The Importance of Recording Real Property Documents
Note: This podcast is no longer available, but please see below for the transcript of the podcast.
What I’m going to be talking about today is how crucial it is to record documents that affect real property. And so to do that, and to illustrate why it’s so important, I’m going to tell a story here. And so I want you to use your imagination as I expound on some of these facts that will hopefully make more clear why recording real property documents can help avoid such enormous issues down the road.
So imagine that you look for a property. Say somewhere rural, maybe up in the mountains, you’re looking for a spot where your family and friends can meet up, go camping, hunt, have a nice view spot, and all the other things that people like to do when they buy some acreage, especially around here in North Idaho and Eastern Washington. So now maybe financing isn’t an option for whatever reason. So the seller carries the loan, you pay the seller month-by-month for say 10 or 20 years to buy the property. Meanwhile, the deed to the property is being held in escrow at a bank or a title company.
Somewhere in the contract says, once you make all the payments, the bank will send the deed to you. So you faithfully make the payments on time. You visit the property like you expected, and you start making memories there with the people you love. All the while, the way you’re getting to and from the property is by a private road that your purchase contract says you have the right to use. In fact, the purchase contract and the deed that’s being held in escrow say that you have a legal easement right to use the road to get to-and-from the property. So you and all your visitors use this road when you’re going to the property and all seems well. Next, you make the final payment after 10 or 20 years. Congratulations, your hard work and financial discipline is paid off. Your bank takes your deed out of escrow and sends it to you in the mail. You’re now the legal owner of the property. And your deed says you have a road easement over part of the property next door so that you can continue to access your property. Your 10 or 20 year investment has succeeded.
So you take the deed and what do you do with it? Well, you put it in a drawer somewhere. That’s what people do with their property deeds, right? It makes sense. If we ever need it for some reason, we can just pull it out of the drawer and there won’t be any problem. The person who sold you your property also owns the property next door, and he doesn’t object to you continuing to use the road. After all, he intended for you to have an easement for the road. He eventually sells the property and a couple of other owners take over. Neither of them have any issue with you using the road. They might not even know about it, since the properties in this area are many acres.
But unbeknownst to you, after several years, the property next door is sold again, this time the property goes to an out-of-state buyer. Like most normal people, you don’t keep a close watch on the local property records. So you don’t know who the new owner is. And for a while, it doesn’t matter. The new owner next door doesn’t have any immediate plans to occupy or develop the property. Some years pass and things continue as before. Now your kids have grown up and they’re bringing their own kids to the property they enjoyed when they were growing up. You can happily anticipate the property staying in the family, perhaps for generations.
Then suddenly, everything turns upside down. What happens? The new owner next door from out-of-state comes up and wants to develop his property. He sees you and your family using a private road over part of his property. He looks in the land records for his property to see if you have a legal easement. He doesn’t find anything. Now, why doesn’t he find anything? Doesn’t your deed state in plain English that you have an easement on his property? it very well may. But remember, you just put your deed in the drawer. You never filed the deed with the County Recorder’s office. And because you didn’t file it in the County Recorder’s office, it did not become part of the County property records.
Now, what’s the big deal about the County property records? How do those records affect your property rights? Here’s how. It turns out once you talk to a lawyer, that the County property records create what’s called legal notice or constructive notice of legal property rights. These property rights include easements as well as things like restrictive covenants, shared well, agreements and so on. They don’t teach any of that in school. I certainly didn’t know about it until law school. And the idea of having to file your property deed with the county is not intuitive to most. The issue doesn’t always come up, because real estate closings usually happen at a title company, which then has the deed recorded. But in this case, however, the deed hadn’t been recorded. As a result, the easement written into the deed did not create legal notice to the person who bought the property next door. And that started the legal nightmare.
You can probably tell already that this story isn’t just hypothetical. It actually happened to some of my clients. And it was the basis of a legal dispute that went on for about three years, including almost two years in the court system. The cost to everyone involved ended up being in the $10,000’s of dollars, a cost that could have been avoided had my clients been aware that their deed should have been recorded.
Now, you might wonder if they were using the road for that long, wouldn’t the law just say they have grandfathered rights to keep using it. This is also referred to legally as a prescriptive easement. In this case, however, the court found no prescriptive easement. The reason the court didn’t find a prescriptive easement was because a prescriptive easement requires that the person using the road have started doing so without the other property owner’s permission. But in this case, remember that my clients easement was included in their deed in writing. By putting an easement in their deed, the previous property owner had given my clients permission to use the road. Therefore, because their use of the road had begun with the permission of the owner, my clients were held not to have a prescriptive easement. In other words, what some might call a quirk in the law denied them a prescriptive easement.
The whole reason they had to argue a prescriptive easement in the first place was because they hadn’t recorded their deed and therefore did not have legal notice, or did not create legal notice of the easement contained in their deed. Further, my client’s property bordered a couple of public roads. Therefore, it was going to be hard to argue that they were legally “landlocked,” without an easement over their neighbor’s road. Even though in practice, the topography of the area made it difficult for them to actually use either road for access, at least not without paying significant money to an excavator to flatten land and build a new entrance into their property. Getting the proper permitting for a new road would have been another issue as well.
Now, somewhat happily, my clients weren’t completely sunk. They were lucky in that there was evidence in the case that their use of the road had been openly apparent enough that the new property owner was reasonably put on notice of it before he bought his property. This evidence helped bolster their case and lead to a resolution where ultimately they were able to get a formal written easement signed by the owners of the property next to them. And you had better believe that once we had all the signatures on that document, I promptly went and had it recorded at the County Recorder’s office!
Although they can still use the road today, the legal process they went through was an avoidable heartache that stretched on for a long time. Although the consequences I described can be severe, the lesson is quite simple. Whenever you have a document that affects ownership or use of land, the best course is to take that document to the County Recorder’s office, or as it is sometimes called in Washington State counties, the Auditor’s office. The recording of the document creates the legal notice or constructive notice that I mentioned earlier, so that if someone else comes along, like my client’s new next-door neighbor in the case I discussed, they won’t be able to argue that the document doesn’t apply to them.
Although I recommend recording for all documents affecting rights to real property, it is particularly important in the world of easements, restrictive covenants, and shared well or septic agreements. These are some of the types of documents that tend to burden certain properties for the benefit of other properties. For example, an easement is generally going to burden tract a to create an access to tract B; or a shared well agreement might burden the property that has the well on it in favor of other properties who are given right to use the well and run water lines on it; a septic agreement might burden the property that has a drain field on the land and give other properties in the surrounding area, the right to also use that drain field. And so these are agreements that for the people whose property is burdened, it is not always something they want to be a part of. And so because these documents tend to burden certain properties for the benefit of others, the owners of the burdened property might look for any way they can to get out from what the document requires from them. They might even go as far as to hire an attorney just to say, is there anything that I can do to cancel this or to tell these people that they’re not allowed on my property, they’re not allowed to use my well, etc. If it turns out that the document wasn’t properly recorded to create legal notice, they could have their out that leaves everyone else high-and-dry.
Therefore, recording real property documents is critical. And it’s simple. Simply take the original signed and notarized document to the County Recorders office, along with the check for the applicable fee. Doing that upfront can save a lot of trouble, both financial and mental, down the line. And it helps to keep a clean property record so that when you’re marketing, selling, or buying property, all the people involved in the transaction can know as much as possible, what exactly it is that they’re getting. And that creates a smoother transaction and a smoother real estate market for everybody. Thank you.
This episode is sponsored by Timely Contract. Buying real estate is the most complex and important financial transaction in most people’s lives. It’s estimated that over 60% of American wealth resides in the family home. For small- to medium-sized businesses, a commercial building may be the biggest asset on the company’s balance sheet. With so much on the line, don’t make a mistake on the buy. Know what you’re buying before you sign. If you have signed, find out exactly what you’ve signed.
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