How to assign a contract when an unrecorded easement is discovered

What an unrecorded easement means for your contract

An unrecorded easement is a legal right to use a portion of someone else's land for a specific purpose, like a shared driveway or utility access, that has not been formally recorded in public records. This means it might not show up on a standard title search. Its discovery can impact property value and usability.

When you are assigning a contract, the unrecorded easement affects the underlying property. Your buyer will inherit this issue. His or her willingness to proceed will depend on the nature of the easement, its impact, and whether it can be resolved or formally recognized.

Not legal, tax, or financial advice: This content is for informational purposes only. Consult with qualified professionals for specific legal and financial decisions.

Due diligence: how to uncover hidden easements

While an unrecorded easement will not appear in a standard title report, clues can emerge during physical inspections or from conversations. Always ask the seller about any arrangements with neighbors, shared utilities, or historical uses of the property. He or she might know about it without understanding its legal implications.

Look for physical evidence during your property walkthrough: faint paths, utility boxes on the edge of the property, or shared fences. A thorough survey can sometimes reveal these, but even a survey might not catch every informal agreement. Neighbors can also be a source of information about how a property has been used historically.

Assessing the impact on the property and end buyer

Once an unrecorded easement is discovered, you need to understand its scope. Is it a minor utility access that rarely gets used, or is it a shared driveway that significantly impacts privacy or future development? The more intrusive the easement, the harder it will be to assign the contract without a significant price adjustment.

Your end buyer will need to be fully aware of the easement. For a fix-and-flipper, it might affect his or her ARV calculations or design plans. For a buy-and-hold investor, it could impact tenant privacy or property management. Transparency is key here to avoid future disputes.

Negotiating with the seller and adjusting the deal

Bring the information about the unrecorded easement to the seller. He or she might not have known about it, or he or she might have simply forgotten to mention it. This is an opportunity to renegotiate your purchase price if the easement significantly diminishes the property's value.

If the seller is unwilling to adjust the price or resolve the issue, you might need to decide if the deal is still worth pursuing. Sometimes, the best option is to walk away if the risk is too high or the impact too great for your target buyers.

Structuring the assignment contract with the new information

When assigning a contract with an unrecorded easement, full disclosure to your end buyer is paramount. The assignment agreement should explicitly mention the discovered easement and any known details about it. You might want to include an addendum to the original purchase agreement.

Your end buyer will likely want to consult with his or her own attorney or title company to understand the risks. He or she might request an indemnity clause or a further price reduction. Ensure all parties understand the implications, and consider having an attorney review the new terms before closing.