Insuring Your Dream Does Not Become a Nightmare

Little can compare to finding, loving and anticipating the conversion of a dream to reality, only to find out after you receive your deed that a neighbor can cross your new land under an old easement, or that somebody upstream can “make a call” on the water rights and dry up your creek.

The discovery that sparkling blue, fish-filled ponds are impossible because the soil is too permeable or that the water right cannot be diverted is not pleasant.

If that sounds extreme, consider this:

• What if an environmental hazard lingers from long ago and was never disclosed?
• What if that problem precludes financing or insurance, or festers with potential physical danger and tremendous liability?
• What if an adjacent property owner announces plans for a four-hundred-unit subdivision after your closing?
• What if the seller retains some rights or even a piece of property you believed was included in your purchase?
• How about an announcement that eighteen-story metal monster power transmission towers are going to be marching across your land?

The fact is you cannot be diligent enough in searching for any possible future problem. An experienced realtor, a knowledgeable real estate attorney who understands water and finance, a good surveyor and your own CPA are vital core members of such a team. For larger purchases, you need to consider having a land-and-resource consultant, an attorney schooled in mineral rights and other specialists.

Even then, be prepared to encounter some surprises. Get your team vested in your vision and excited about the land. They will be invaluable throughout the period of your ownership. A carefully drafted purchase agreement must clearly set forth all matters that the seller must disclose and that you wish to research and investigate.

The “Buy/Sell” or “Purchase and Sale Agreement,” as it is commonly referred to, is the first formal step in the process.

Certain states or Canadian regions are “contract” jurisdictions. Others are “escrow” locations. Areas that require escrow transactions also require an attorney to draft the Purchase and Sale Agreement.

The Broker prepares only the “Binder,” an outline of the contract details. In contract negotiations, the realtor prepares the contractor oversees contract preparation. Many realtors in contract states or provinces are averse to using attorney-drawn contracts or forms that are different from the standard approved forms of the real estate commissions of the various states and provinces.

Many sellers lack the experience to trust an attorney drawn contract. There is nothing wrong with using a standard real estate form, so long as it is relevant for the farm, ranch, vacant or rural ground. However, do not attempt to buy a ranch or rural property using a residential house contract. The printed real estate forms must be as carefully perused as any other document.

The Team

Create and consult your team, but remember that your advisors can only do so much. The team is not the buyer of the property—you are. While the team members may offer great insight and enthusiastic support, never forget that it’s your money that is being spent to achieve your dream.

In addition to review by the team, read every document yourself. If using a pre-printed format, pay attention to the numerous little boxes that allow the seller or buyer to elect certain rights or confer certain obligations and liabilities (see Green for Green workbook). If you have a buyer’s broker with whom you have a Buyer’s Agency Agreement, that’s great!

A qualified broker experienced with land can be your first line of defense. He or she can bring invaluable experience to the purchase equation. Residential realtors typically do not have the specialized knowledge necessary for most land transactions.

Remember that the seller’s agent or broker owes their allegiance and agency by law to the seller, not to you.

If you are not represented by a buyer’s broker, or if you decide not to assemble a full acquisition team, I highly recommend that you at least have competent real estate counsel domiciled and licensed within the same state, and preferably the same county as the property you wish to purchase. There is no substitute for local knowledge, network, and contacts.

Do not sign any purchase agreement without having it reviewed by your attorney and buyer’s broker. A seemingly innocuous detail or an inconspicuous term can be the cause of severe post-contract regret.

Don’t be afraid to add special provisions or conditions to your contract. Don’t be too bashful to ask for something you want, or too lackadaisical to care. Don’t blow off an opportunity to get things right at the very outset. Additional provisions or conditions can be suited to your needs and goals, to your financial reality and long-term plan for the property (see Chapter 14). If you employ a standard-form contract, these matters can be set forth in the “Additional Provisions” section.

If the selling broker whines that there is only so much space on the preprinted form, look him or her in the eye and say, “Then let’s add some additional provision pages as an addendum or a continuance of the Additional Provisions Section.”

The contingencies section of the contract and any additional provisions are your primary contractual shields. These sections allow you to investigate the land, the title and a host of other matters. This affords you and your team a chance to perform the due diligence necessary to avoid wrecks and ensure that the property can actually fulfill your short and long-term goals. It is primarily these clauses that allow you to exit the contract with a full refund of your earnest money if your investigation reveals problems or contingencies that cannot be met.

The basic criteria of a sound purchase agreement includes price, terms, finance, place, and date of closing, conditions, contingencies and additional provisions.

However, layered into each of these basic contractual components are a myriad of advantageous or disadvantageous details. Many times it is the details that make or break a deal, ensure long-term success or cement eventual failure. These details can protect you from unsavory circumstances; for instance, if the seller were to attempt to void your contract and sell the property to someone else, effectively leaving you high and dry, or refuse to return your earnest money. These details can also protect you if the property does not check out based on your due diligence research.

 (see Chapter 4 in the book for more on Land Contracts and Agreements).

The Property Title: Pay Attention!

Matters of title are critical. Many, though not all, of the countless possible “clouds” that can hover over land title issues are listed in the Green for Green workbook, along with a sample Title Insurance Commitment.

A few examples include:

• Who owns the underlying mineral rights?
• Are these leased? To whom?
• Is there access, utility or other easements, or reservations for certain types of uses by others?
• Do the sellers own the entire property or just a portion?
• Do they have the full legal authority to sign your deed?
• Is there a break in the chain of title over the years or centuries?
• In other words, could some owner prior to your seller assert a claim?

I highly recommend experienced legal review of the title conditions and the documents that evidence those exceptions. The Contract process is a curious mixture of challenges, short- and long-term thought, satisfaction and, at times, frustration. Patience, an even temper, team coordination and comprehension of seller motivations are all keys to finally getting an agreement inked. If the seller becomes intractable on truly key issues, or something in your gut warns you, then walk away.

Otherwise, remember the moment the land called to you, smile, enjoy this fascinating process and get it done. If you feel your energy waning under the weight of lifting these “due diligence” rocks, take a deep breath and reconnect with the magnetic pull of the land that inspired you in the first place. Let the energy of the land refuel you and remind you of your dream.

Are You Interested in Being a Land Owner?

Yes, I am a cowboy and a rancher. But, I am also a business man. Land for Love and Money is based on my forty-year, 5000+ transaction, one billion-dollar-plus career, and experiences with the land of all various sizes and uses, in numerous states and three countries on two continents. The book teaches anecdotally. True stories of my personal experiences or situations I have personally encountered or observed form the instructional template. I pull no punches. The good, the bad, the ugly, and the inconceivable are all set forth in easy-to-read entertaining and informative novel-like form.

Some of these anecdotes will make you laugh. Some will anger you; others will fill you with incredulity. Whatever the size, type or location of your land, this book will teach through tales of success and failure, great concepts brought to fruition and times when macro external or unanticipated events –or mistakes—cause the finest of ideas to flounder. They are meant to make you money, save you risk and increase your enjoyment of your land by example.

Make sure to get your copy of Land for Love and Money!