“Pay now or pay later.” That was a famous Midas Muffler commercial slogan. It also applies to real estate transactions.

One home buyer (“Betsy”) was told by the real estate agent that the home had a septic system. Two (2) years after the purchase, the next door neighbor (“Fred”) was banging on Betsy’s front door demanding that Betsy pay Fred for half of the cost to repair the septic system. For the first time, Betsy found out that she did not have a septic system on her property. Fred then cut off Betsy’s use of the septic system, causing flooding of sewage into Betsy’s home, ruining her wood floors and causing Betsy plenty of grief.

Betsy had a home inspection before buying. The home inspector probably just flushed the toilets for the extent of his sewerage inspection. Betsy should have obtained a separate septic tank inspection. Then the septic tank inspector would have looked for the septic tank and discovered it was not on Betsy’s property.

After Betsy came to see me, I thought to look for an easement that may have given Betsy the right to use the septic system on the neighbor’s property. Betsy did not have her Owner’s Policy of Title Insurance, so I ordered the policy from the closing agent. There it was – a Declaration of Restrictions requiring the home owner and the neighbor to obtain a maintenance contract with a third party approved by the Department of Environmental Protection to regularly inspect the septic system.

Why did the closing agent, a law firm, not review the exception in the title policy for the Declaration of Restrictions so the new homeowner would then at least know she did not have her own septic system? That is why home buyers need to understand the need for and the language in title policies. That is also why home buyers need to have their own attorney knowledgeable in real estate transactions to review the (a) contract before signing it, (b) the title Commitment, and (c) the closing documents. For an explanation of a title Commitment, see my Article titled “Is the High Bid the Real Price.”