis added).
Prior to the addition of the “materially affect” language, even relatively slight defects to title could cause arguments as to whether a seller is in breach of the contract if not cured by expiration of the contract. That “materially affect” language is useful for preventing fights over relatively insignificant defects, but has added a new layer of grey area to what could be considered a breach of contract due to title defect. Which title defects “materially affect” the value of the property? A 5 foot fence encroachment? An overlapping boundary between the Property and neighboring property? Encroachment of a shed into an easement area on the Property? Well, it all depends on the value of the property and the nature and extent of the defect. If you’re purchasing a half-acre lot and a survey shows that the neighboring property boundary causes an overlap that is a quarter-acre in size, that would almost certainly materially affect the value of the property (especially if the overlap area encompasses structures on the property). If you’re purchasing a property and the fencing encroaches 3 inches on to the neighboring property, that would almost certainly not have a material affect on the value of the property. What if that 3 inch encroachment involves a concrete pad instead of just fencing? That wouldn’t be as easy to assess as something more easily removed like fencing. There are countless possibilities for defects to title, each of which would need assessed on a case-by-case basis.
At the end of the day, a judge or jury would be the ones figuring out whether a defect materially affects the value of the property. As such, any assessment of a title defect should use an objective standard – not just the subjective view of the parties to the contract. Would a reasonable person, not a party to the contract, conclude the defect materially affects the value of the property? Seasoned attorneys can give you well thought-out and reasoned advice on whether title is acceptable for closing as-is or if defects materially affect the value of the property from an objective standpoint. Additionally, they can help set expectations as to whether a defect is significant enough to force the sellers to cure or if you may be reaching too far in trying to force sellers to address a defect ahead ofclosing.
The thought of purchasing a property with a title defect can cause a lot of stress, but having the right attorney can help you rest easy.
