How do hard money lenders view unrecorded property easements?

What is an unrecorded easement?

An easement grants someone the right to use another person's land for a specific purpose. Common examples include utility companies having access to repair lines or a neighbor having a right-of-way across a portion of your property. An "unrecorded" easement means this right is not officially documented in public records.

These can arise from long-term use (prescriptive easements), implied agreements, or necessity. The lack of official record makes them tricky because they might not show up on a standard title search.

Why lenders care about unrecorded easements

Hard money lenders, like all lenders, want clear title to the property serving as collateral for their loan. An unrecorded easement creates a potential cloud on the title. It introduces uncertainty about ownership rights and could diminish the property's value or marketability.

If the lender has to foreclose, an existing unrecorded easement could make it harder to sell the property quickly or for its full value. This directly impacts their risk assessment.

How to uncover potential unrecorded easements

Since unrecorded easements don't appear in public records, you need to dig deeper. Talk to the seller and neighbors about historical property use or agreements. Look for physical evidence on the property, such as utility lines crossing a yard where no official easement is recorded, or a well-worn path to a neighboring property.

A current land survey can also reveal potential issues. A good surveyor might notice discrepancies between the property lines and how the land is actually used. This due diligence is crucial before you commit to a purchase.

Resolving unrecorded easements before funding

If you discover an unrecorded easement, you typically have a few options to resolve it, but this is not legal advice. One common approach is to negotiate with the party benefiting from the easement to formally record it or, if possible, to terminate it. This often involves legal counsel to draft and record the necessary documents.

In some cases, a "quiet title action" might be necessary to formally establish clear ownership and address any unrecorded claims. This is a legal process, and you should definitely consult with a real estate attorney for guidance on any such action.

Presenting the situation to your hard money lender

Transparency is key. If you identify a potential unrecorded easement, bring it to your hard money lender's attention early in the process. Explain what you've found and, more importantly, what steps you are taking to resolve it.

Having a plan to clear the title, along with a timeline and estimated costs, will demonstrate your diligence and commitment. Lenders appreciate honesty and a proactive approach to resolving issues that could affect their investment.

Legal disclaimer

This content is for informational purposes only and is not legal advice. Real estate laws, including those related to easements and title, vary significantly by state and jurisdiction. You should consult with a qualified real estate attorney for advice tailored to your specific situation and property.