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Title Trouble: The Hidden Risks of Ignoring Property Title Issues

What Property Buyers Need to Know About the Contract for Sale #33: How Do I Address Issues with the Property’s Title?

Introduction

Addressing issues with a property’s title is a critical step in any property transaction in New South Wales (NSW). Title issues can range from minor discrepancies to significant legal defects that may affect the ownership, value, or use of the property. Understanding how to identify and resolve these issues is essential for both buyers and sellers to ensure a smooth and secure transaction. This section explores common property title issues, the legal implications involved, and practical steps for resolving these challenges in NSW.

Common Property Title Issues in NSW

  1. Boundary Discrepancies: Differences between the physical boundaries of the property and those described in the title can lead to disputes with neighboring property owners. These discrepancies may arise from errors in previous surveys or changes in the landscape over time.

  2. Unregistered Easements or Encumbrances: Easements or encumbrances not properly recorded on the title can affect the property’s use or value. These might include rights of way, utility easements, or covenants that impose restrictions on how the property can be used.

  3. Outstanding Mortgages or Liens: If previous owners have not settled their mortgages or debts secured against the property, these can remain as encumbrances on the title, affecting the new owner's ability to take clear ownership.

  4. Adverse Possession Claims: Adverse possession occurs when a person occupies land without the permission of the legal owner for a specified period and seeks to claim ownership. This can create legal challenges for both buyers and sellers.

  5. Forgery or Fraud: In rare cases, titles may be affected by forgery or fraudulent transfers, which can complicate the transfer of ownership and require legal action to rectify.

  6. Subdivision or Zoning Issues: Titles may have restrictions related to subdivision or zoning that may affect the buyer’s plans for development or use of the property.

Legal Implications of Property Title Issues in NSW

Several legal implications arise when dealing with property title issues in NSW:

  1. Contractual Obligations: Under NSW property law, sellers are generally required to provide a clear title free from defects unless otherwise specified in the contract of sale. Failing to do so may constitute a breach of contract.

  2. Right to Compensation: If a buyer discovers a title defect after settlement that was not disclosed by the seller, they may have the right to seek compensation or rescind the contract, depending on the severity of the defect and the terms of the contract.

  3. Land Titles System: NSW operates under a Torrens Title system, where the state guarantees the accuracy of the title. However, if errors are discovered, the affected parties may need to apply for compensation under the Torrens Assurance Fund.

  4. Litigation Risks: Title disputes can lead to litigation, which is often time-consuming and expensive. Engaging legal professionals to address issues early can help minimize the risk of disputes escalating to court.

Steps to Address Property Title Issues in NSW

To effectively address issues with a property’s title, buyers and sellers should take the following steps:

  1. Conduct a Title Search: Start by conducting a thorough title search through the NSW Land Registry Services (NSW LRS). This search will reveal the property's current ownership details, any registered interests, and encumbrances.

  2. Engage a Solicitor or Conveyancer: Hiring a solicitor or conveyancer specializing in property law is crucial for identifying and resolving title issues. They can provide expert advice on legal obligations, potential risks, and strategies for resolution.

  3. Obtain a Survey Report: If boundary discrepancies are suspected, commission a licensed surveyor to prepare a survey report. This report will help clarify the property's exact boundaries and identify any encroachments or discrepancies.

  4. Negotiate with Affected Parties: If the title issue involves neighboring properties, engage in negotiations with the affected parties to resolve disputes amicably. This may involve adjusting boundaries, creating easements, or compensating for any loss or inconvenience.

  5. Rectify Title Defects: Work with your solicitor or conveyancer to rectify any defects in the title. This may include registering easements, releasing encumbrances, or correcting errors in the title records.

  6. Apply for Compensation: If the issue relates to an error in the Torrens Title register, consider applying for compensation from the Torrens Assurance Fund. This fund provides compensation to parties who suffer financial loss due to errors or omissions in the land title register.

The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.

Case Study: Resolving Property Title Issues in NSW – A Complex Boundary Dispute

Case Overview

In the case of Watson v. Lee [2021] NSWSC 682, a boundary dispute resulted in a protracted legal battle that highlighted the importance of addressing title issues before completing a property transaction. The property, a three-bedroom home in the Blue Mountains, was purchased by Mr. Watson for $950,000. After settlement, he discovered that a portion of the land described in the title overlapped with his neighbor's property.

Behaviour of the Participants

Mr. Watson, unaware of the boundary discrepancy, proceeded with the purchase without conducting a detailed survey. His neighbor, Ms. Lee, claimed that a fence erected along the boundary did not accurately reflect the true property line. The dispute escalated when Ms. Lee sought to assert ownership over the contested strip of land, which included a valuable garden area and a section of Mr. Watson’s driveway.

Both parties engaged in heated negotiations, but the discussions quickly broke down due to conflicting survey reports and a lack of clear communication. The emotional stress of the dispute took its toll on both Mr. Watson and Ms. Lee, leading to a breakdown in neighborly relations and the initiation of legal proceedings.

Legal Process and Court Involvement

The dispute was brought before the NSW Supreme Court, where both parties presented evidence, including multiple survey reports and historical title documents. The court found that the original title contained an error in the boundary description, which was perpetuated through subsequent transactions.

The court ordered a new survey to determine the accurate boundary line and required both parties to adjust their property boundaries accordingly. Mr. Watson was also awarded compensation from the Torrens Assurance Fund to cover the costs of correcting the title and making necessary adjustments to his property.

Financial Consequences

The boundary dispute resulted in significant financial costs for both parties. Mr. Watson incurred legal fees of $40,000 and additional costs of $10,000 for a new survey and property adjustments. Ms. Lee also faced legal costs of $30,000. The protracted dispute negatively affected the value of both properties, as prospective buyers were deterred by the unresolved boundary issue.

Statistics

  • Title Disputes: Approximately 5% of property transactions in NSW involve title disputes, often related to boundary discrepancies or unregistered easements.

  • Cost of Title Searches: The average cost of a title search in NSW is between $15 and $30, while a comprehensive historical title search can range from $100 to $300.

  • Legal Fees for Disputes: Legal fees for resolving title disputes in NSW can range from $10,000 to over $100,000, depending on the complexity of the case.

  • Survey Costs: The cost of commissioning a survey in NSW typically ranges from $1,000 to $5,000, depending on the size and location of the property.

  • Compensation Claims: About 2% of property transactions in NSW involve compensation claims from the Torrens Assurance Fund due to title errors or omissions.

  • Average Resolution Time: The average time to resolve a title dispute in NSW courts is 6-12 months.

  • Boundary Discrepancies: Around 3% of property transactions in NSW reveal boundary discrepancies during the due diligence process.

  • Use of Conveyancers: Approximately 85% of buyers and sellers in NSW engage conveyancers or solicitors to handle property transactions and resolve title issues.

  • Impact on Property Value: Properties with unresolved title issues can experience a 10-20% reduction in market value.

  • Title Insurance: About 60% of buyers in NSW purchase title insurance to protect against potential title defects.

Government Resources

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